I got done with the second part of this reading that focused on Differentiation, Cost Focus and Differentiation Strategy. There is a brief explanation on Stuck in the middle firms and on the requirements of sustaining competitive advantage. Lastly, the reading finishes off with the importance of generic strategy in strategic planning of a firm.
I’m thinking of jotting down some main points henceforth, because it will help me in quick revision later.
Differentiation– Focus on only some needs of the buyer and fulfill them. Charge a premium for it, but try to maintain cost parity by reducing cost in all areas that do not affect differentiation. There can be a number of firms pursuing this strategy, as long as they choose different buyer attributes.
Focus– Can be either cost focus or differentiation focus. If a focuser’s target segment is not different from other segments, then the focus strategy will not succeed.
Stuck in the middle– No competitive advantage. It basically means trying to follow all the strategies at the same time. It can be successful only if the competitors are also stuck in the middle or if the industry structure is highly favorable. In the long run, if other competitors shift towards a generic strategy, then the firm that is stuck in the middle can lose its profitability.
Three conditions under which a firm can simultaneously achieve both cost leadership and differentiation are-
1. Competitors stuck in the middle- Might be a temporary situation because the competitors might shift to a generic strategy in the future, leaving your firm in a soup.
2. Product innovation- It should not be easily copied by the competitors.
3. Cost is strongly affected by share or interrelationships- If market share dictates the cost structure, then this will help. Also unmatched relationships between industries that one firm can exploit and other cannot will also help.
Sustainability– We need to focus on the risks of the different strategies and try to eliminate them as much as possible.
Generic Strategies and the Strategic Planning Process– STPs must always be dictated by the generic strategy of the firm because it helps in building competitive advantage. Categorization of business units into build, hold or invest is a method of resource allocation and not a stategy.
Similarly, market share per se is not important competitively; competitive advantage is.
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So this completes Reading 41. I’m done with the end of chapter problems too. The ones in the Curriculum were quite challenging and I got only 2 correct. 😦 The ones in Schweser (concept checkers) were easier.
Also, in some industries, market leaders do not enjoy the best performance because industry structure does not reward leadership. The pursuit of leadership sometimes diverts attention from achieving and maintaining competitive advantage. So, smaller firms that are not market leaders might become more profitable because of their competitive advantage.
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