MGT. 406- STRATEGIC MGT.

CHAPTER 5. Types of Strategies

5.1 Benefits and drawbacks of merging with another firm
5.2 Characteristics of Strategy
5.3 The value of establishing long term objectives
5.4 Different types of business strategies.
5.5 Numerous example of organization pursuing different types of strategies.
5.6 Guidelines when particular strategies are most appropriate to pursue.
5.7 Porter’s five generic strategies

TYPES OF STRATEGIES
Strategy is an action that managers take to attain one or more of the organization's
goals. Strategy can also be defined as “A general direction set for the company and its
various components to achieve a desired state in the future. Strategy results from the
detailed strategic planning process”.

Three Types of Strategy

Within the domain of well-defined strategy there are uniquely different strategy types,
here are three:
1. Business strategy
2. Operational strategy
3. Transformational strategy

It is worth noting, that a common consideration across different types of strategy are
people, process, and technology.  Without this, strategy is a set of lofty ideas,
ungrounded in reality.

1. Business Strategy
The first of the three types of strategy is Business. It is primarily concerned with how a
company will approach the marketplace - where to play and how to win.
Where to play answers questions like, which customer segments will we target, which
geographies will we cover, and what products and services will we bring to market.

How to win answers questions like, how will we position ourselves against our
competitors, what capabilities will we employ to differentiate us from the competition,
and what unique approaches will we apply to create new markets.
Senior managers typically create business strategy. After it is created, business
architects play an important role in clarifying the strategy, creating tighter alignment
among different strategies, and communicating the business strategy across and down
the organization in a clear and consistent fashion.

Executives are just beginning to bring advanced, highly credible business architecture
practices into the strategy discussions early to provide tools, models, and facilitation
that enable better strategy development.

2. Operational Strategy
The second of the three types of strategy is Operational. It is primarily concerned with
accurately translating the business strategy into a cohesive and actionable
implementation plan. Operational Strategy answers the questions:

 Which capabilities need to be created or enhanced?

 What technologies do we need?
 Which processes need improvement?
 Do we have the people we need?

The vast majority of business architects are currently working in the operational strategy
domain reaching up into the business strategy domain for direction.
They work from the middle out to bring clarity and cohesiveness to the organization’s
operating model typically working vertically within a single business unit while resolving
issues at the business unit boundaries.

More mature business architecture practices work in multiple verticals or move from one
vertical to another creating common business architecture patterns.

3. Transformational Strategy
The third of the three types of strategy is Transformational. It is seen less often as it
represents the wholesale transformation of an entire business or organization.

This type of strategy goes beyond typical business strategy in that it requires radical
and highly disruptive changes in people, process, and technology.

Few organizations go down this path willingly.

Transformational strategy is generally the domain of Human Resources, organizational
development, and consultants.
These efforts are incredibly complex and can experience significant benefit from
applying business architecture discipline though it is rare to see business architects
playing a significant role here.

Bottom line:
Not all strategy work is the same. Each strategy type creates a unique role for the
business architect requiring a different approach and skill set. Business architects who
are successfully delivering in one role should be actively developing the skills they need
to move into other strategy domains.
5.1 BENEFITS AND DRAWBACKS OF MERGING WITH ANOTHER FIRM

What is Merger?
A merger is a corporate strategy to combine with another company and operate as a
single legal entity. The companies agreeing to mergers are typically equal in terms of
size and scale of operations.

Why do Mergers Happen?

 After the merger, companies will secure more resources and the scale of
operations will increase.
 Companies may undergo a merger to benefit their shareholders. The existing
shareholders of the original organizations receive shares in the new company
after the merger.
 Companies may agree for a merger to enter new markets or diversify their
offering of products and services, consequently increasing profits.
 Mergers also take place when companies want to acquire assets that would take
time to develop internally.
 To lower the tax liability, a company generating substantial taxable income may
look to merge with a company with significant tax loss carry forward.
 A merger between companies will eliminate competition among them, thus
reducing the advertising price of the products. In addition, the reduction in prices
will benefit customers and eventually increase sales.
 Mergers may result in better planning and utilization of financial resources.

Types of Mergers
1. Congeneric/Product extension merger
Such mergers happen between companies operating in the same market. The merger
results in the addition of a new product to the existing product line of one company. As a
result of the union, companies can access a larger customer base and increase their
market share.

2. Conglomerate merger
Conglomerate merger is a union of companies operating in unrelated activities. The
union will take place only if it increases the wealth of the shareholders.

3. Market extension merger

Companies operating in different markets, but selling the same products, combine in
order to access a larger market and larger customer base.

4. Horizontal merger
Companies operating in markets with fewer such businesses merge to gain a larger
market. A horizontal merger is a type of consolidation of companies selling similar
products or services. It results in the elimination of competition; hence, economies of
scale can be achieved.

5. Vertical merger
A vertical merger occurs when companies operating in the same industry, but at
different levels in the supply chain, merge. Such mergers happen to increase synergies,
supply chain control, and efficiency.

Benefits of Merging with another Firm

When looking at mergers it is important to look at the subject on a case by case basis
as each merger has different possible benefits and costs – depending on the industry
and firms in question.

 Increases market share \Penetrate a New Market

When companies merge, the new company gains a larger market share and gets ahead
in the competition.

Successful businesses have identified a need in a market and they need to fulfill that
need. A similar business that wants to build its market share benefit in a merger.
Penetrating a new market includes gaining a new geographical area or a specific niche
in an industry. A company seeking to expand its business in a certain geographical area
may merge with another similar company operating in the same area to get the
business started.

One of the more common motives for undertaking M&A is increased market share.
Historically, retail banks have looked at geographical footprint as being key to achieving
market share and as a result, there has always been a high level of industry
consolidation in retail banking (most countries have a group of “Big Four” retail banks.
A good example is provided by the Spanish retail bank Santander, which has made the
acquisition of smaller banks an active policy, allowing it to become one of the largest
retail banks in the world.

Another example, a successful European technology company might merge with a

similar North American company so that they may gain access to the American market.
This strategy works on a large international scale and also on a small community scale.
A sandwich shop might merge with another sandwich shop in a neighboring town to
establish a chain and to build a larger brand.

 Reduces the cost of operations

Companies can achieve economies of scale, such as bulk buying of raw materials,
which can result in cost reductions. The investments on assets are now spread out over
a larger output, which leads to technical economies.

 Improve Financial Power

When companies grow, they are able to benefit from economies of scale, meaning the
cost to produce and distribute the same item reduces as the market share increases.
Additionally, as companies merge, overall revenues increase, making the end company
much stronger financially to obtain credit, investors and strategic alliances.
A major requirement for business loans is revenue thus the higher revenue resulting
from the merger creates a positive cash flow and credit scenario for companies. This
allows the merged company to grow faster with capital investment for development,
marketing and talent.

 Prevents closure of an unprofitable business

If a firm has been badly managed, it could find itself going out of business. A merger or
a takeover may be a way for the firm to survive and many jobs to be saved.

 Network Economies
In some industries, firms need to provide a national network. This means there are very
significant economies of scale. A national network may imply the most efficient number
of firms in the industry is one. For example, when T-Mobile merged with Orange in the
UK, they justified the merger on the grounds that:
“The ambition is to combine both the Orange and T-Mobile networks, cut out
duplication, and create a single super-network. For customers, it will mean bigger
network and better coverage, while reducing the number of stations and sites – which is
good for cost reduction as well as being good for the environment.”

 Product Innovation, Research and Development.

In some industries, it is important to invest in research and development to discover
new products/technology. A merger enables the firm to be more profitable and have
greater funds for research and development. This is important in industries such as drug
research, where a firm needs to be able to afford many failures.
Product development is expensive and risky. In a merger scenario, the larger company
should have a higher valuation and be better positioned to develop new products. This
is common in the pharmaceutical industry where small start-ups developing one or two
new products are unable to fund research, testing and regulatory compliance over
extended time frames.
By merging, the smaller company benefits from the research and finances of the larger
company to continue to develop new items. The larger company benefits from getting
developed products that have already met the desired level of success.

 Economies of Scale
Underpinning all of M&A activity is the promise of economies of scale. The benefits that
will come from becoming bigger:
-Increased access to capital,
-lower costs as a result of higher volume,
-better bargaining power with distributors, and more.
While buyers should always avoid the temptation to indulge in ‘empire building,’ as a
general rule, bigger companies usually enjoy advantages that small companies do not.

 Other economies of scale

Two smaller firms producing Q1 would have average costs of P1. A merger which led to
a firm producing at Q2 would have lower average costs of P2.
The potential economies of scale that can arise include:
-Bulk buying – buying raw materials in bulk enables lower average costs
-Technical economies – large machines and investment is more efficient spread over a
larger output.
-Marketing economies – A tech firm bought by Google may benefit from Google’s
expertise and brand name.

Examples of economies of scale.

-In a horizontal merger, economies of scale can be quite extensive, especially if there
are high fixed costs in the industry. For example, aeroplane manufacture is now
dominated by two large firms after a series of mergers.
-If the merger was a vertical merger (two firms at different stages of production)
or conglomerate merger, the scope for economies of scale would be lower.

 Avoid duplication
Too many bus companies can cause congestion – would one be more efficient?
Some companies producing similar products may merge to avoid duplication and
eliminate competition. It also results in reduced prices for the customers.

In some industries, it makes sense to have a merger to avoid duplication. For example,
two bus companies may be competing over the same stretch of roads. Consumers
could benefit from a single firm with lower costs. Avoiding duplication would have
environmental benefits and help reduce congestion.
 Regulation of Monopoly
Even if a firm gains monopoly power from a merger, it doesn’t have to lead to higher
prices if it is sufficiently regulated by the government. For example, in some industries,
the government have price controls to limit price increases. That enables firms to benefit
from economies of scale, but consumers don’t face monopoly prices.

