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Generic Competitive Strategies Essay

2149 words - 9 pages

Porter describes a structure for evaluating the behavior of costs, the determinants of relative cost position, and the way firms can gain a sustainable cost advantage or minimize their cost disadvantage. The study also reveals the cost differentiation, and the ways a differentiated competitor can lower costs in the areas that do not undercut its differentiation. Porter also made a concrete proposal over the value chain and its connection to cost analysis. Porter said that "the value chain provides the basic tool for cost analysis". He began describing the pattern of the value chain relative to cost analysis by showing how to define a value chain for cost analysis purposes and how to associate costs and assets with value activities. He then described how to analyze the behavior of cost, using the concept of cost drivers. Cost drivers are the structural determinants of the cost of an activity, and differ in the extent to which a firm controls them. Cost drivers determine the behavior of costs within an activity, reflecting any linkages or interrelationships that affect it. A firm's cost performance in each of its major discrete activities cumulates to establish its relative cost position. After presenting the framework for analyzing cost behavior, Porter then tells how a firm assesses the relative cost of competitors and achieves a sustainable cost advantage. He then describes some important pitfalls in developing an understanding of cost position. Then porter concluded the chapter with a discussion of the steps in strategic cost analysis. On the next chapter "Differentiation", Porter presented a framework for analyzing differentiation and choosing a differentiation strategy. He describes the sources of differentiation, which can arise anywhere in a firm's value chain. He said that successful differentiation strategies grow out of the coordinated actions of all parts of a firm, not just the marketing department. He then showed how to determine the cost differentiation and how it varies by competitor. He also described how to diagnose what types of differentiation create buyer value, employing the buyer's value chain as a tool for doing so. Next, he showed how to translate an analysis of buyer value into specific buyer purchase criteria. Finally, Porter used all of those concepts to describe how to choose all of these concepts to describe how to choose a differentiation strategy, and highlight some common pitfalls in pursuing one.Just as it was helpful to use Porter's Five Forces model as a framework to analyze industries, Porter's Value Chain is an effective tool to understand, at a high level, how each of internal business activities adds value to organizations by dividing a business into strategically relevant activities (Primary and Support Activities). And it enables top management to identify the source of competitive advantage by performing these activities in a cost-effective way or better than its competitors. As a very powerful cost...

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