General Porter Strategies. Classification of competitive strategies by M

Harvard professor Michael Porter presented his three strategies for strengthening a company's competitiveness back in 1980 in his book Competitive Strategy. Since then, Porter's strategies have not lost any of their relevance. Of course, many entrepreneurs believe that they have a fairly general appearance. But wait, Michael Porter is a professor, consultant - his task is precisely to collect general methods and present them to the general public. And practical details are a personal matter for every businessman.

Porter described his strategies at a time when the concept of positioning, described by Jack Trout and Al Rice, was just gaining popularity. The main essence of Michael Porter's strategies is that for a company to function successfully, it needs to somehow stand out from its competitors so as not to be seen as everything to everyone by consumers, which, as we know, means nothing to anyone. To cope with this task, the company must choose the right strategy, which it will subsequently adhere to. Professor Porter identifies three types of strategy: cost leadership, differentiation and focus. Moreover, the latter is further divided into two: focusing on differentiation and focusing on costs. Let's look at each strategy in detail.

Cost leadership

This strategy is extremely simple. To succeed, a company must reduce costs and become a leader in this indicator in its industry. Typically, this type of strategy is understandable to absolutely all employees of the company, especially if its activities are related to the production of any goods. But being the leanest company in the industry is no easy task. Firstly, for this you will have to use all the most modern equipment and try to achieve maximum process automation. Accordingly, a company trying to become a cost leader needs the highest quality personnel possible, who will do their job faster and better (while earning more).

In order to have low costs, the company will have to serve quite a few different market segments. This is logical, since the larger the scale of production, the lower the costs. This, according to Michael Porter, is the most important aspect of this strategy.

In order to always remain a cost leader, the company will have to constantly look for new opportunities to save money by introducing new management techniques and the latest technical developments. In addition, the principles of differentiation cannot be ignored, since there is a possibility that customers will consider the quality of the company's products not worthy of them. And therefore, you need to understand that low costs are not synonymous with low-quality products, and are not even synonymous with cheap products. With proper positioning, no one is stopping you from selling products at the same price as your competitors. And due to low costs, the company will be able to earn higher profits.

The cost leadership strategy involves constant monitoring of the current situation. This strategy is very dangerous, since there is a high probability that sooner or later competitors will appear who can make their costs even lower. All this is possible both due to better marketing and due to such factors as: distribution network, technological progress, management know-how, external factors in the country and the world, the entry of larger global players into the market, loss of motivation by employees and etc.

One of the main temptations for a cost leader is to expand the product range. But you should think twice about resorting to it, since such an expansion can destroy all cost advantages, thereby ruining the company. Another factor that should not be lost sight of is consumers. They can be the factor that can force a company to lower prices, which will destroy the entire advantage of being a cost leader.

Differentiation

Differentiation used to be based on the concept of a unique selling proposition. This is no longer the case. In principle, with proper marketing, a company's product may be typical of the industry, but in the minds of consumers it will be special. Differentiation lies precisely in occupying a unique place in the minds of consumers, using some unique property of the product.

Differentiation, however, can relate not only to the product or marketing itself, but also to the distribution system (for example, Tinkoff bank credit cards can only be obtained through direct mail) and so on. This strategy allows you to create products that will cost end consumers much more than competitors' products. (we are talking about luxury goods) But don’t get carried away; when differentiating, it is very important to monitor finances all the time, since if managed incorrectly, it may turn out that the company goes to the bottom.

Among the successful examples of differentiation, we should note the strategy of the 7Up company, which presented its drink as “not Cola”. 7Up was a runaway success that would have only continued to grow if the company, for reasons that no one understands, had not temporarily abandoned its “no cola” strategy and moved to “America chooses 7Up.” The Volkswagen Beetle is one of the best examples of differentiation. This car was introduced at a time when there was a fashion in the United States for large, beautiful and often expensive cars. The Beetle did not fit any of these definitions and quickly became the best-selling car in the United States. True, then failure followed. This was due to the fact that Volkswagen decided to become everything to everyone by changing its differentiation strategy.