 Better Fulfill Consumer Needs

Business leaders always need to consider the consumer's experience with the company
and its products or services. A merger should function to better serve the existing
customer base of the companies. Many banks have merged with investment services
companies to broaden the financial services available to customers.
An example of this is Bank of America merging with Merrill Lynch. This type of merger
takes companies that target the same clients but offer non-competing services, giving
customers a one-stop-shopping experience with credible services.

 Key Personnel and Talent

Two companies might merge so that they get the benefit of leadership of key individuals
in the company. A small smartphone game-development company might find itself
wildly successful beyond expectations and it might feel unprepared to continue to serve
such a large market. Merging with another company that understands how to capitalize
on growing success gives the smaller company the ability to grow successfully and to
continue to deliver products without problems.
Ask anybody in the recruitment industry where the biggest talent shortages currently
are, and the answer will invariably be a variant of ‘people that can code’.

 Economies of Scope
Mergers and acquisitions bring economies of scope that aren’t always possible through
organic growth. One only has to look at Facebook to see that this is the case. Despite
providing users with the ability to share photos and contact friends within its platform, it
still acquired Instagram and Whatsapp. Economies of scope thus allow companies to
tap into the demand of a much larger client base.

 Synergies
Synergies are typically described as ‘one plus one equalling three’: the value that
comes from two companies working together in tandem to make something far more
powerful. An example is provided by Disney acquiring Lucasfilm. Lucasfilm was already
a huge cash generator through the Star Wars franchise, but Disney can add theme park
rides, toys and merchandise to the customer offering.

 Opportunistic Value Generation

Some of the best deals happen when a company isn't even actively pursuing an
acquisition. The hallmark of these acquisitions is that the purchase price is less than the
fair market value of the target company’s net assets. Often these companies will be in
some financial distress, but a deal can be made to keep the company afloat while the
buyer benefits from adding immediate value as a direct consequence of the transaction.

 Higher Levels of Competition

The larger the company, in theory, the more competitive it becomes. Again, this is
essentially one of the benefits of economies of scale: being bigger allows you to
compete for more. To take an example: there are currently dozens of upstart companies
entering the plant-based meat market, offering a range of vegetable-based ‘meats’.
But when P&G or Nestle begin to focus on this market, many of the upstarts will fall
away, unable to compete with these behemoths.

 Diversification of Risk
This goes hand-in-hand with economies of scope: By having more revenue streams, it
follows that a company can spread risk across those revenue streams, rather than
having it focus on just one.
To return to the example of Facebook: Some analysts suggest that younger eyeballs
are turning away from the social media giant towards other forms of social media…
Instagram and Whatsapp among them. When one revenue stream falls, an alternative
stream of revenue may hold, or even pick up, diversifying the acquiring company’s
risk in the process.

 Faster Strategy Implementation

Mergers and Acquisitions may be the best way to make a long-term strategy to become
a mid-term strategy. Suppose a company wants to enter the Canadian market; it could
build from the ground up and hope that it reached the desirable scale in five to ten
years.

Or it could a business, its client base, distribution, and brand value and benefit from
them all upon closing of the acquisition. This also goes for areas like new product
development and R&D, where an organic strategy can rarely match the speed provided
by M&A.

 Tax Benefits
Acquisitions can sometimes bring tax benefits if the target company is in a strategic
industry or a country with a favorable tax regime.
The example of US pharmaceutical companies looking at smaller Irish companies and
moving their headquarters to Ireland to avail of its lower tax base is a case in point. This
is referred to as a ‘tax inversion’ deal. The most well-documented version was a
proposed $160 billion merger between Pfizer and Allergan in 2016, subsequently
scuppered by US government intervention.

Conclusion
As this list shows, there are numerous benefits to good acquisitions. And what’s more,
the better constructed the deal, the more these benefits are likely to arise. Anybody
looking to put an M&A strategy into practice should consider which of these benefits
they’re most looking for from the acquisition when thinking about their motives for
buying.
Drawback of a Merger

1. Raises prices of products or services

A merger results in reduced competition and a larger market share. Thus, the new
company can gain a monopoly and increase the prices of its products or services.

2. Creates gaps in communication

The companies that have agreed to merge may have different cultures. It may result in
a gap in communication and affect the performance of the employees.

3. Creates unemployment
In an aggressive merger, a company may opt to eliminate the underperforming assets
of the other company. It may result in employees losing their jobs.

4. Prevents economies of scale

In cases where there is little in common between the companies, it may be difficult to
gain synergies. Also, a bigger company may be unable to motivate employees and
achieve the same degree of control. Thus, the new company may not be able to
achieve economies of scale.

Benefits of Mergers
A merger occurs when two firms join together to form one. The new firm will have an
increased market share, which helps the firm gain economies of scale and become
more profitable. The merger will also reduce competition and could lead to higher prices
for consumers.

5.2 CHARACTERISTICS OF STRATEGY

An ancient Greece, the term Strategos was used in military science and implied the
plan to win a battle. However, in business, strategies are more about understanding
the competition and preparing a plan to match/surpass the potential of the rivals. It is
defined as:

“Strategy is the direction and scope of an organization over the long-term. It helps
achieve an advantage for the organization through its configuration of resources
within a challenging environment, to meet the needs of markets and fulfill
stakeholder expectations.”

Setting goals and priorities, defining steps to attain the goals, and mobilizing
resources to carry out the activities are all part of strategy. A strategy explains how
the means resources will be used to attain the ends goals.  It entails tasks like
strategic planning and strategic thinking.

Business strategy is a clear set of plans, actions and goals that outlines how a
business will compete in a particular market, or markets, with a product or number of
products or services.

As a result of its importance to the business or company, strategy is generally

perceived as the highest level of managerial responsibility. Strategies are usually
derived by the top executives of the company and presented to the board of
directors in order to ensure they are in line with the expectations of company
stakeholders. This is particularly true in public companies, where profitability and
maximizing shareholder value are the company’s central mission.

The implications of the selected strategy are also highly important. These are
illustrated through achieving high levels of strategic alignment and consistency
relative to both the external and internal environment. In this way, strategy enables
the company to maximize internal efficiency while capturing the highest potential of
opportunities in the external environment.

A strategy has several distinguishing characteristics:

 The process of strategy formulation results in no immediate action.

 Therefore, strategy must next be used to generate strategic projects through
a search process.
 Thus, strategy becomes unnecessary whenever the historical dynamics of an
organization will take it where it wants to go (when the search process is
already focused on the preferred areas).
 Strategy formulation must be based on highly aggregated, incomplete and
uncertain information about classes of alternatives (at the time of strategy
formulation it is no possible to enumerate all the project possibilities which will
be uncovered).
 Successful use of strategy requires strategic feedback.
 Since both strategy and objectives are used to filter projects, they appear
similar. However, they are distinct. Objectives represent the ends which the
firm is seeking to attain, while the strategy is the means to these ends.
 Strategy and objectives are interchangeable; both at different points in time
and at different levels of organization. A typical hierarchical relationship
results: elements of strategy at a higher managerial level become objectives
at a lower one.

A strategy is the direction and scope of an organization in the long run. It helps
an organization achieve an advantage over its competitors through an efficient
configuration of resources. It also ensures that the market’s needs are met along
with the expectations of all stakeholders.

The features of a strategy are:

o Creation of a plan to outdo the rivals.
Also, assist managers in responding to any changes in the business
environment.
 o Redefine direction towards common objectives.
o Enable effective mobilization of resources.
o Finally, improve the organization’s chances to achieve the set targets.

Characteristics of Strategy: Is and Is Not

 Defines what types of practices a firm need’s to be good at, not a list of the
current competencies and practices.
 Points to where execution needs to excel. Does not detail how to execute.
 Describes the path toward aspirations, along with the aspirations. It answers
the why and what, not the how.
 Acts as a dynamic guide to reaching a vision, not as a static home for a
paragraph about the vision.
 Captures a set of intentions that enable agility, not a prescription for it.
 Documents a set of flexible guidelines for navigating through the future as it
unfolds, not a declarative set of assumptions about the future.
 Creates the permissions required to unleash innovation, not the cookbook for
the next product or service.
 Offers a framework for technology as a transformative enabler, not a
technology plan.
 Crafts a framework for making decisions about what skills and talent are
needed to succeed, not a formula for growth or downsizing.
 Builds a structure for evaluating structure, not a bible for restructuring.
 Hosts a strategic dialog about what the firm’s capabilities need to be, not a list
of mergers or acquisitions.
 Informs choices about the value and alliances made with partners, not a list
value propositions and go-to-market directives.

A company’s strategy is the game plan business owners and management use to
position their organization in its chosen market area, to compete successfully, satisfy
customers, and achieve good business performance.

Business leaders have to pay attention to the developments in the world because
they are intertwined with market forces that affect consumers and demand. They
have to adapt their business strategy to a constantly shifting environment.

Changes in strategy should be done when it’s clear achieving a strategic goal is
either impossible or no longer desirable, says Geoffrey James, columnist for
Inc.com.

He offers some characteristics every strategy should include.

They are Not Tactical

People often get a strategy mixed up with a tactic. “Strategies define goals to be
achieved while tactics define the actions you’ll take to achieve those goals,” says
James. .For example, a strategy would be to double sales in a specific territory. A
tactic would be to hire more salespeople in that territory to achieve their goal.

They are Measurable

If your goals are vague, you won’t know if you are achieving them. “You can’t
manage what you can’t measure,” says James.When you set goals, also set ways
you will measure them to be certain they are successful.Goals such as achieving
thought leadership won’t translate to solid numbers. However if your goal is to
double sales revenue in a specific region, you will have data to back up whether it
was a success or a failure.

