Goals indicate what a business unit wants to achieve; strategy is a game plan for getting there. Each business needs to design a strategy for achieving its goals, consisting of various strategies.
PORTER’S STRATEGIES
Michael Porter has proposed three general strategies that provide a good starting point for strategic thinking:
Overall Cost Leadership – Some business works hard to achieve the lowest product and distribution costs so that it can price its products lower than its competitors’ and win a large share of the market. For pursuing this strategy the firm must be good at engineering, purchasing, manufacturing and physical distribution. Such strategies give less stress on marketing and thus firm need less skill in marketing. But the general problem with this strategy is that other firms can easily compete with still lower cost and hurt the firm that rested its whole future on cost.
Differentiation - The business concentrates on achieving superior performance in an important customer benefit area valued by a large part of the market. The firm cultivates those strengths that will contribute to the intent differentiation. Thus, the firm seeking quality leadership, for example, must make product with the best components, put them together expertly , inspect them carefully and effectively communicate their quality.
Focus – Some business focuses on one or more narrow market segments. The firm gets to know this segment intimately and pursues either cost leadership on differentiation within the target segment.
According to Porter firm pursuing the same strategy directed to the same target market constitutes a strategic group. The firm theta carries out the strategy best, will make the most profit. Firms that do not pursue a clear strategy and try to be good on all strategic dimensions do the worst.
Many companies believe they can win by performing the same activities more effectively than their competitors; but competitors can quickly copy the operationally effective company using benchmarking and other tools, thus dimensioning the advantage of operational effectiveness.
Porter defines strategy as “the creation of a unique and valuable position involving a different set of activities.” A company can claim that it has a strategy when it “performs different activities from rivals or performs similar activities in different ways”.