Companies pursuing a differentiation strategy may fall prey to problems such as large cost differences with the industry leader. This may lead to a situation where the company becomes irrelevant, despite all its positioning. Also, there is a high probability that the company's product will be copied by competitors. In this way, all the differentiating advantages of the company (if it is related to the product) can disappear. Finally, it is worth noting that a company pursuing a differentiation strategy must carefully monitor costs. The emergence of a Japanese luxury car under the Lexus brand was a big blow to the positions of American and European giants such as Cadillac and Mercedes. The Japanese also positioned themselves as a luxury car, but due to lower costs it was much cheaper than similar Cadillacs.

Focusing

A focus strategy is to pick a specific segment in an industry and target it exclusively so that that specific group of buyers will set the company apart from its competitors. Accordingly, the company’s task is to look attractive specifically for this segment of buyers. Michael Porter divides the strategy of focusing into two parts. The first is a cost focus. Moreover, it is associated with focusing on costs in working with one industry segment selected by the company. Due to lower costs, the company will be able to achieve a high competitive advantage in the eyes of its target group. The second branch of the strategy is to focus on differentiation. The company’s task in this case becomes to present its product as attractive as possible to a specific target audience. In this case, it is important to choose a narrow target audience (not in quantity), which will be significantly different from the rest of the audience.

The problems with this strategy are that when working with a small target audience, a company will have higher costs than one that works for the entire industry. Finally, Michael Porter highlights another important threat - competitors may find a narrow market segment in the segment in which the company operates, thereby seriously complicating its life.

According to Michael Porter, any of these strategies gives a company a competitive advantage. The worst thing is if the company is delayed halfway through choosing a strategy. In this case, it will gradually lose market share, its costs will rise, which will not allow it to work with large buyers. Also, the company will not be able to grab narrow niches and compete with other products that have surpassed it due to differentiation. When choosing one of Porter's basic strategies, it is very important to understand what the company ultimately wants to achieve. After all, strategies of focus and differentiation can even contribute to a serious decrease in income (but not profit). All this leads to the fact that when choosing a strategy for an existing company, a full-fledged reorganization may be necessary, which will inevitably entail layoffs.

Michael Porter's basic strategies are management classics and have served as the basis for many current strategies. I hope that this article was useful for you too.

M. Porter identified three main strategies that are universal and applicable to any competitive force. This - cost advantage, differentiation and focus.

Cost advantage creates greater freedom of choice of actions both in pricing policy and in determining the level of profitability of the product. The cost reduction strategy was widely used in the late 19th and early 20th centuries. Today it is gaining new popularity due to the fact that developed market economies have entered the so-called “era of deflation” (due to the saturation of markets), meaning a general decline in prices and incomes of the population. The main disadvantage of the strategy: due to cost reduction, there is often an unjustified decrease in the quality of the product produced.

Differentiation means the creation by a company of a product or service with unique properties, which are most often secured by a trademark. When the uniqueness of a product is secured by a simple declaration, then they talk about imaginary differentiation. This strategy became widespread in developed economies in the second half of the 20th century. due to saturation and individualization of consumer demand. The main disadvantage of the strategy: significant investments are often required in R&D and innovation processes.

Focusing- this is the concentration of attention on one of the market segments: a special group of buyers, goods or a limited geographical region of their distribution. Its main disadvantage is the requirement for accurate results of marketing research, which is not always possible.

Each of these strategies requires the necessary resources, skills and correct management actions of managers.

As a result, in our time, five options for approaches to a company’s competition strategy have been formed, namely:

1. Cost leadership strategy provides for a reduction in the total cost of production of a product or service, which attracts a large number of buyers.

2. Broad differentiation strategy is aimed at giving the company's products specific features that distinguish them from the products of competing companies, which helps attract more customers.

