Toolkit: Porter’s generic strategies

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The main purpose of Porter’s generic strategies is to help organisations achieve a competitive edge by ensuring they are not stuck in the middle.

Just a reminder to keep a record of all the tools in the table below. As long as you can fill in all the cells of the table, you will be able to write a successful IA.

Porter’s generic strategies are strategies to achieve a competitive edge. Achieving a competitive edge means being better than competitors. This tool was created by Michael Porter, which is why it’s called Porter’s generic strategies. There are 3 generic strategies in this tool: cost leadership, differentiation, and focus. Focus strategy is subdivided into differentiation focus and cost focus. Based on this business tool, organisations should apply only one strategy per product at a time. If they are trying to pursue several strategies at a time, they are stuck in the middle, and will not be successful. So, in Porter’s generic strategies, it’s an “either/or” situation, you can only apply one strategy per product at a time.

As you can see from the picture above, Porter’s generic strategies are presented as a matrix with two axes: strategic advantage (how to be better than competitors?) and strategic target (who to sell to?). Strategic advantage can be achieved either through uniqueness perceived by the customer (for example, when the product is different in some aspect compared to competitors’ products) or through low costs. The strategic target can either be industry-wide (mass market, when you sell to everyone) or a particular segment (niche market, when you sell to a well-defined group of customers only). So, an organisation should only do one thing at a time per product.

For example, if it wants to sell in a mass market (industry-wide) and keep its costs lower than competitors, then the organisation should go for cost leadership only. If, in addition to cost leadership, the organisation is trying to develop a sense of uniqueness about their product among customers, then the organisation is stuck in the middle and it will be hard to be successful: it should either focus on keeping costs low, or on developing a sense of uniqueness among customers. Only one thing at a time.

Do you know how many matrices there are in the BM course? Count. They all follow the same logic, so it should be easy for you to understand all matrix-based tools as long as you understand what a matrix is.

Let’s see what each of the generic strategies means in more detail.

Cost leadership is an industrywide (non-targeted, mass-market) generic strategy that is aimed at becoming the lowest-cost business in the industry. As a result of low costs...