Porter based on the five forces proposed three principle strategies which he called Generic strategies that could be used to maintain a sustainable competitive advantage namely:

  • Overall cost leadership-this is where a firm sets out to become a low cost producer. The firm should offer customers product quality and features that are comparable to its competitors but also command prices if it is to be profitable. This can be achieved through;
  • Sustained capital investment in research and development
  • Use of process engineering skills i.e. simplifying the production process.
  • Minimize wastage
  • Tight cost control
  • Negotiating lower prices with suppliers.
  • Differentiation-this is where a firm finds one or more unique attributes for which customer are prepared o pay a premium price. It ca be based on the products themselves or their delivery. a firm that attains differentiation will be an above average performer as long as its price premium exceeds that extra cost incurred in providing the unique features. This strategy can be achieved by strong product design, superior marketing techniques, creativity, research, quality improvement and improved packaging.
  • Focus-this basically means choosing a market segment or group of segments with the view to attaining competitive advantages by catering for the unique requirements of those segments. The focus strategy can be based on attaining cost advantage or developing differentiation advantage. this strategy however can only succeed if section of the market is highly loyal to the products of the firm. It is however limited by imitations and loss of demand.

Strategy Formulation Constraints

In order for managers to formulate useful strategies, they must be aware of certain organizational constraints. Some of the major ones are:

  • Availability of financial resources-Even when a particular strategy appears optimal for an organization, serious consideration must be given to where the money to finance the strategy is going to come from.
  • Attitude toward risk-Some firms are willing to accept only minimal levels of risk, regardless of the level of potential return.
  • Organizational capabilities-Some otherwise excellent strategies may require capabilities beyond those an organization currently possesses.
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