3. Optimal cost strategy enables customers to get more value for their money through a combination of low costs and broad product differentiation. The goal is to provide optimal (lowest) costs and prices relative to manufacturers of products with similar features and quality.

4. Focused strategy, or market niche strategy based on low costs, is aimed at a narrow segment of buyers, where the company is ahead of its competitors due to lower production costs.

5. Formulated strategy, or market niche strategy, based on product differentiation, aims to provide representatives of the selected segment with goods or services that best meet their tastes and requirements.

Fig. 4.1 Five main competitive strategies

(from the book Michael E. Porter. Competitive Strategy: New York: Free Press, 1980. P.35-40)

In Fig. Figure 4.1 shows the five main approaches to competitive strategy; each of them occupies different positions in the market and provides completely different approaches to business management. In table Figure 4.1 presents the characteristic features of these competitive strategies (for simplicity, the two varieties of focused strategy are combined under one heading, since their only distinguishing feature is the basis of competitive advantage.

Table 4.1. Distinctive features of the main competitive strategies

Typical development strategies

Existing reference (standard) organization development strategies:

· concentrated growth strategies;

· integrated growth strategies;

· diversified growth strategies;

· reduction strategies.

Let's look at each of them.

Group 1. Concentrated growth strategies:

· a strategy for strengthening the position of an already developed product in an already developed market (through marketing efforts);

· strategy for searching new markets for an already produced product;

· strategy for developing a new product in an already developed market.

Group 2. Integrated growth strategies:

· strategy reverse vertical integration(integration with suppliers);

· strategy forward integration(integration with distributors and sales organizations).

Group 3. Diversified growth strategies:

· strategy centered diversification(search for additional opportunities for the manufacture of new products based on existing old production; it remains at the center of the business);

· strategy horizontal diversification(production of new products using new technology, different from that used in an already developed market);

· strategy conglomerate diversification(the company is expanding through the production of new products that are technologically unrelated to those already produced; new products are sold in new markets; this is the most complex development strategy).

Group 4. Reduction strategies:

· business liquidation strategy;

· “harvest” strategy (reducing purchases and labor costs, obtaining maximum income in the short term from the sale of existing products);

· downsizing strategy (closing or selling divisions or businesses that do not fit well with the remaining ones);

· cost reduction strategy (development of a number of cost reduction measures).

Topic 5 SBU and identifying their capabilities:

COMPETITIVE

STRATEGY

Michael E. Porter

COMPETITIVE STRATEGY

Techniques for Analyzing Industries and Competitors

New York London Toronto Sydney Singapore

Michael E. Porter

COMPETITIVE

STRATEGY

Methodology for analyzing industries and competitors

UDC 65.011 BBK 65.290-2 P60

Translation by I. Minervin

Scientific editor O. Nizhelskaya

Porter E. Michael P60 Competitive strategy: Techniques for analyzing industries and con

Kurentov / Michael E. Porter; Per. from English - M.: Alpina Business Books, 2005. - 454 p.

ISBN 5-9614-0143-0

IN The book provides an analysis of the competitive structure of the industry,

V which is based on five basic market forces: intra-industry competition, the threat from potential competitors, the presence substitute products, bargaining power of suppliers and consumers. The author describes in detail the structural factors that determine the intensity of competition, as well as the features of industry development and competitive strategy at various stages of industry evolution.

Based on the above analysis, the author proposes models of competitive actions of companies and their managers in order to maintain the best position of their business. The value of the book lies in the fact that it contains not only theoretical principles that have become widespread and recognized throughout the world, but also numerous practical tips regarding the behavior of a company and its managers depending on specific market conditions.

The book is intended for company managers, academic researchers, practicing managers, teachers and students of management universities and specialties, as well as for a wide range of people interested in management issues.