They are Actionable

Strategic goals are achievable through tactics. They are not dependent on forces
you can’t control. James says an actionable goal would be to double sales revenue
versus increasing your publicly held stock price by 50 percent. Increasing your
stock-price is contingent on the market.

They are Clear

Employees should understand exactly what their organization’s strategy is to
achieve it successfully. A strategy requires continuous and clear communication. It
should guide their decisions and actions.

They Include a Business Plan

A strategy is just hot air unless there’s a tactical plan for achieving each strategic
goal, says James. For example, if you want to increase sales by 50 percent in a
specific region, your plan could include anything from investing in better lead
generation methods to retraining employees to hiring new ones.

They Don’t Change Much

Strategies evolve as businesses evolve, but it’s important to know what does and
doesn’t work. Once you know that, you can adjust your tactics and try new
approaches. A business strategy is an ongoing process, not something to set and
forget. Strategic planning is key to looking to the future and creating direction to for a
business to be successful. The key is to do what works best rather than trying to do
everything.

Types of Strategies:
1. Corporate Strategies or Grand Strategies: There can be four types of strategies a
corporate management pay pursue: Growth, Stability, Retrenchment, and Combination.
Growth strategy can be put to use by way of:

Concentration:
It means bringing in resources into one or more of a firm’s business keeping customer
needs, customer functions, alternative technologies, singly or jointly so as to expand.
Integration:
Integration means joining activities related to the present activities of a firm. Integration
not only widens the scope of business but also a subset of diversification strategies.
Integration can be of following types:

Horizontal Integration:
It means when a firm takes over the other firm operating at the same level of production
or marketing. Recently ICICI Bank decided to acquire Bank of Rajasthan and
ReckitBenkier of UK took over Paras of India.

Vertical Integration:
When a firm acquires control over another firm operating into the same value chain. It
can be of two types, viz., Backward Integration – acquiring a firm engaged in raw
materials (Tata steel buying a coal mine company in Indonesia); and Forward
Integration — acquiring control over a firm/activity taking it nearer to the ultimate
consumer (Reliance Industries, a petro refining company, also starting petrol pumps).

Diversification:
Adding a new customer function(s), customer group(s), or alternative technologies to an
existing business is known as diversification. Diversification strategies can be of
following types:

Concentric diversification:
Adding new, but related products or services is known as concentric diversification. It
can be market-related concentric diversification (using common channels); Technology-
related (a bank also selling mutual fund policies-similar procedure); and Marketing and
technology related concentric diversification (Amul, selling butter, curd, Shrikhand, and
buttermilk along with milk). A retailer selling kids wear also starts selling lady wears is a
case of related concentric diversification.

Conglomerate or unrelated diversification:

If a firm takes up business not related to the existing one neither in terms of customer
groups, customer functions, nor alternative technologies, it is known as conglomerate
diversification – Tata Sons is a conglomerate, as it is unrelated businesses, steel,
power, chemicals, hospitality, education, publishing, beverages, etc.

Horizontal Diversification:
It means adding new products or services for present customers. Escort Fortis Hospital
may offer bank, bookstore, coffee shop, restaurant, drug store in their compound for the
visitors to the hospital.

Internationalization:
It means marketing product/service beyond national market.

Cooperation:
It means cooperation among competitors. It may take the form of Mergers and
Acquisitions (like Tata Motors acquired Jaguar Land Rover facilities of UK); Joint
Ventures (like Indian Oil company floated an oil marketing company in Sri Lanka in
collaboration with a local company), and Strategic Alliances (the two cooperating firms
remain independent but cooperate for synergy).

Digitalization:
It includes computerization, electronization, and digitalization (conversion of analogue
electrical signals into digital signals).

Stability Strategies:
When the firm wants to go for incremental improvement of its performance, it is known
as stability strategy. Basic approach in the stability strategy is ‘maintain present course:
steady as it goes.’ It can be No-change strategy (taking no decision is a decision too);
Profit strategy (lying low and managing profit through cost cutting, price rise, etc.
In times of crisis and recession- as the JK Papers did during recent recession); Pause
or proceed-with-caution strategy (when getting into non-core business, like Hindustan
Unilever selling shoes).

Retrenchment Strategies:
It means substantially reducing the scope of business activities. It includes turnaround
strategy (to bring back to health through internal and external restructuring); Divestment
strategy (Sell-off or hive-off – to sell off a non-core business divisions; Spin-off -
demerging the business activities; and Split-off – division of business into two separate
ownership; Disinvestment – dilution of control through sale of equity -very recently
Government of India has sold stake through FPO in Power Finance Corporation); and
Liquidation Strategy (the last resort in retrenchment, Lehman Brothers of USA was
finally liquidated ).

Combination Strategy:
All the strategies discussed above can be applied simultaneously, sequentially, or in a
combination.

2. Business Level Strategies:

Business-level strategies are fundamentally concerned with the competition. In this
regard Michael Porter has given three generic strategies, which can be converted into
four.
To compete successfully the first generic strategy is Cost- leadership (Microsoft
produces software for PCs at such a cost that no hardware manufacturer ever thinks of
producing himself); second is Differentiation (Dell computers are sold online, whereas
all other manufacturers use physical distribution); and Finally it is Focus. Focus may rely
on either cost leadership or differentiation, but its market size is very small, where large
competitors do ignore them.
3. Functional Strategies:
These strategies may be Operations Strategy, Marketing Strategy, Finance Strategy,
and Human Resource Strategy.

Types of Strategies in Marketing (Strategic Management)

 Competitive Strategy
 Corporate Strategy
 Business Strategy
 Functional Strategy, and
 Operating Strategy

Strategic Meaning
Management Types

Combines the clout of the external situation, along with the integrative
Competitive Strategy
concerns of the personal status of an organization

Corporate Strategy The top-level by the senior management of a diversified company

Business Strategy Business-unit level or business-unit strategy

Functional Strategy Pointing up a particular functional area of an organization

Operating units of an organization

Operating Strategy

1. Competitive Strategy:
Firstly, competitive strategy is the first of the kinds of strategies in strategic
management. It refers to a plan that combines the clout of the external situation. Along
with the integrative concerns of the personal status of an organization. The competitive
strategy aims at gaining a competitive advantage in the marketplace against
competitors. Competitive advantage comes from strategies that lead to some
uniqueness in the market. Winning a competitive strategy is grounded in sustainable
competitive advantage. Examples of the competitive strategy include contrast strategy,
low-cost strategy, and focus or market-niche strategy.

The competitive strategy consists of business approaches and initiatives. It undertakes

a company to attract clients and deliver. Superior values to them through fulfilling their
looking forward as well as to strengthen its market position. This definition of Thompson
and Strickland emphasizes the ‘tactics and ingenuities’ of directors in outlining the
strategy. It means that competitive strategy is concerned with actions. Its managers
undertake to improve the company’s market position by satisfying the customers. The
enlightening market situation infers undertaking actions contrary to competitors in the
industry.

Therefore, the notion of competitive strategy has a competitor-angle. The competitive

strategy includes those tactics that lay down various ways to build a livable, competitive
advantage. Management’s action plan is the focus of the competitive strategy. The
objective of the competitive strategy is to win the customer’s heart by satisfying their
needs. Finally, it is to outcompete competitors and attain competitive advantages.

2. Corporate Strategy:
Secondly, corporate strategy is a type of strategy in strategic management. It draws up
at the top level by the senior management of a diversified company. In our country, a
diversified company is known as a ‘group of companies, such as Bashundhara, Partex,
Beximco, and Square Group. Such a strategy describes the company’s overall
corporate strategy. As well, corporate strategy defines the long-term objectives and
generally affects all the business-nits under its umbrella. A corporate strategy
(Bashundhara) may be acquiring the major tissue paper companies in Bangladesh to
become the unquestionable market leader.

3. Business Strategy:
Thirdly, the different types of strategies in marketing (strategic management)’s third one
is a business strategy. Business strategy formulates at the business-unit level. It is
popularly known as the ‘business-unit strategy.’ This strategy emphasizes the building
up of the company’s competitive position of products or services. Business strategies
compos of a competitive and cooperative approach.

The business strategy covers all the activities and tactics for competing in denial of the
competitors. And behavior management addresses various strategic matters. As Hill
and Jones have remarked, the business strategy consists of plans of action. It’s
strategic managers who adapt to use a company’s resources. Additionally, managers
change distinctive attitudes to gain a competitive advantage over their rivals in a market.
The business strategy usually formulates in line with the corporate strategy. The
business strategy’s main focus is product development, innovation, integration, market
development, diversification, and the like.In doing business, companies confront a lot of
strategic issues. Management has to address all these issues effectively to survive in
the marketplace. Business strategy deals with these issues, in addition to ‘how to
compete.’

4. Functional Strategy:
Fourthly, the functional strategy is a type of strategy in strategic management. A
functional strategy refers to an approach that points up a particular functional area of an
organization. It sets down to achieve some objectives of a business unit by maximizing
resource productivity. Once in a blue moon, functional strategy names departmental
strategy since each business function frequently devolves with a section. Examples of
functional strategy comprise production strategy, marketing strategy, human resource
strategy, and financial strategy.

The functional strategy is concerned with developing the right stuff to provide a
business unit with a competitive advantage. Each business unit has its own set of
departments, and every department has a functional strategy. Functional strategies
adapt to support a competitive strategy. For example, a company following a low-cost
competitive strategy needs a production strategy. It insists on reducing cost operation
and also a human resource strategy.

Furthermore, it insists on retaining the lowest possible number of employees. These

employees are highly qualified to work for the organization. Other functional strategies
such as marketing strategy, advertising strategy, and financial strategy must also be
formulated to support the business-level competitive strategy.
The organizational plans become more and more detailed. Likewise, it becomes specific
when managers move from corporate business to functional-level strategies.

