Porters change managment strategy

Porters generic strategies approach to gaining a competitive advantage

• Theory that attempted to explain how a business can gain a competitive advantage by implementing change in how they operate

two generic strategy

• Lower cost

• Differentiation

Strategy 1: Lower cost (cost advantage)

• If a business can lower its costs, it will allow that business to become more profitable as its margin can increase

How

• Cheaper supplies & suppliers

• Reducing employees

• New technology to produce less waste

• Implement more inventory control and lean management strategies to reduce costs associated with storage wasted inputs and overproduction

Advantages & Disadvantage

Advantage

• Business should be more profitable without worrying about increasing the number of products they sell

• Enables a business to withstand price wars longer

Disadvantage

• Lowering costs has potential to impact on quality of product

• eg. poor quality inputs can lead to poor quality outputs

• If business want to lower price of product, sales volume will need to increase

Strategy 2: Differentiation

• Business is able to gain a competitive advantage through making their goods or services unique compared to competitors

• Promote itself as a innovator and appeal more to certain customers

How

• Improving quality/durability of outputs

• Illustrating greater sustainability

• High level customer service experience

Advantages & Disadvantages

Advantages

• Harder to replicate and enable a business to charge premium price

• Can lead to brand loyalty as others dont offer the same

Disadvantages

• increased costs of production/ Hard to find inputs and resources

• Differentiating may narrow available market for business meaning sale volume may drop

Similarities and differences selling price

Similarity

• both approaches are based on the concept of how a business can best gain a competitive advantage

• each strategy has the ability to enable a business to imrpove on their level of performance, profitability, more customer/sales

Difference

• lower cost decreases price

• differentiation approach raises price

Similarity and differences internal vs external

• adopting lower cost is more internal for the business with it unlikely to be easily identifiable to those outside

• differentiation approach is more external, business point of difference is something promoted and marketed