Simplified Strategy for Finance – Porter’s Generic Strategies
As a CFO or FP&A it’s important to help your organization in selecting the right strategy which will make it growing faster and differentiated among competitors.
Porter’s Generic Strategies is one of the most frequently used techniques to visualize the approach of a company or organization toward its competitors. It includes three basic strategies, namely the “Cost Leadership Strategy,” “Differentiation Strategy” and “Focus Strategy.” Porter indicated that every organization should only pursue one of these strategies.
1. The Cost Leadership Strategy
It involves being the leader in terms of cost in your industry or market, and it could be implemented though increasing profits by reducing costs, while charging industry-average prices, or increasing market share by charging lower prices, while still making a reasonable profit on each sale because you’ve reduced costs.
The successful cost leadership strategy could be achieved through different approaches like invest in technology that will bring costs down, having very efficient logistics process, low operation cost base (labour, materials, facilities, etc), and a way of sustainably cutting costs below other competitors.
2. The Differentiation Strategy
It is about making your products or services different from and more attractive than those of your competitors. To achieve a successful differentiation strategy you will need to have a solid R&D and innovation process and an organizational culture that can support these activities, the ability to deliver high-quality products or services, and strong sales & marketing functions, so that the market understands the benefits offered by the differentiated offerings.
3. The Focus Strategy
It is about concentrating on a particular niche market, by understanding the dynamics of that market and the unique needs of your customers within it, you should develop uniquely low-cost or well-specified products for that market.
To make the focus strategy successful the organization needs to serve its customers in their market uniquely well, and to build strong brand loyalty amongst its customers.
