Differentiation Strategy is the strategy that lays emphasis on offering a superior product, on some dimension(s), compared to what competitors are providing. Differentiation is possible along one or more of various dimensions — product features, quality, customer service, guarantee, distribution, delivery, product customization, etc. Michael Porter asserts that businesses can stand out from their competitors by developing a differentiation strategy. With a differentiation strategy the business develops product or service features which are different from competitors and appeal to customers including functionality, customer support and product quality. “Differentiation provides insulation against competitive rivalry because of brand loyalty . . . The resulting customer loyalty and need for a competitor to overcome the uniqueness create entry barriers. Differentiation yields high margins with which to deal with supplier power and clearly mitigates buyer power since buyers lack comparable alternatives and are thereby less price sensitive. Finally, the firm that has differentiated Continue reading
Strategic Management Terms
Porter’s Generic Strategies – Focus Strategy
Focus Strategy is the strategy which believes in concentrating on a small segment defined in terms of customer segment or geographical territory. A focus strategy means carefully choosing the arena to compete in and narrowing the competitive scope. By selecting carefully a segment and meeting the needs of that segment better than competitors who target more broadly defined segments, companies can gain competitive advantage. A focus strategy takes advantage of the differences between the target segments and other segments in the industry. It is these differences that result in a segment being poorly served by the broad-scope competitor. The firm that focuses on cost may be able to outperform the broad-based firm through its ability to strip out frills not valued by the segment. Alternatively, the product or service can be differentiated, taking into account the unique needs of the segment. A focus strategy can be pursued using either a Continue reading
Linkage Between Business Models and Innovation
The question of what a business model is often remains relatively vague. The main reason for this is because business people have an intuitive understanding of business models. This is normal, since the business model is about how an organization makes money, which is a manager’s job after all. However, there is often a lack of a more precise and shared understanding of what a business model is. Yet, such a common understanding is required if we want to have high quality discussions of one’s business model and make important business model decisions. Alexander Osterwalder has come up with the 9 building blocks approach to describe business models. This approach has the characteristics of any other type of model (e.g. in architecture or engineering). It is a simplified description and representation of a complex real world object. It describes the original in a way that we understand its essence without Continue reading
Organizational Leadership
Organizations play a very important role in societies. From birth to death we deal with organizations, small or large, public or private. Organizations formed by human beings sometimes even control us, dominate society, stifle development or progress, promote growth and change, alter our environmental conditions, and at the same time fulfill our human and societal needs. Their role is multidimensional and dual in nature: they can contribute to the progress and satisfying human needs, but at the same time they can be a major obstacle in fulfilling accomplishments. They are a powerful instrument in governance and the promotion of democratic values. Initially organizations were simple in structure and management, but as they grew larger they became sophisticated and complex in structure and function, requiring managerial skills and techniques beyond the comprehension of many people. Now here comes the role of the leader who could filter the negative traits and thus Continue reading
Strategic Intent – Definition and Meaning
Strategic Intent refers to a “high level statement of the means by which an organisation achieves its VISION”. Today Managers in different organisations are working hard to match the competitive advantage of their global rivals but in order to do the same most of them end up only imitating what their competitors have already implemented. Imitation doesn’t really create the Strategic Intent as competitors have already mastered those techniques and have exploited the first mover advantage. Hence mere imitation doesn’t lead to competitive revitalization. Strategic Intent drives organisations, individuals and groups to meet the challenge of change in business today. Strategic Intent as a concept was born in Post-World war II Japan when it dramatically emerged as world leader in economy. Japanese Organizations had set goals for themselves that might have been considered by most of the Western Organizations of that time as highly unrealistic. But with very few resources Continue reading
Porter’s Generic Strategies – Cost Leadership Strategy
Cost Leadership is the strategy that focuses on making the operations more efficient and cutting costs wherever possible. It may result from scale/scope efficiencies, tight overhead control, careful selection of customers, standardization and automation. Cost leadership aims at having the lowest costs in a market. This makes the company best placed to survive a price war and generates the highest margins if a price war does not occur. The largest retail chain in the world, Wal-Mart also believes in cost leadership. According to Michael Porter (1980), the low cost leadership strategy attempts to increase market share by emphasizing low cost relative to competitors. “gives the firm defense against rivalry from competitors because its lower cost means that it can still earn returns after competitors have competed away their profits through rivalry. A low cost position defends the firm against powerful buyers because buyers can exert power only to drive Continue reading