UDC 65.011 BBK 65.290-2

6. STRATEGY IN RELATION TO

9. COMPETITIVE STRATEGY IN INDUSTRIES

14. STRATEGIC ANALYSIS OF VERTICAL INTEGRATION... ..361

INTRODUCTION

When the first edition was published eighteen years ago "Competitive strategy" I hoped that the book would arouse some interest. There was good reason for this, since it was the result of extensive peer-reviewed research, and preliminary drafts of the chapters had been carefully reviewed by my MBA and C-suite students.

However, the response to the book and the role it played in opening up a new field of research exceeded my most optimistic expectations. The book's ideas have been introduced to the majority of business school students around the world in core courses in policy or strategy, specialized electives in competitive strategy, and those in majors such as economics, marketing, technology management, and information systems. And as far as I can tell from numerous letters, personal communications, and now e-mail, these ideas have been mastered by professionals from both large and small companies. They have found acceptance among most strategy consultants, and firms have sprung up to help companies put these ideas into practice. Financial analysts should read this book before becoming certified.

Competitive strategy and the underlying concepts of industry analysis, competitor analysis and strategic positioning are now an accepted part of management practice.

ta. Many thoughtful professionals have embraced the book as a guide to action, fulfilling a desire I've had throughout my career to influence what happens in the real world.

Competitive strategy has also become a subject of academic research. Currently, this area attracts many management specialists, who put forward a wide range of their own ideas. It enjoys great attention among economic researchers. The volume and content of publications, one way or another initiated by the book, are a source of great satisfaction. A number of distinguished scientists in the field, many of whom I have had the privilege of interacting with through teaching, consulting, or collaborating, have fulfilled my primary desire to contribute to the accumulation and dissemination of knowledge.

Reissue "Competitive strategy" made me think about the reasons for the resonance caused by the book. Now, with the passage of time, they are clearer to me. Competition has always been at the top of companies' agendas, but of course the fact that the book came out at a time when companies around the world were trying to cope with growing competition also played a role. Competition, capturing more and more countries, has certainly become a constant theme of our time. Its intensity is still increasing today. In the 1980s, it was impossible to imagine the translation of the book in China (which was carried out in 1997), just as it was impossible to imagine its publication in Czech, Slovak, Hungarian, Polish or Ukrainian.

The book filled the gap in ideas about management. The role of general directors, strengthened over several decades, became more specific in relation to specialists. Strategic planning as the development of a long-term direction for the development of an enterprise has become a generally accepted most important task. As I noted in the introduction to the first edition "Competitive strategy" Early researchers in the field, such as Kenneth Andrews and Roland Christensen, posed a number of important questions related to strategy development. However, there were still no systematic and accurate tools for obtaining answers to these questions - methods for assessing the industry in which the company operates, its competitors, and choosing a competitive position. A number of strategy consulting firms have attempted to address these problems, but their ideas, such as the experience curve and the learning curve, have been based on a single concept of competition and a single type of strategy.

Michael Porter's Basic Strategies

Harvard professor Michael Porter presented his three strategies for strengthening a company's competitiveness back in 1980 in his book Competitive Strategy. Since then, Porter's strategies have not lost any of their relevance. Of course, many entrepreneurs believe that they have a fairly general appearance. But wait, Michael Porter is a professor, a consultant - his task is precisely to collect general methods and present them to the general public. And practical details are a personal matter for every businessman.

Porter described his strategies at a time when the concept of positioning, described by Jack Trout and Al Rice, was just gaining popularity. The main essence of Michael Porter's strategies is that for a company to function successfully, it needs to somehow stand out from its competitors so as not to be seen as everything to everyone by consumers, which, as we know, means nothing to anyone. To cope with this task, the company must choose the right strategy, which it will subsequently adhere to. Professor Porter identifies three types of strategy: cost leadership, differentiation and focus. Moreover, the latter is further divided into two: focusing on differentiation and focusing on costs. Let's look at each strategy in detail.