5. Operating Strategy:
Finally, the operating strategy is the fifth type of strategy in strategic management. It
gives form to the operating units of an organization. A company may develop an
operating strategy. As an instance, for its sales zones. An operating strategy is put
across at the field level, usually to achieve on-hand objectives. In some companies,
managers develop an operating strategy for each set of annual goals in the divisions.

5.3 THE VALUE OF ESTABLISHING LONG TERM OBJECTIVES

The Value of Establishing Long Term Objectives

Starting a business or expanding an existing operation is an extremely difficult
task. Businesses can face numerous obstacles, many of them unexpected, throughout
their existence. Setting long-term objectives will force you to organize your goals and
plans. It will enable you to visualize possible roadblocks and prepare your business for
them. Long-term objectives are a necessity for any business venture.
Setting long-term objectives will allow you to
anticipate possible roadblocks on the road to your
business success. Prior to starting a new business
or expanding an existing one, create a business
plan that specifically outlines all aspects of the
venture. This will provide you with a clear picture
of how your business will operate, and will give
you an opportunity to anticipate possible problems.
Without setting long term goals, you may be ill-
prepared for any setbacks.
Many small businesses tend to fail in the first few years of operation because the
owners did not properly prepare themselves for the future. Strictly focusing on the
present can make a business owner extremely nervous about the state of the business
in the future. By setting long-term objectives, you are equipping yourself with the
confidence needed to sustain a successful business. Preparing for the future will
diminish your worries and allow you to focus your energy on completing your objectives.
Many businesses tend to reach a ceiling because they lack motivation. Without
setting long-term objectives, a business has nothing to work toward. Long-term goals
induce concentration in the venture and continuous management of every aspect of the
company. The business owner will strive to achieve his goal by encouraging employees
and remaining passionate about the project. When that goal is finally achieved,
everyone involved will experience a tremendous amount of satisfaction and pride.
Barriers to Planning & Goal Setting (bizfluent.com)

Long term objectives

Strategic managers recognize that short-run profit maximization is rarely the best
approach to achieving sustained corporate growth and profitability

To achieve the long-term prosperity strategic planners commonly establish long-term

objectives in seven areas:
 Profitability – How profitable we want to be in 3-5 years.
 Productivity – How is it going
 Competitive Position – Was there a competitive position.
 Employee Development – Is the organization making investment to the people.
 Employee Relation – How are we in relation to people assets that really getting
the organization to where it going.
 Tech Leadership – What process are the organization using in order to get there.
 Public Responsibility – related to social responsibility

Qualities of Long-term Objectives

There are five criteria that should be used in preparing long-term objectives:
 Flexible – put ranges in what you trying to achieve
 Measurable – checking strategies in monthly basis, making it a lifestyle of the
organization.
 Motivating – inspiring people what they need to do.
 Suitable - Realistic
 Understandable – Self complex that the people where trying to implement
throughout their hands.

Nature of Long term Objectives

Objectives should be quantitative, measurable, realistic, understandable, challenging,
hierarchical, obtainable, and congruent among organizational units. Each objective
should also be associated with a timeline. Objectives are commonly stated in terms
such as growth in assets, growth in sales, profitability, market share, degree and nature
of diversification, degree and nature of vertical integration, earnings per share, and
social responsibility. Clearly established objectives offer many benefits. They provide
direction, allow synergy, aid in evaluation, establish priorities, reduce uncertainty,
minimize conflicts, stimulate exertion, and aid in both the allocation of resources and the
design of jobs.
Long-term objectives are needed at the corporate, divisional, and functional
levels in an organization. They are an important measure of managerial performance.
Clearly stated and communicated objectives are vital to success for many reasons.
First, objectives help stakeholders understand their role in an organization's future. They
also provide a basis for consistent decision making by managers whose values and
attitudes differ. By reaching a consensus on objectives during strategy-formulation
activities, an organization can minimize potential conflicts later during implementation.
Objectives set forth organizational priorities and stimulate exertion and accomplishment.
They serve as standards by which individuals, groups, departments, divisions, and
entire organizations can be evaluated. Objectives provide the basis for designing jobs
and organizing activities to be performed in an organization. They also provide direction
and allow for organizational synergy. Without long-term objectives, an organization
would drift aimlessly toward some unknown end! It is hard to imagine an organization or
individual being successful without clear objectives. Success only rarely occurs by
accident; rather, it is the result of hard work directed toward achieving certain
objectives.

According to Richard Daniels (2017), Long term objectives are prepared from the
mission statement of the organization on the basis of which all other activities depend.
Long term objectives highlight the expected consequences that emerged from
application of certain strategies. All the strategies of the Business Organization are
formulated & implemented in the guidance of the long term objectives. These objectives
are for a longer period of time ranging from two to five years & this time frame should
also be consistent for the resulting strategies.

The nature of long term objectives is better explained from the following features:
1. Should be quantitative
2. Should be realistic
3. Should be measurable
4. Should be challenging
5. Should be obtainable
6. Should be hierarchical
7. Should be according to other functional units of organization

There must be a timeline that is associated with each objective. Moreover following are
some of the forms of Long Term Objectives.
1. Growth in sales
2. Growth in assets
3. Market share
4. Profitability
5. The nature & degree of diversification
6. The nature & degree of vertical integration
7. Social responsibility
8. Earnings per share

The long term objectives should be clearly established and communicated.

Following are some of benefits that are associated with the clear & effective
development of long term objectives.
1. Synergy is created between all the functional areas of organization
2. Clear direction is provided that assist all the functioning of the organization.
3. The exertion of activities are stimulated
4. The resources are better allocated that generates more productive results
5. The designing of jobs is made effective

There are separate long term objective for corporate, divisional & functional
levels in an organization. But all of them should indicate the same direction. Managerial
Roles and performances are measured through these objectives by comparing the
actual performance of the managers with the standard performance level set in the light
of these long term objectives.

There are many reasons that associate the success of the organization with the
clearly established & communicated long term objectives. The first reason is that all the
stakeholders of the organization identify & understand their roles keeping in view the
future of the organization. Those mangers whose values & attitudes differ are motivated
for consistent decision making in the organization. Almost every manager is involved in
the strategy formulation process and gives his opinion in shaping the final strategy for
the organization. When finalized strategy is formulated by consensus then there
remains no element of conflict among different managers during the strategy
implementation stage. The priorities in the organization are set by the long term
objectives which further stimulate the exertion efforts so that the desired targets can be
achieved. In fact the long term objectives serve as performance evaluation standard
through which the performance of individual, group, department, division & overall
organization is effectively evaluated. The designing of jobs function & organization of
required activities for the performance of those designed jobs are based on the long
term objectives of the organization. All the activities in the functional areas of the
organization are directed towards some desired position. There is complete synergy
among all the activities & employees of the organization when effective long term
objective are developed & properly communicated.

In addition, when an organization lacks long term objectives, then there is no proper
destination of that organization & all the activities in that organization lead it to some
unknown direction. Moreover there is no single organization in this world that can
become successful without development & communication of long term objectives.
There may be any exceptional case where an organization may succeed without any
long term objectives but this happens by accident. Otherwise success is always based
on the hard work that is performed for the accomplishment of some specified objectives.

Long-Term Objectives
Formal teaching
  To design all curriculum contents in accordance with scientific theoretical
requirements as well as those of contemporary business practice.
 To implement a variety of teaching strategies which meet the specific
requirements of situational effective teaching and learning.
 To investigate and implement on an ongoing basis new possibilities to improve
teaching methods and results.

The Advantages of Long-Term Business Objectives by Maksim Khasin

Starting a business or expanding an existing operation is an extremely difficult task.
Businesses can face numerous obstacles, many of them unexpected, throughout their
existence. Setting long-term objectives will force you to organize your goals and plans.
It will enable you to visualize possible roadblocks and prepare your business for them.
Long-term objectives are a necessity for any business venture.

Anticipate Barriers and Problems

Setting long-term objectives will allow you to anticipate possible roadblocks on the road
to your business success. Prior to starting a new business or expanding an existing
one, create a business plan that specifically outlines all aspects of the venture. This will
provide you with a clear picture of how your business will operate, and will give you an
opportunity to anticipate possible problems. Without setting long term goals, you may be
ill-prepared for any setbacks.

Establish Confidence
Many small businesses tend to fail in the first few years of operation because the
owners did not properly prepare themselves for the future. Strictly focusing on the
present can make a business owner extremely nervous about the state of the business
in the future. By setting long-term objectives, you are equipping yourself with the
confidence needed to sustain a successful business. Preparing for the future will allow
diminish your worries and allow you to focus your energy on completing your objectives.

Move toward a Goal

Many businesses tend to reach a ceiling because they lack motivation. Without setting
long-term objectives, a business has nothing to work toward. Long-term goals induce
concentration in the venture and continuous management of every aspect of the
company. The business owner will strive to achieve his goal by encouraging employees
and remaining passionate about the project. When that goal is finally achieved,
everyone involved will experience a tremendous amount of satisfaction and pride.

