STRATEGIC MANAGEMENT GROUP ASSIGNMENT

GENERIC AND GRAND STRATEGY

Unit Code: HBC 2303
Lecturer: Dr. Enos Anene

GROUP MEMBERS
Zaitun Godana Guyo Hdb211-c004-0374/2021
Timothy Mutinda Sillah Hdb211-c004-0123/2020
Generic Strategies

Generic
It refers to something that is not specific to a particular brand, product, or individual. It implies to
something that is widely applicable or used across different contexts.
Generic strategies
Refers to fundamental business approaches that companies use to gain a competitive advantage
in their industry.
There are three approaches which are examples of "generic strategies," because they can be
applied to products or services in all industries, and to organizations of all sizes. They were first
set out by Michael Porter in 1985 in his book, "Competitive Advantage: Creating and Sustaining
Superior Performance."

Porter called the generic strategies "Cost Leadership" (no frills), "Differentiation" (creating
uniquely desirable products and services) and "Focus" (offering a specialized service in a niche
market). He then subdivided the Focus strategy into two parts: "Cost Focus" and "Differentiation
Focus."

Tip:
The terms "Cost Focus" and "Differentiation Focus" can be a little confusing, as they could be
interpreted as meaning "a focus on cost" or "a focus on differentiation." Remember that Cost
Focus means emphasizing cost-minimization within a focused market, and Differentiation Focus
means pursuing strategic differentiation within a focused market.

The Cost Leadership Strategy

Porter's generic strategies are ways of gaining competitive advantage – in other words,
developing the "edge" that gets you the sale and takes it away from your competitors. There are
two main ways of achieving this within a Cost Leadership strategy:
Increasing profits by reducing costs, while charging industry-average prices.
Increasing market share by charging lower prices, while still making a reasonable profit on each
sale because you've reduced costs.
Tip:
Remember that Cost Leadership is about minimizing the cost to the organization of delivering
products and services. The cost or price paid by the customer is a separate issue!

The Cost Leadership strategy is exactly that – it involves being the leader in terms of cost in your
industry or market. Simply being amongst the lowest-cost producers is not good enough, as you
leave yourself wide open to attack by other low-cost producers who may undercut your prices
and therefore block your attempts to increase market share.

You, therefore, need to be confident that you can achieve and maintain the number one position
before choosing the Cost Leadership route. Companies that are successful in achieving Cost
Leadership usually have:

Access to the capital needed to invest in technology that will bring costs down.
Very efficient logistics.
A low-cost base (labor, materials, facilities), and a way of sustainably cutting costs below those
of other competitors.
The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are
not unique to you, and that other competitors copy your cost reduction strategies. This is why it's
important to continuously find ways of reducing every cost. One successful way of doing this is
by adopting the Japanese Kaizen philosophy of "continuous improvement."

The Differentiation Strategy

Differentiation involves making your products or services different from and more attractive than
those of your competitors. How you do this depends on the exact nature of your industry and of
the products and services themselves, but will typically involve features, functionality,
durability, support, and also brand image that your customers value.
To make a success of a Differentiation strategy, organizations need:

Good research, development and innovation.

The ability to deliver high-quality products or services.
Effective sales and marketing, so that the market understands the benefits offered by the
differentiated offerings.
Large organizations pursuing a differentiation strategy need to stay agile with their new product
development processes. Otherwise, they risk attack on several fronts by competitors pursuing
Focus Differentiation strategies in different market segments.

The Focus Strategy

Companies that use Focus strategies concentrate on particular niche markets and, by
understanding the dynamics of that market and the unique needs of customers within it, develop
uniquely low-cost or well-specified products for the market. Because they serve customers in
their market uniquely well, they tend to build strong brand loyalty amongst their customers. This
makes their particular market segment less attractive to competitors.

As with broad market strategies, it is still essential to decide whether you will pursue Cost
Leadership or Differentiation once you have selected a Focus strategy as your main approach:
Focus is not normally enough on its own.

