Michael E. Porter first talked about Generic Strategies in 1985. These strategies help businesses in pursuing and achieving competitive advantages. Moreover, it also assists businesses in maximizing their profit potential. Initially, Porter detailed three strategies – cost leadership, differentiation, and focus. But later, he subdivided the focus strategy into cost focus and differentiation focus. Adopting one of these strategies guides a firm in framing strategies at the micro levels. However, each of Porter’s strategies has its own benefits and risks, and the firm adopting that particular strategy must be aware of those. In this article, we will take a look at the advantages and disadvantages of Porter’s generic strategies in general.
Porters Generic Strategies: Advantages
Below are the advantages of Porter’s generic strategies:
For Company
Strategy Selection
Porter’s generic strategies prove that there is no best strategy. Rather, selecting a strategy depends on the time and circumstance.
Entry Barriers
These strategies help to create entry barriers. This, in turn, helps the companies already operating in the industry to cement their position.
Focus on Strength
Porter’s strategies help a firm to avoid a ‘stuck in the middle’ situation. Normally, a firm tries to focus on both cost and differentiation, and this could lead to confusion. Porter’s generic strategies, however, advocates focus on one strategy as per their strength.
Increase in Profits
It helps companies to increase their profits, revenue, and market share.
For Customer/Industry
Lower Price
To customers, Porter’s generic strategies’ could mean they get the product at a low cost or a product that is better and different.
Equally Efficient
These strategies show that the differentiation strategy is as efficient as the cost leadership strategy.
Porters Generic Strategies: Disadvantages
Below are the disadvantages of Porter’s generic strategies:
For Company
Difficulty in Strategy Selection
It is very challenging for a small firm to select one strategy. This is because they may not be able to afford the tools needed to effectively implement the strategy.
One Strategy Forever
Porter stresses that a firm should stick to one strategy. In real life, however, it gets important for companies to change their strategies as per the change in the external environment.
For Customers/Industry
Fewer Options
Porter’s generic strategies contribute to creating entry barriers, making it hard for other players to enter the industry. It also means that consumers eventually get fewer options.
Investment
In practice, companies need to spend money to make their products different from others. Spending on a product makes it inconsistent with the cost strategy. So, the cost leadership and differentiation strategy may be contradictory.
Final Words
Porters Generic Strategies’ have certainly helped many companies to achieve success in their industry. It is, however, very important for companies to have a clear understanding of the strategy that they are adopting, as well as its limitations and drawbacks.
For detailed knowledge, read our article:
- Advantages and Disadvantages of Cost Leadership Strategy.
- Advantages and Disadvantages of Focus Strategy.