5.4 DIFFERENT TYPES OF BUSINESS STRATEGIES.

Business Strategy
A business strategy is a powerful tool for helping you reach your business goals,
defining the methods and tactics you need to take within your company. The business
strategy also guides many of your organizational decisions, such as hiring new
employees. Creating a business strategy that's in line with the vision you have for your
company takes time and development.
A business strategy is an outline of the actions and decisions a company plans to
take to reach its goals and objectives. A business strategy defines what the company
needs to do to reach its goals, which can help guide the decision-making process for
hiring as well as resource allocation. A business strategy helps different departments
work together, ensuring departmental decisions support the overall direction of the
company.
Business strategy formulates at the business-unit level. It is popularly known as the
‘business-unit strategy.’ This strategy emphasizes the building up of the company’s
competitive position of products or services. Business strategies compose a competitive
and cooperative approach. The business strategy covers all the activities and tactics for
competing in denial of the competitors. And behavior management addresses various
strategic matters. As Hill and Jones have remarked, the business strategy consists of
plans of action. It’s strategic managers who adapt to use a company’s resources.
Additionally, managers change distinctive attitudes to gain a competitive advantage
over their rivals in a market. The business strategy is usually formulated in line with the
corporate strategy. The business strategy’s main focus is product development,
innovation, integration, market development, diversification, and the like.
In doing business, companies confront a lot of strategic issues. Management has to
address all these issues effectively to survive in the marketplace. Business strategy
deals with these issues, in addition to ‘how to compete.’

To have a better understanding of the various types of business strategies, data were
gathered from a variety of sources ranging from 2019 to the present. Three business
strategies stood out among the many that were collected: cost strategy,
differentiation, and focus strategy.
In an article written by Stephen Nelson, he believes thata cost strategy, a
differentiated product or service strategy, and a niche focus approachare three of
the basic company strategies that exist.
A cost strategy or low-cost operation is used by successful retailers. It's a
strategy that any company can use, but it's especially effective for those with economies
of scale.
Walmart and Costco, for example, thrive in providing products to their customers
at a low cost. Many of the benefits of the economy are passed on to their customers in
the form of decreased prices. However, not all of the cost savings are passed on to the
customers.
The important thing to remember about a low-cost approach is that the company
must keep some of the cost reductions in order to outperform its competition. As a
result, simply being a low-cost producer is insufficient. A company must be a low-cost
producer while still being able to charge a high enough price for its products and
services so some of the cost savings are kept as profits.

Product differentiation is the second strategy. Product differentiators are

frequently used to sell a unique product or service. The Nordstrom department store
business is a wonderful example of this because it provides exceptional service and,
more often than not (though not always), a superb and high-quality range of
merchandise. Nordstrom items, on the other hand, are more expensive. Consumers, on
the other hand, are happy to pay the higher price because they get a lot more value for
the money. A company that uses a differentiation strategy competes based on the
unique characteristics of its products or services. The key to making this strategy work
is to be able to charge your clients more for those special features than you paid for
them. Differentiation must result in higher revenues than higher costs.

The focus strategy is a combination of cost and differentiation strategies. This

strategy asserts that in some aspects, a company excels at cost management, while in
other ways, it excels at differentiating products or services. A company may adopt this
hybrid method because it understands a specific audience, customer niche, or product
category better than anyone else; in other words, the company can service a specific
market better than anybody else using this specialized approach. This company will be
the best at serving a specific niche.

Why is a business strategy important?

There are several reasons why a business strategy is important for organizations,
including:
● Planning: A business strategy helps you identify the key steps to take to reach
your business goals.

● Strengths and weaknesses: The process of creating a business strategy allows

you to identify and evaluate your company's strengths and weaknesses so you
can create a strategy that optimizes your strengths and compensates for or
eliminates your weaknesses.

● Efficiency: A business strategy allows you to effectively allocate resources for

your business activities, which automatically makes you more efficient. It also
helps you plan ahead for deadlines, allocate job roles and stay on track for your
project goals.

● Control: Creating a business strategy gives you more control over choosing the
kinds of activities that will directly help you reach your goals, as well as allows
you to easily assess whether your activities are getting you closer to your goals.

● Competitive advantage: By identifying a clear plan for how you will reach your
goals, you can focus on capitalizing on your strengths, using them as a
competitive advantage that makes your company unique in the marketplace.

Components of a business strategy

There are six key components of a business strategy. They include:
1. Vision and business objectives
A business strategy is intended to help you reach your business objectives. With a
vision for the direction of the business, you can create clear instructions in the business
strategy for what needs to be done and who is responsible for completing each step.

2. Core values
A business strategy guides top-level executives, as well as departments, about what
should and should not be done, according to the organization's core values. It helps
everyone stay on the same page and with the same goals.

3. SWOT analysis
SWOT stands for strengths, weaknesses, opportunities and threats. This analysis is
included in every business strategy, as it allows the company to rely upon its strengths
and use them as an advantage. It also makes the company aware of any weaknesses
or threats.

4. Tactics
Many business strategies articulate the operational details for how the work should be
done in order to maximize efficiency. People who are responsible for tactics understand
what needs to be done, saving time and effort.

5. Resource allocation plan

A business strategy includes where you will find the required resources to complete the
plan, how the resources will be allocated and who is responsible for doing so. In this
regard, you will be able to see where you need to add more resources in order to
complete your projects.

6. Measurement
The business strategy also includes a way to track the company's output, evaluating
how it is performing in relation to the targets that were set prior to launching the
strategy. This helps you to stay on track with deadlines and goals, as well as budgetary
concerns.

10 BUSINESS STRATEGY EXAMPLES

Here are 10 examples of great business strategies:
1. Cross-sell more products
 Some organizations focus on selling additional products to the same customer.
Cross-selling works well for office supply companies and banks, as well as online
retailers. By increasing the amount of product sold per customer, you can increase the
average cart size. Even a small increase in cart size can have a significant impact on
profitability, without having to spend money to acquire more new customers. Cross-
selling is a very important marketing tactic as it can drive considerably incremental
revenue by capitalising on customers current purchase intent by showing additional
products that the customer will also find useful.

2. Most innovative product or service

Many companies, particularly in the technology or automotive space, are distinguishing

themselves by creating the most cutting-edge products. In order to use this as your
business strategy, you will need to define what "innovative" will mean for your
organization or how you're innovative. Strategic innovation is an organization's process
of reinventing or redesigning its corporate strategy to drive business growth, generate
value for the company and its customers, and create competitive advantage. This type
of innovation is essential for organizations to adapt to the speed of technology change.

3. Grow sales from new products

Some companies like to invest in research and development in order to constantly

innovate, even with their most successful products. This type of strategy involves
introducing new products into the market and updated products that are able to keep up
with trends.

4. Improve customer service

This can be a good business strategy if your business has had a problem delivering
quality customer service. Some companies have even built a strong reputation for
having exceptional customer service. Usually, companies have a problem in one
specific area, so a business strategy that's focused on improving customer service will
usually have objectives that center around things like online support or a more effective
call center.
 5. Cornering a young market

Some large companies are buying out or merging competitors to corner a young
market. This is a common strategy used by Fortune 500 companies to gain an
advantage in a new or rapidly growing market. Acquiring a new company allows a larger
company to compete in a market where it didn't previously have a strong presence while
retaining the users of the product or service.

6. Product differentiation

Product differentiation is a common business strategy, especially for business-to-

consumer (B2C) businesses. They can differentiate their products by highlighting the
fact that they have superior technology, features, pricing or styling.

7. Pricing strategies

When it comes to pricing, businesses can either keep their prices low to attract more
customers or give their products aspirational value by pricing them beyond what most
ordinary customers could afford. If companies plan to keep their prices low, they will
need to sell a much higher volume of products, as the profit margins are usually very
low. For companies who choose to price their products beyond the reach of ordinary
customers, they are able to maintain the exclusivity of their product while retaining a
large profit margin per product.

8. Technological advantage

Obtaining a technological advantage, you can often achieve better sales, improved
productivity or even market domination. This can mean investing in research and
development, acquiring a smaller company to gain access to their technology or even
acquiring employees with unique skills that will give the company a technological
advantage.

9. Improve customer retention

It's generally far easier to retain a customer than spend money to attract a new one,
which is why this is a great strategy if you see opportunities for improvement in
customer retention. This strategy requires you to identify key tactics and projects to
retain your customers.

10. Sustainability

You could launch an entire business strategy aimed at increasing the sustainability of
your business. For example, the objective could be to reduce energy costs or decrease
the company's footprint by implementing a recycling program.

What is the role of strategic business management?

Strategic management is a broad term that includes innovative thinking, a
strategic planning process and operational strategising. Strategic business
management, more specifically, relies largely on research. It is imperative that for a
business strategy to be successful, customers’ opinions, employees’ contribution and
the industry’s best practices are all taken into account. A common way to encourage
strategic business management is to incorporate a lot of planning into board meetings,
have trustees with valued and varied experience, and to carefully consider the impacts
of decisions on each business function within the organisation. Annual plans for
businesses are often put together, but within the 21st century, it is important to be
flexible and adapt to changing environments and demands.

That's why companies can use various generic competitive strategies in different
industry environments to protect and enhance their competitive advantage. Companies
must first develop a successful generic competitive strategy in order to gain a secure
position in an industry. Then they must choose industry-appropriate competitive tactics
and maneuvers to position their company successfully over time. Companies must
always be on the alert for changes in conditions within their industry and in the
competitive behavior of their rivals if they are to respond to these changes in a timely
manner.

Business-level strategy consists of the way strategic managers devise a plan of action
to use a company's resources and distinctive competencies to gain a competitive
advantage over rivals in a market or industry. At the heart of developing a generic
business-level strategy are choices concerning product differentiation, market
segmentation, and distinctive competency. The combination of those three choices
results in the specific form of generic business-level strategy employed by a company.
The three pure generic competitive strategies are cost leadership, differentiation, and
focus. Each has advantages and disadvantages. A company must constantly manage
its strategy; otherwise, it risks being stuck in the middle. Increasingly, developments in
manufacturing technology are allowing firms to pursue both a cost-leadership and a
differentiation strategy and thus obtain the economic benefits of both strategies
simultaneously. Technical developments also enable small firms to compete with large
firms on an equal footing in particular market segments; thus these developments
increase the number of firms pursuing a focus strategy.