But whether you use Cost Focus or Differentiation Focus, the key to making a success of a
generic Focus strategy is to ensure that you are adding something extra as a result of serving only
that market niche. It's simply not enough to focus on only one market segment because your
organization is too small to serve a broader market (if you do, you risk competing against better-
resourced broad market companies' offerings).

The "something extra" that you add can contribute to reducing costs (perhaps through your
knowledge of specialist suppliers) or to increasing differentiation (though your deep
understanding of customers' needs).
Choosing the Right Generic Strategy
Your choice of which generic strategy to pursue underpins every other strategic decision you
make, so it's worth spending time to get it right.

But you do need to make a decision: Porter specifically warns against trying to "hedge your bets"
by following more than one strategy. One of the most important reasons why this is wise advice
is that the things you need to do to make each type of strategy work appeal to different types of
people. Cost Leadership requires a very detailed internal focus on processes. Differentiation, on
the other hand, demands an outward-facing, highly creative approach.

So, when you come to choose which of the three generic strategies is for you, it's vital that you
take your organization's competencies and strengths into account.

Use the following steps to help you choose.

Step 1:
For each generic strategy, carry out a SWOT Analysis of your strengths and weaknesses, and the
opportunities and threats you would face, if you adopted that strategy.

Having done this, it may be clear that your organization is unlikely to be able to make a success
of some of the generic strategies.

Step 2:
Use Five Forces Analysis to understand the nature of the industry you are in.

Step 3:
Compare the SWOT Analyzes of the viable strategic options with the results of your Five Forces
analysis. For each strategic option, ask yourself how you could use that strategy to:

Reduce or manage supplier power.

Reduce or manage buyer/customer power.
Come out on top of the competitive rivalry.
Reduce or eliminate the threat of substitution.
Reduce or eliminate the threat of new entry.
Select the generic strategy that gives you the strongest set of options.

Tip:
Porter's Generic Strategies offer a great starting point for strategic decision-making.

Once you've made your basic choice, though, there are still many strategic options available.
Bowman's Strategy Clock helps you think at the next level of details, because it splits Porter's
options into eight sub-strategies. You can also use USP Analysis and Core Competence Analysis
to identify the areas you should focus on to stand out in your marketplace.

GRAND STRATEGIES
Grand strategies are also called business strategies and they provide basic direction for strategic
actions. They are the basis of coordinated and sustained efforts directed toward achieving long-
term business objectives. They are broadly divided into three: (a) Internal growth methods, (b)
External growth methods and (c) Internationalization

INTERNAL GROWTH STRATEGIES (The Ansoff’s Growth Matrix)

They are at times referred to as intensive strategies, this is because they require intensive efforts
if a firm competitive position with existing products is to improve; a) Market penetration and
concentration, b) Market development, c) Product development and d) Innovation
The table below illustrates the Igor Ansoff’s model of product market strategy combination.

Existing Products New products

MARKET PENETRATION PRODUCT DEVELOPMENT

OR CONCENTRATION OR INNOVATION

 Relay on a single product  Offer new products to

or a single market existing markets
 Aim to increase market  Extending or prolonging the
 Existing Markets share PLC

MARKET DEVELOPMENT INTERNAL RELATED

DIVERSIFICATION
 Take existing products to
new markets  Unrelated diversification
New Markets
 Build on existing strength  Unconnected to present
and capabilities products or markets
 Change distribution and
advertising

1. Market Penetration (Concentrated Growth)- Market penetration strategy seeks to

increase the market share of its current products or services through marketing efforts. Market
penetration includes increasing the number of sales people, advertisement, publicity and sales
promotion. market penetration is effective under the following situations