Cost leadership

This strategy is extremely simple. To succeed, a company must reduce costs and become a leader in this indicator in its industry. Typically, this type of strategy is understandable to absolutely all employees of the company, especially if its activities are related to the production of any goods. But being the leanest company in the industry is no easy task. Firstly, for this you will have to use all the most modern equipment and try to achieve maximum process automation. Accordingly, a company trying to become a cost leader needs the highest quality personnel possible, who will do their job faster and better (while earning more).

In order to have low costs, the company will have to serve quite a few different market segments. This is logical, since the larger the scale of production, the lower the costs. This, according to Michael Porter, is the most important aspect of this strategy.

In order to remain a cost leader all the time, the company will have to constantly look for new opportunities to save money by introducing new management techniques and the latest technical developments. In addition, the principles of differentiation cannot be ignored, since there is a possibility that customers will find the quality of the company's products not worthy of them. And therefore, you need to understand that low costs are not synonymous with low-quality products, and are not even synonymous with cheap products. With proper positioning, no one is stopping you from selling products at the same price as your competitors. And due to low costs, the company will be able to earn higher profits.

The cost leadership strategy involves constant monitoring of the current situation. This strategy is very dangerous, since there is a high probability that sooner or later competitors will appear who can make their costs even lower. All this is possible both due to better marketing and due to such factors as: distribution network, technological progress, management know-how, external factors in the country and the world, the entry of larger global players into the market, loss of motivation by employees and etc.

One of the main temptations for a cost leader is to expand the product range. But you should resort to it after thinking 10 times, since such an expansion can destroy all cost advantages, thereby ruining the company. Another factor that should not be lost sight of is consumers. They can be the factor that can force a company to lower prices, which will destroy the entire advantage of being a cost leader.

Differentiation

Differentiation used to be based on the concept of a unique selling proposition. This is no longer the case. In principle, with proper marketing, a company's product may be typical of the industry, but in the minds of consumers it will be special. Differentiation lies precisely in occupying a unique place in the minds of consumers, using some unique property of the product.

Differentiation, however, can relate not only to the product or marketing itself, but also to the distribution system (for example, Tinkoff bank credit cards can only be obtained through direct mail) and so on. This strategy allows you to create products that will cost end consumers much more than competitors' products (we are talking about luxury goods). But don’t get carried away; when differentiating, it is very important to monitor finances all the time, since if managed incorrectly, it may turn out that the company goes to the bottom.

Among the successful examples of differentiation, we should note the strategy of the 7Up company, which presented its drink as “not Cola”. 7Up was a runaway success that would have only continued to grow if the company, for reasons that no one understands, had not temporarily abandoned its “no cola” strategy and moved to “America chooses 7Up.” The Volkswagen Beetle is one of the best examples of differentiation. This car was introduced at a time when there was a fashion in the United States for large, beautiful and often expensive cars. The Beetle did not fit any of these definitions and quickly became the best-selling car in the United States. True, then failure followed. This was due to the fact that Volkswagen decided to become everything to everyone by changing its differentiation strategy.

Companies pursuing a differentiation strategy may fall prey to problems such as large cost differences with the industry leader. This may lead to a situation where the company becomes irrelevant, despite all its positioning. Also, there is a high probability that the company's product will be copied by competitors. In this way, all the differentiating advantages of the company (if it is related to the product) can disappear. Finally, it is worth noting that a company pursuing a differentiation strategy must keep a close eye on costs. The emergence of a Japanese luxury car under the Lexus brand was a big blow to the positions of American and European giants such as Cadillac and Mercedes. The Japanese also positioned themselves as a luxury car, but due to lower costs it was much cheaper than similar Cadillacs.