Companies can also adopt either of two forms of focus strategy: a focused low-cost
strategy or a focused differentiation strategy. In fragmented and growing industries
composed of a large number of small and medium-sized companies, the principal forms
of competitive strategy are chaining, franchising, and horizontal merger.

Mature industries are composed of a few large companies whose actions are so highly
interdependent that the success of one company's strategy depends on the responses
of its rivals. The principal competitive tactics used by companies in mature industries to
deter entry are product proliferation, price cutting, and maintaining excess capacity.
The principal competitive tactics used by companies in mature industries to manage
rivalry are price signaling, price leadership, nonprice competition, and capacity control.
There are four main strategies a company can pursue when demand is falling:
leadership, niche, harvest, and divestment strategies. The choice of strategy is
determined by the severity of industry decline and the company's strengths relative to
the remaining pockets of demand.

5.5 NUMEROUS EXAMPLE OF ORGANIZATION PURSUING DIFFERENT TYPES OF

STRATEGIES

1. Walmart, Inc. - Cost Leadership

Walmart Inc. uses its generic strategy to gain a competitive
edge in the international retail market by focusing on low
costs and accordingly low selling prices of goods sold to
customers. As a result of this circumstance, the
corporation is able to change its selling prices accordingly.
Selling price reduction, as highlighted in Walmart Inc.'s
SWOT analysis, is a strength that helps the company compete against other companies
in the global retail industry. Walmart has about 11,700 locations and services over 270
million people. Its key business goal is to "be competitive in terms of assortment,
differentiating with the manner people access, leading in terms of pricing, and giving an
outstanding experience with the slogan of EDLP (Every Day Low Prices)."

2. Costco Wholesale Corporation- Cost Leadership, Differentiation

Cost leadership is Costco Wholesale Corporation's
primary business strategy for competitive advantage.
Low expenses are mirrored in low prices in this generic
strategy. When customers shop at Costco, they expect
to save a lot of money. Walmart, on the other hand,
employs a generic cost leadership competitive strategy. Costco uses broad
differentiation as an additional strategy to differentiate themselves apart from the
competitors. This second basic strategy distinguishes the company based on specific
qualities. Costco, for example, differentiates itself based on pricing or quality with
Kirkland Signature, the company's house brand.As a result, the broad differentiation
generic strategy provides a competitive advantage, allowing Costco to compete on
quality, in addition to cheap pricing, as a result of the generic strategy's cost leadership.

3. LUSH Cosmetics- Differentiation

Due to its niche specialty, Lush Cosmetics
differentiates out among competitors such as
Sephora. The brand stands apart from the
competition because it delivers truly unique
products with a DIY feel. Lush offers hand-made,
eco-friendly beauty and skincare, and is best known
for their colorful bath bombs and soaps, rather than the polished lipstick counter you'd
find in a department store like a Sephora. They're also recognized for their strong
morals, which are evident in everything they do. All of the items are vegetarian and
handcrafted, and they resemble foods more than cosmetics.

4. Red Bull- Differentiation

Red Bull makes distinctions based on the personas of
its customers. The energy drink brand in this instance
caters to an energetic, successful, and thrill-seeking
target audience. Whereas other energy drinks may
target gamers or overworked office workers, Red Bull's
marketing strategy takes the energy drink out into the
public — both physically and digitally. It distinguishes
itself by sponsoring events and launching aggressive marketing campaigns, which
frequently involve extreme sports competitions, music, and youth events.

5. TOMS- Focus Strategy

This shoe firm, which was founded in 2006, is well-
known for its commitment to corporate social and
environmental responsibility. The company follows the
"One for One" policy, which states, "TOMS will support
a person in need with every product you purchase."
TOMS has distributed over 10 million pairs of shoes to
people in over 60 countries, and has helped 200,000
people in over 5 countries regain their sight. TOMS
recently launched a water project to supply clean water to underserved communities.

6. Airstream- Differentiation
Airstream is a cult classic, having been launched in
1929.  Its sleek, silver cabin is a classic image of cross-
country road journeys, making it one of the most
recognized RVs on the road. It focuses on its core
customer's intangible needs. Airstream owners value
the "vintage" side of life in a way that other RV
companies do not. An Airstream gives you just what
you want to flaunt on the open road: a classic
appearance with a contemporary inside. Quality, image,
and community are prioritized; they are costly, but rarely lose their value, and they are
designed to last. A new website and digital experience were also launched. Moreover,
they offer a range of community and dealership events where you can sit in an
Airstream and get a firsthand look at the vehicle.

7. Frog Box- Focus Strategy

Frog Box is a moving firm that offers a less expensive and more environmentally
friendly alternative to cardboard boxes. The business leases out reusable moving boxes
and supplies as well as providing affordable moving services. “1% of gross income is
donated to frog habitat restoration,” according to the company.

logos.fandom.com
8. RedBox- Focused Cost Leadership
Redbox rents DVDs for $1 from vending machines outside grocery shops and other
retail venues. There are ways to watch movies
for considerably less money, such as Netflix's
flat-fee streaming video subscriptions. Redbox,
on the other hand, is unrivaled in terms of low
cost and convenience among companies that
rent genuine DVDs.

9. T-Mobile- Differentiation
T-Mobile differentiates itself by catering to a smaller, younger specialized audience: city
dwellers who don't want to be tied down and "owned" by their cellular provider. T-Mobile
concentrates on more aspects of its audience
than rival firms because it listens to and follows
the actions of its core client. Competing
companies, while possibly larger, do not aim to
give the personal connection T-Mobile has
created with so many of its customers. T-Mobile
differentiates themselves by producing
messaging that targets customers' main pain
problems while avoiding their largest fault — the size of their network. They also have a
strong and distinctive color palette, paying customers' early termination fees (ETFs) and
allowing them to transfer to T-Mobile with unlocked phones.

10. RyanAir-Cost Leadership

The company's competitive advantage
strategy is focused on the desire to outperform
competitors by offering air travel services at
the lowest possible unit cost. This can be
accomplished in a number of ways, including
significant negotiating leverage with suppliers,
allowing the company to keep its operational
expenses low; they also have a limited aircraft
diversity which allows them to buy spare parts
in big quantities and; a negotiation power with airport operators, requesting lower
landing and handling fees as well as lights to less-traveled locations.
11. Primark- Cost Leadership
Because of their minimal operational cost, the company is able to provide rock-bottom
prices that significantly undercut their competitors. Primark saves money and achieves
the economies of scale by purchasing in bulk for
all their stores. In addition, the company spends
little to no money on advertising, depending
instead on social media and word of mouth.
Primark's supply chain operations have been
optimized, ensuring that no unnecessary costs
are incurred. Primark outsources their clothing
production to developing countries like India,
which have lower labor costs.

12. Apple- Differentiation

The iconic, elegant simple designs of all Apple
products is one of the main factors that differentiates
the brand from the competition. Their products not only
display different pleasing visual styles, but are also
well thought out to simplify the use of each device.
Apple also hopes to differentiate its products through
operating systems that further enhance the user
experiences, narrowing the gap that competitors have
not discovered or resolved.

13. McDonald's- Cost Leadership

McDonald's has simplified and made food
preparation process easy to understand for all
staff, minimizing the learning curve as much as
feasible. The corporation has a labor division
that allows to hire and train fresher rather than
recruiting experienced cooks, allowing them to
pay minimum wages. The company manages to
cut cost not only when it comes to raw materials
and optimized human resources, but also by
high asset utilization.

14. Tiffany & Co.- Differentiation

Founded in 1837, Tiffany & Co. has
successfully established a strong brand that
enables them to target very specific niche
markets, those wealthy customers who
appreciate high-quality products and the
excellent reputation of the brand. Tiffany & Co.
aims to differentiate its products through
stunning, unique and hand-made designs that will undoubtedly stand out from the
crowd.

15. IKEA- Cost Leadership

By producing a large number of standardized
products that people can assemble themselves,
IKEAhas gained a significant competitive
advantage with its cost leadership strategy.
Unlike its competitors, IKEA does not offer
personalized products. Practically all of these
are standardized, allowing the company to
mass produce them for every store in the world
and achieve economies of scale that smaller
competitors cannot. Retailers look for suppliers who can manufacture high-quality
components at the lowest possible cost, while customers must assemble the furniture
themselves. This is one of the reasons why their prices are so low, because IKEA does
not spend a budget for employees during the assembly process. Like many other
companies, IKEA is also outsourcing the manufacture of its products to low-wage
countries, allowing them tocut additional costs.

16. Kopi Luwak- Focused Differentiation

. Although many consumers find KopiLuwak
disgusting, relatively few coffee lovers have
accepted coffee and turned it into a
profitable product. This illustrates the
essence of the focused differentiation
strategy, effectively meeting the special
needs of the niche market can create huge
wealth. The price of high-quality coffee
beans is usually between 10 and 15 US dollars per pound. In contrast, Kopi Luwak
coffee beans sell hundreds of dollars per pound. This price is due to the rarity of beans
and their rather strange nature.

17. Lidl- Cost Leadership

By working closely with suppliers, the company aims to
reduce supply chain costs. Therefore, they can also offer
customers lower cost. Lidl offers a large number of
products, but the choice of brands is limited. This limited
choice allows companies to have greater purchasing
power for their suppliers, because they offer more products
of each type with fewer brands. Compared with other
supermarkets, Lidl has the least staffing, and employee s
are trained to work in any department. The company also
has very efficient technology and automation behind the scenes to minimize human
interaction.

18. Amazon- Cost Leadership

The company has huge

warehousing facilities and
processing capabilities, so
itcanreduce costs through real
economies of scale. by using
advanced computing and
networking technologies, Amazon
achieves maximum operational
efficiency and minimized costs. The
company has successfully automated many operational processes,
including purchase processing and delivery planning.

5.6 GUIDELINES WHEN PARTICULAR STRATEGIES ARE MOST APPROPRIATE

TO PURSUE.

A strategy is a way of describing how you are going to get things done. It is a plan of
action designed to achieve a specific goal or series of goals within an organizational
framework. It is less specific than an action plan (which tells the who-what-when);
instead, it tries to broadly answer the question, "How do we get there from here?"
Strategy involves the action plan of a company for building competitive
advantage and increasing its triple bottom line over the long-term. The action plan
relates to achieving the economic, social, and environmental performance objectives; in
essence, it helps bridge the gap between the long-term vision and short-term decisions.
A good strategy will take into account existing barriers and resources (people,
money, power, materials, etc.). It will also stay with the overall vision, mission, and
objectives of the initiative. Often, an initiative will use many different strategies--
providing information, enhancing support, removing barriers, providing resources, etc.--
to achieve its goals.
Objectives outline the aims of an initiative--what success would look like in
achieving the vision and mission. By contrast, strategies suggest paths to take (and how
to move along) on the road to success. That is, strategies help you determine how you
will realize your vision and objectives through the nitty-gritty world of action.

 WHAT ARE THE CRITERIA FOR DEVELOPING A GOOD STRATEGY?

 Give overall direction? A strategy, such as enhancing experience and skill
or increasing resources and opportunities, should point out the overall
path without dictating a particular narrow approach (e.g., using a specific
skills training program).
 Fit resources and opportunities? A good strategy takes advantage of
current resources and assets, such as people's willingness to act or a
tradition of self-help and community pride. It also embraces new
 opportunities such as an emerging public concern for neighborhood safety
or parallel economic development efforts in the business community.
 Minimize resistance and barriers? When initiatives set out to accomplish
important things, resistance (even opposition) is inevitable. However,
strategies need not provide a reason for opponents to attack the initiative.
Good strategies attract allies and deter opponents.
 Reach those affected? To address the issue or problem, strategies must
connect the intervention with those who it should benefit. For example, if
the mission of the initiative is to get people into decent jobs, do the
strategies (providing education and skills training, creating job
opportunities, etc.) reach those currently unemployed?
 Advance the mission? Taken together, are strategies likely to make a
difference on the mission and objectives? If the aim is to reduce a problem
such as unemployment, are the strategies enough to make a difference on
rates of employment? If the aim is to prevent a problem, such as
substance abuse, have factors contributing to risk (and protection) been
changed sufficiently to reduce use of alcohol, tobacco, and other drugs?

 WHY DEVELOP STRATEGIES?

Developing strategies is really a way to focus your efforts and figure out
how you're going to get things done. By doing so, you can achieve the following
advantages:

 Taking advantage of resources and emerging opportunities

 Responding effectively to resistance and barriers
 A more efficient use of time, energy, and resources

 WHEN SHOULD YOU DEVELOP STRATEGIES FOR YOUR INITIATIVE?

Developing strategies is the fourth step in the VMOSA (Vision, Mission,
Objectives, Strategies, and Action Plans) process outlined at the beginning of
this chapter. Developing strategies is the essential step between figuring out your
objectives and making the changes to reach them. Strategies should always be
formed in advance of taking action, not deciding how to do something after you
have done it. Without a clear idea of the how, your group's actions may waste
time and effort and fail to take advantage of emerging opportunities. Strategies
should also be updated periodically to meet the needs of a changing
environment, including new opportunities and emerging opposition to the group's
efforts.

 HOW DO YOU DEVELOP STRATEGIES?

Once again, let's refer back to our friends at the fictional Reducing the
Risk (RTR) Coalition that hopes to reduce the risk of teenage pregnancy in its
community. We'll walk through the process of developing strategies with this
group so as to better explain the who, what, and why of strategies.

As with the process you went through to write your vision and mission statements and
to set your objectives, developing strategies involves brainstorming and talking to
community members.

Guidelines when particular strategies are most appropriate to pursue

Cost Leadership Guidelines

● When price competition among rival sellers is especially vigorous.

● When the products of rival sellers are essentially identical and supplies are
readily available from any of several eager sellers.
When there are few ways to achieve product differentiation that have value to
buyers.
● When most buyers use the product in the same ways.
● When buyers incur low costs in switching their purchases from one seller to
another.
● When buyers are large and have significant power to bargain down prices.
● When industry newcomers use introductory low prices to attract buyers and build
a customer base.

Differentiation Strategy Guidelines

● When there are many ways to differentiate the product or service and many
buyers perceive these differences as having value.
● When buyer needs and uses are diverse.
● When few rival firms are following a similar differentiation approach.
● When technological change is fast paced and competition revolves around
rapidly evolving product features.

Focus Strategy Guidelines

● When the target market niche is large, profitable, and growing.

● When industry leaders do not consider the niche to be crucial to their own
success.
● When industry leaders consider it too costly or difficult to meet the specialized
needs of the target market niche while taking care of their mainstream
customers.
● When the industry has many different niches and segments, thereby allowing a
focuser to pick a competitively attractive niche suited to its own resources.
● When few, if any, other rivals are attempting to specialize in the same target
segment.

Forward Integration Guidelines

 ● When an organization’s present distributors are especially expensive, or
unreliable, or incapable of meeting the firm’s distribution needs.
● When the availability of quality distributors is so limited as to offer a competitive
advantage to those firms that integrate forward.
● When an organization competes in an industry that is growing and is expected to
continue to grow markedly; this is a factor because forward integration reduces
an organization’s ability to diversify if its basic industry falters.
● When an organization has both the capital and human resources needed to
manage the new business of distributing its own products.
● When the advantages of stable production are particularly high; this is a
consideration because an organization can increase the predictability of the
demand for its output through forward integration.
● When present distributors or retailers have high profit margins; this situation
suggests that a company could profitably distribute its own products and price
them more competitively by integrating forward.

Backward Integration Guidelines

● When an organization’s present suppliers are especially expensive, or unreliable,

or incapable of meeting the firm’s needs for parts, components, assemblies, or
raw materials.
● When the number of suppliers is small and the number of competitors is large.
● When an organization competes in an industry that is growing rapidly; this is a
factor because integrative-type strategies (forward, backward, and horizontal)
reduce an organization’s ability to diversify in a declining industry.
● When an organization has both capital and human resources to manage the new
business of supplying its own raw materials.
● When the advantages of stable prices are particularly important; this is a factor
because an organization can stabilize the cost of its raw materials and the
associated price of its product(s) through backward integration.
● When present supplies have high profit margins, which suggests that the
business of supplying products or services in the given industry is a worthwhile
venture.
● When an organization needs to quickly acquire a needed resource.

Horizontal Integration Guidelines

● When an organization can gain monopolistic characteristics in a particular area

or region without being challenged by the federal government for “tending
substantially” to reduce competition.
● When an organization competes in a growing industry.
● When increased economies of scale provide major competitive advantages.
● When an organization has both the capital and human talent needed to
successfully manage an expanded organization.
● When competitors are faltering due to a lack of managerial expertise or a need
for particular resources that an organization possesses; note that horizontal
integration would not be appropriate if competitors are doing poorly, because in
that case overall industry sales are declining.

Market Penetration Guidelines

● When current markets are not saturated with a particular product or service.
● When the usage rate of present customers could be increased significantly.
● When the market shares of major competitors have been declining while total
industry sales have been increasing.
● When the correlation between dollar sales and dollar marketing expenditures
historically has been high.

Market Development Guidelines

● When new channels of distribution are available that are reliable, inexpensive,
and of good quality.
● When an organization is very successful at what it does.
● When new untapped or unsaturated markets exist.
● When an organization has the needed capital and human resources to manage
expanded operations.
● When an organization has excess production capacity.
● When an organization’s basic industry is rapidly becoming global in scope.

Product Development Guidelines

● When an organization has successful products that are in the maturity stage of
the product life cycle; the idea here is to attract satisfied customers to try new
(improved) products as a result of their positive experience with the
organization’s present products or services.
● When an organization competes in an industry that is characterized by rapid
technological developments.
● When major competitors offer better-quality products at comparable prices.
● When an organization competes in a high-growth industry.
● When an organization has especially strong research and development
capabilities.

Related Diversification Guidelines

● When an organization competes in a no-growth or a slow-growth industry.

● When adding new, but related, products would significantly enhance the sales of
current products.
● When new, but related, products could be offered at highly competitive prices.
● When new, but related, products have seasonal sales levels that counterbalance
an organization’s existing peaks and valleys.
 ● When an organization’s products are currently in the declining stage of the
product’s life cycle.
● When an organization has a strong management team.

Unrelated Diversification Guidelines

● When revenues derived from an organization’s current products or services

would increase significantly by adding the new, unrelated products.
● When an organization competes in a highly competitive and/or a no-growth
industry, as indicated by low industry profit margins and returns.
● When an organization’s present channels of distribution can be used to market
the new products to current customers.
● When the new products have countercyclical sales patterns compared to an
organization’s present products.
● When an organization’s basic industry is experiencing declining annual sales and
profits.
● When an organization has the capital and managerial talent needed to compete
successfully in a new industry.
● When an organization has the opportunity to purchase an unrelated business
that is an attractive investment opportunity.
● When there exists financial synergy between the acquired and acquiring firm.
(Note that a key difference between related and unrelated diversification is that
the former should be based on some commonality in markets, products, or
technology, whereas the latter is based more on profit considerations.)
● When existing markets for an organization’s present products are saturated.
● When antitrust action could be charged against an organization that historically
has concentrated on a single industry.

5.7 PORTER’S FIVE GENERIC STRATEGIES

Porter’s Generic Strategies is an answer to one of two central questions

underlying the choices companies have with regard to competitive strategy. The first
question is about the attractiveness of industries for long-term profitability and how to
choose which industry to enter as a company. We are all familiar with the framework
that Porter came up with to determine this: the Five Forces Model. The second question
is about the determinants of a company’s relative competitive position in an industry
after a certain industry is chosen to enter. Because, in order to be a successful
company, being active in an attractive industry alone is not enough: you will need to
acquire a dominant competitive position by choosing among three generic strategies:
Differentiation, Cost Leadership and Focus. Failing to choose between one of these
strategies will result in strategic mediocrity and below-average performance, or as
Porter describes it: ‘being stuck in the middle’.

The long development of Porter’s Five Forces Analysis has brought to the fact
that those forces become the determinants of the industry’s competition. These five
forces are threat of new entry, rivalry among existing firms, and threat from substitute
products, bargaining power of buyers, and bargaining power of suppliers. Furthermore,
five forces analysis is treated by the organization to measure the level of competition,
besides that, it is used as a strong first step in understanding how one industry
compares to another and also to determine industry profitability because they influence
the prices, costs, and required investment of a firm in an industry.

In order to be competitive enough, a normal company that seeks profitability

would have to understand how they work in its industry and how they affect the
company in its particular situation. Michel Porter (1980) proposes that if firms pursue
any of his three recommended generic competitive strategies they will be able to
outperform competitors who do not pursue such strategies. The recommended
strategies are cost leadership, differentiation, and focus strategy (cost focus and
differentiation focus) and stuck in the middle.

There are three main streams for the Michael Porter’s Generic Strategies which
are:
 Cost Leadership
Cost Leadership is a type of competitive strategy with which a company
aggressively seeks efficient large-scale production facilities, cuts costs, uses
economies of scale, gains production experience and employs tight cost controls
to be more efficient in the production of products or the offering of services than
competitors: the goal is to be the low-cost producer in the industry. A low-cost
position also means that a company can undercut competitors’ prices through for
example penetration pricing and can still offer comparable quality against
reasonable profits. Low-cost producers typically sell standard no-frills products or
services. Examples of companies with cost leadership positions are: Southwest
Airlines, Wal-Mart, McDonald’s, EasyJet, Costco and Amazon.
The Cost Leadership Strategy is where a business focuses on reducing
the cost to deliver the products or services to a customer, ensuring you’re more
 profitable and thus can add shareholder value or invest in other parts of the
business.

There are a number of factors to consider when you’re going for Cost
Leadership:
 What impact will the drive down on costs have to your customers and
employees?
 Is it maintainable as you scale?
 How will you reinvest the additional profits of the business?
 How will you produce the lowest cost delivery vs your competitors?
 Will any of the saving be passed on to customers?
 Can you maintain your position as the lowest cost, or will competitors catch up?

It may be helpful to bring in the Five Forces analysis of your marketplace

for this strategy and consider the Supplier and Buyer powers.

When looking at the Cost Leadership Strategy you should review:

 Your current suppliers and their costs
 Technology and innovations that can reduce your processes
 Process speed and efficiency
 Your people cost and their progression
 Your management team skills – detail, process driven, analytical and financial
are required attributes of the team

When done well the Cost Leadership Strategy opens up several options to
companies:
 Increasing your profit margins by maintaining your current cost
 Resisting price increases when competitors are forced to do so
 Reducing the price to become more competitive
 Investing the profits into diversifying your business, automation for further cost
reduction, or shareholder value

Remember: Cost Leadership is a long term strategy – if you stop focusing

on it, cost will start to creep back into the business in ways that were not
required. Read more in our Guide to Strategic Cost Reduction.

 Differentiation
Differentiation is a type of competitive strategy with which a company
seeks to distinguish its products or services from that of competitors: the goal is
to be unique. A company may use creative advertising, distinctive product
features, higher quality, better performance, exceptional service or new
technology to achieve a product being perceived as unique. A differentiation
strategy can reduce rivalry with competitors if buyers are loyal to a company’s
brand. Companies with a differentiation strategy therefore rely largely on
customer loyalty. Because of the uniqueness, companies with this type of
strategy usually price their products higher than competitors. Examples of
companies with differentiated products and services are: Apple, Harley-
Davidson, Nespresso, LEGO, Nike and Starbucks.
The Differentiation Strategy is where a business focuses on differentiating
their products or services from competitors. This strategy has a wide spectrum
from full product diversity through to unique features within a core product.

There’s a number of factors to consider when you’re going for

Differentiation:
 How mature is the market your product or service operates in?
 What is the history of competitor innovation?
 What does your customer feedback suggest?
 Is your company setup to take advantage of new features with strong marketing?
 Why do you currently win or lose sales deals?
 How do you currently research the market and requirements?
 Your management team skills – creativity, outward thinking, market expertise are
required attributes

If you’re looking at the Differentiation Strategy then it’s helpful to also look
at the Ansoff Matrix and the 4Ps of Innovation.

When looking at the Differentiation Strategy you should review:

 Your current product or service portfolio
 Your competitors and their portfolio
 Trends within customer feedback
 Current resources and effort to innovation
 Cost of resource
 Any M&A activity observed within the market including if there is an opportunity
for you
 Map your 4Ps against your current setup

When done well the Differentiation Strategy opens up several options to

companies:
 Enter new markets to diversify revenue
 Grow existing revenue streams with upsells or by winning more deals
 Grow existing revenue by price increases
 Opening up marketing channels with news about features or products
 Building a community within your customer base around new features
 Increasing loyalty of customers by delighting them

 Focus
Focus is a type of competitive strategy that emphasizes concentration on
a specific regional market or buyer group: a niche. The company will either use a
differentiation or cost leadership strategy, but only for a narrow target market
rather than offering it industry-wide. The company first selects a segment or
 group of segments in an industry and then tailors its strategy to serve those
segments best to the exclusion of others. Like mentioned, the focus strategy has
two variants: Differentiation Focus and Cost Focus. These two strategies differ
only from Differentiation and Cost Leadership in terms of their competitive scope.
Examples of companies with a differentiation focus strategy are: Rolls Royce,
Omega, Prada and Razer. Examples of companies with a cost focus strategy
are: Claire’s, Home Depot and Smart.
The Cost Focus Strategy is an evolution of the Cost Leadership Strategy.
As the name suggests, there are two aspects to this strategy. The “Focus” refers
to when a company focuses on a niche market, either by industry or geography,
and becomes the expert in delivering for that industry. The “Cost” refers to the
company producing the product or service for an aggressive cost to them, much
like the Cost Leadership Strategy we discussed earlier.

In addition to the factors from Cost Leadership, you should consider the
following:
 How big is the niche market you’re operating in or working towards?
 Can you provide the product or service at a cheaper cost than the competition?
 Can you maintain the quality required to be leader in the niche market?
 What is the level of cost per customer to become the leader within this market?

This strategy has all the benefits of Cost Leadership while also providing
additional options:
 Becoming thought leaders within an industry
 Opening up partnerships with other companies in the same industry
 Providing a level of credibility to your overall company story
 Generate customer loyalty by becoming the single trusted provider in the industry

Remember: You can’t have a Cost Focus Strategy without focusing on the
Cost! Follow our guide to Strategic Cost Reduction.

 Stuck in the Middle

A company that tries to engage in each generic strategy but fails to

achieve any of them, is considered ‘stuck in the middle’. Such a company has no
competitive advantage regardless of the industry it is in. As a matter of fact, such
a company will compete at a disadvantage because the ‘cost leader’, the
‘differentiators’ and the ‘focusers’ in the industry will be better positioned to
compete. It may be the case, however, that a company that is stuck in the middle
still earns interesting profits simply because it is operating in a highly attractive
industry or because its competitors are stuck in the middle as well. If one of the
two exceptions are not present it will be very hard for companies to engage in
both differentiation and cost leadership, Porter argues, because differentiation is
usually costly. Each generic strategy is a fundamentally different approach to
creating and sustaining superior performance and requires a different operating
model.

 Other interpretations of Porter’s Generic Strategies

Like many business frameworks, Porter’s Generic Strategies Model has

both proponents and opponents. Among others, Miller (1992) has questioned
Porter’s notion of having to pursue one single strategy or else being caught
‘stuck in the middle’. He claims that there is a viable middle-ground between
strategies and uses the example of Caterpillar Inc., which differentiated itself by
producing the highest quality earth-moving equipment in the world while paying
attention to cost-efficiency. Miller argues that strategic specialization, as Porter
suggests, has the danger of becoming inflexible and blind to customer needs.
Also Chan Kim and Mauborgne (2005) abandon the ‘value-cost’ trade-off that a
company needs to choose between certain strategies. With their Blue Ocean
Strategy they advise companies to pursue differentiation and low cost
simultaneously: it is about driving costs down while simultaneously driving value
up for buyers. However, there are also popular authors who do believe in Porter’s
idea of competitive choice. Treacy and Wiersema (1995) for example build
further on Porter’s idea and modified Porter’s Generic Strategies into the Value
Disciplines. They advise companies to choose between Operational Excellence,
Product Leadership and Customer Intimacy.

These main strategies are divided in 5 types:

1. Type 1: Low Cost -Strategy
2. Type 2: Best Value-Strategy
3. Type 3: Differentiation
4. Type 4: Focus- Low Cost
5. Type 5: Focus –Best value

The best value focus strategy aims to offer a niche group of customer’s products
or services that meets their tastes and requirements better than rivals’ products do. For
Refreshing Breeze Express Spa, Type 5 (The best value focus Strategy or focused
differentiation) is the most appropriate strategy to be used, as this strategy that offers
services such specialized massages to a small range of customers exposed to the
exhausting daily rush in Bogota a better lifestyle through relaxation, leisure, comfort and
serenity, at the best price-value available on the market.