Situations that warrant the adoption of market penetration

i) When current markets are not saturated with your products.
ii) When firm enjoys increased economies of scale
iii) when usage rate by current customers can be increased
iv) When major competitor’s sales are declining while total industry sales have been increasing.
Advantages of concentrated growth
(i) It is based on known skills and capabilities of the organization.
(ii) A highly focused strategy, hence good for competitive advantage development
(iii) It is a low-risk strategy
(iv) Facilitates easier monitoring of growth
Disadvantages
(i) There are limits within which growth can take place in a single market, beyond which no
growth is registered.
(ii) The dynamism of consumer preference may pose a considerable challenge to a firm
pursuing this strategy.
(iii) Puts enormous onus on the company to monitor the activities of the competitor.
(iv) Requires considerable financial expenditure on advertising and promotion.
2. Market Development Strategy- This is the modification of the minor attributes of a
product to facilitate entry into new market segments.
It consists the marketing of present products often with only cosmetic modifications to customers
in a new market segment by adding channels of distribution or changing the content of
advertising or promotion. Some of the market development approaches include:
(v) Opening additional regional markets
(vi) Operating additional national markets
(vii) Opening additional international markets
(viii) Developing the product to appeal to other segments e.g KCB’s Sharia account, ABSA
countrywide opening of branches.
Conditions that favour market development
i) When an organization is very successful in what it does now.
ii) When the firm identifies an opportunity in a new untapped or unsaturated market.
iii) When a firm has excess production capacity.
iv) When a firm’s products are target markets are not product saturated.
Advantages of market development
i) Is also a relatively low risk strategy
ii) Generates considerable revenue from a relatively small outlay
iii) It builds on existing strengths, skills and capabilities
Disadvantages
i) Usually suitable only where the product is in the early stage of the life cycle.
ii) Requires considerable market share
iii) Certain unique segments may be difficult to identify
iv) Requires heavy expenditure on advertising and opening new distribution channels.
3. Product Development Strategy- Product development involves the substantial modification
of existing products or the creation of new but related products that can be marketed to current
customer through established channels.

Reasons for this strategy

i) To improve competitive position of the company by attracting new customers e.g. Colgate
Palmolive Company has introduce colgate herbal to counter competition.
ii) Prolongs the product life cycle
iii) To capitalize upon particular competence in such areas like research and development.
iv) To facilitate survival
v) For differentiation
Conditions that favour product development
i) When an organization has successful products that are at the maturity stage of the PLC.
ii) When an organization operates in an industry that is characterized by rapid technological
developments e.g. motor vehicle industry.
Advantages of product development
(i) May introduce profitability at later stages of the product life cycle.
(ii) It creates a spin-off effect in terms of the manufacturing process i.e. quality and process
improves.
(iii) It facilitates continued growth in products with short life cycle e.g. Omo.
Disadvantages
(i) Relatively high-risk strategy
(ii) There is generally a high rate of new product failure
(iii) New products may eat into the market share of existing products.
(iv) Requires heavy investment in research and development.
4. Innovation Strategy- In many industries it has become increasingly risky not to
innovate. As a result, some firms find it profitable to make innovation their grand strategy e.g.
Microsoft are leaders in technological innovation.
-Such firms seek to reap the initially high profits associated with customer acceptance of a new
or greatly improved product.
-Then rather than face stiffening competition as a basis of profitability, they swiftly move on in
search of other original or novel ideas.
-The underlying rationale of the innovation strategy is to create a new product life cycle and
thereby make similar existing products obsolete.

Advantages
(i) Enables a firm to be well ahead of competition.
(ii) Allows firms to enjoy supernormal profits in the short run.
Disadvantages
(i) Very costly to sustain
 (ii) A high-risk strategy especially when product fails.
(iii) Requires massive investment in R & D
(iv) Only a few of the innovative ideas prove profitable as shown below.

Diversification Strategies- A strategy focusing on selling new products to new markets. Can
take the following forms:
i) Concentric diversification – This result in new product line or services that have
technological and marketing synergies to existing product lines though the product might
appeal to a new market segment.
ii) Conglomerate diversification – This occurs when there is the firm produces a product that is
unrelated to current product lines.