Focusing

A focus strategy is to select a specific segment in an industry and target it exclusively so that that specific group of buyers will differentiate the company from its competitors. Accordingly, the company’s task is to look attractive specifically for this segment of buyers. Michael Porter divides the strategy of focusing into two parts. The first is a cost focus. Moreover, it is associated with focusing on costs in working with one industry segment selected by the company. Due to lower costs, the company will be able to achieve a high competitive advantage in the eyes of its target group. The second branch of the strategy is to focus on differentiation. The company’s task in this case becomes to present its product as attractive as possible to a specific target audience. In this case, it is important to choose a narrow target audience (not in quantity), which will be significantly different from the rest of the audience.

The problems with this strategy are that when working with a small target audience, a company will have higher costs than one that works for the entire industry. Finally, Michael Porter identifies another important threat - competitors may find a narrow market segment in the segment in which the company operates, thereby seriously complicating its life.

According to Michael Porter, any of these strategies gives a company a competitive advantage. The worst thing is if the company is delayed halfway through choosing a strategy. In this case, it will gradually lose market share, its costs will rise, which will not allow it to work with large buyers. Also, the company will not be able to grab narrow niches and compete with other products that have surpassed it due to differentiation. When choosing one of Porter's basic strategies, it is very important to understand what the company ultimately wants to achieve. After all, focusing and differentiation strategies can even contribute to a serious decrease in revenue (but not profit). All this leads to the fact that when choosing a strategy for an existing company, a full-fledged reorganization may be necessary, which will inevitably entail layoffs.

Michael Porter's basic strategies are management classics and have served as the basis for many current strategies. I hope that this article was useful for you too.

“For a company to generate stable, growing income, it needs to achieve leadership in one of three areas: product, price, or a narrow market niche,” said Michael Porter, presenting his theory of effective competition to the world. In this article we will look at the basic competitive strategies of an enterprise according to Porter and propose an action plan for a company that has not yet determined the strategic direction of business development. Each type of competitive strategy we examined is actively used in marketing around the world. The presented classification of competitive strategies is very convenient and suitable for a company of any size.

A leading professional in the field of competitive strategy is Michael Porter. Throughout his professional career, he was involved in systematizing all models of competition and developing clear rules for conducting competition in the market. The figure below shows Porter's modern classification of competitive strategies.

Let's understand the concept and essence of competitive strategy for business. A competitive strategy is a list of actions that a company takes to obtain higher profits than its competitors. Thanks to an effective competitive strategy, the company attracts consumers more quickly, incurs lower costs for attracting and retaining customers, and receives a higher rate of return on sales.

Porter identified 4 types of basic competitive strategies in the industry. The choice of type of competitive strategy depends on the company's capabilities, resources and ambitions in the market.

Fig. 1 Michael Porter's matrix of competitive strategies

Porter's matrix of competitive strategies is based on 2 parameters: market size and type of competitive advantage. Market types can be broad (large segment, an entire product category, an entire industry) or narrow (a small market niche accumulating the needs of a very narrow or specific target audience). The type of competitive advantage can be of two options: low cost of goods (or high profitability of products) or wide variety of assortment. Based on this matrix, Michael Porter identifies 3 main strategies for a company’s competitive behavior in the industry: cost leadership, differentiation and specialization:

• Competitiveness or differentiation means creating a unique product in an industry;
• Competitive or cost leadership refers to a company's ability to achieve the lowest cost level;
• Competitive or niche leadership means focusing all of a company's efforts on a specific narrow group of consumers;

There are no “middle” strategies

A company that does not choose a clear direction for its competitive strategy is “stuck in the middle”, does not work effectively and operates in an extremely unfavorable competitive situation. A company without a clear competitive strategy loses market share, manages investments ineffectively, and earns low profit margins. Such a company loses customers interested in a low price because it is unable to offer them an acceptable price without loss of profit; and on the other hand, it cannot obtain buyers interested in the specific properties of the product, since it does not concentrate efforts on developing differentiation or specialization.

Action plan

If your company has not yet decided on the vector of its competitive strategy, then it’s time to rethink the key goals and objectives of the business, evaluate the company’s resources and capabilities and go through 3 successive steps: