Michael Porter Strategy Model

Porter's Generic Strategies


Michael Porter has argued that a firm's strengths ultimately fall into one of two headings: cost advantage and differentiation. By applying these strengths in either a broad or narrow scope, three generic strategies result: cost leadership, differentiation, focus, and costumer and supplier intimacy. These strategies are applied at the business unit level. They are called generic strategies because they are not firm or industry dependent.

1. Cost Leadership Strategy
Firms that succeed in cost leadership often have the following internal strengths:
• Access to the capital required to make a significant investment in production assets; this investment represents a barrier to entry that many firms may not overcome.
• Skill in designing products for efficient manufacturing, for example, having a small component count to shorten the assembly process.
• High level of expertise in manufacturing process engineering.
• Efficient distribution channels.
Each generic strategy has its risks, including the low-cost strategy. For example, other firms may be able to lower their costs as well. As technology improves, the competition may be able to leapfrog the production capabilities, thus eliminating the competitive advantage. Additionally, several firms following a focus strategy and targeting various narrow markets may be able to achieve an even lower cost within their segments and as a group gain significant market share.
Description : Use information systems to produce products and services at a lower price than competitors while enhancing quality and level of services. Examples : Wal-Mart and Dell

2. Differentiation Strategy
A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. Firms that succeed in a differentiation strategy often have the following internal strengths:
• Access to leading scientific research.
• Highly skilled and creative product development team.
• Strong sales team with the ability to successfully communicate the perceived strengths of the product.
• Corporate reputation for quality and innovation.
The risks associated with a differentiation strategy include imitation by competitors and changes in customer tastes. Additionally, various firms pursuing focus strategies may be able to achieve even greater differentiation in their market segments.
Description : Use information systems to differentiate products, and enavle new services and products. Examples : Google, eBay, Apple, Lands’ End
3. Focus Strategy
The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from competing directly.
Firms that succeed in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow market segment that they know very well.
Some risks of focus strategies include imitation and changes in the target segments. Furthermore, it may be fairly easy for a broad-market cost leader to adapt its product in order to compete directly. Finally, other focusers may be able to carve out sub-segments that they can serve even better.
Description : Use information systems to enable a focused strategy on a single market niche; specialize
4. Strengthen Costumer and Supplier Intimacy


Description : Use the information systems to develop strong ties and loyalty with costumers and suppliers. Example : Toyota Corporation and Amazon.
For this site, I would like to give an example, Toyota Corporation.

A Combination of Generic Strategies
- Stuck in the Middle?
These generic strategies are not necessarily compatible with one another. If a firm attempts to achieve an advantage on all fronts, in this attempt it may achieve no advantage at all. For example, if a firm differentiates itself by supplying very high quality products, it risks undermining that quality if it seeks to become a cost leader. Even if the quality did not suffer, the firm would risk projecting a confusing image. For this reason, Michael Porter argued that to be successful over the long-term, a firm must select only one of these three generic strategies. Otherwise, with more than one single generic strategy the firm will be "stuck in the middle" and will not achieve a competitive advantage.
Porter argued that firms that are able to succeed at multiple strategies often do so by creating separate business units for each strategy. By separating the strategies into different units having different policies and even different cultures, a corporation is less likely to become "stuck in the middle."
However, there exists a viewpoint that a single generic strategy is not always best because within the same product customers often seek multi-dimensional satisfactions such as a combination of quality, style, convenience, and price. There have been cases in which high quality producers faithfully followed a single strategy and then suffered greatly when another firm entered the market with a lower-quality product that better met the overall needs of the customers.
Other Example for Implementation of analysis of Porter's theory on the PT. Ultrajaya Milk Industry & Trading Company Tbk.

1. Aspect of Buyers (Costumer)
Buyer (Consumer) from Ultrajaya Milk products covering all ages from young children, adolescents, and adults. Which is almost in consumption by all ages and Milk Products Ultrajaya can be enjoyed throughout the world.
Corporate Strategy Management:
• Good service so the buyer does not turn to another product
• Items with Price Low-quality and can be reached by all circles
• Promotion
• Gifts / Conducting Competition.
2. Aspect Suppliers
Each production process of a company requires an input in the form of raw materials, labor supplied by the Suppliers. Therefore the company should have a good relationship in the raw material suppliers in order to be fulfilled on time and more flexible payment system.
Corporate Strategy Management:
• Companies must have good relations on the relations
• Companies should be timely in payouts to its suppliers
3. Substitution (Product Differentiation)
Substitution of goods Ultrajaya Milk Products is
• Aqua
• Ice Tee
• Sosro Botol
• MIZONE
• And Others - Other
Manajemen Strategy
• Vendor must Convincing the customer that the product remains soft drinks Milk Ultrajaya No. 1 in the world
• maintain the quality of products and companies so their customers do not turn to another product
4. New Arrivals (New Entry)
Newcomers to the drink Ultrajaya Milk is like MIZONE, Pocari Sweet, and so forth,
Management Strategy:
• The company should have to apply the strategy Suatau Portee namely, Differentiation
• Price products cheaper than the new entrants.
• Loyalty Company To our consumers
5. Competitors
Management Strategy:
• The affordable price
• better quality
• Product Innovation
• Focus on one product that is soft drinks No. 1 in the World.