Business organisation and environment

Table of Contents

1. Topic pack - introduction
2. 1.1 Nature of business activity - notes
3. 1.1 Nature of business activity - questions
4. 1.2 Types of organisation - notes
5. 1.2 Types of organisation - questions
6. 1.3 Organisational objectives - notes
7. 1.3 Organisational objectives - questions
8. 1.4 Stakeholders - notes
9. 1.4 Stakeholders - questions
10. 1.5 External environment - notes
11. 1.5 External environment - questions
12. 1.5 External environment - simulations and activities
13. 1.6 Organisational planning tools - notes
14. 1.6 Growth and evolution - notes
    1. Economies and diseconomies of scale
    2. Types of economy of scale
    3. Internal and external economies and diseconomies of scale
    4. Economies and diseconomies of scale - examples
    5. Small versus Large Organisations
    6. Internal and external growth
    7. Internal growth
    8. External growth
    9. Joint Venture and Strategic Alliance
    10. Mergers and takeovers
    11. Porter's generic strategies
    12. Franchises
    13. Ansoff matrix
15. 1.7 Growth and evolution - questions
16. 1.7 Growth and evolution - simulations and activities
17. 1.6 Change (HL only) - notes
18. 1.9 Globalisation - notes
19. 1.9 Globalisation - questions
20. Print View

Porter's generic strategies

For an organisation to obtain a sustainable competitive advantage, Michael Porter suggested that they should follow either one of three 'generic' strategies.

These ideas were developed by Michael Porter in 1980 in his book Competitive Strategy: Techniques for Analysing Industries and Competitors. He argued that the strengths of a firm basically fall into one of two categories:

1. Cost advantageor
2. Differentiation

He then looked at applying these strengths in either a broad scope (looking at the whole market) or a narrow scope (looking at a particular segment of the market). As a result of this approach, he came up with three 'generic strategies'.

They are called generic strategies because they are not firm or industry dependent. The diagram below illustrates these different strategies.

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• Porter generic strategies

The skill required is to choose the right strategy at the right time. These generic strategies are driven by five competitive forces that the organisation has to take into account (see unit 4.2 in the marketing topic).

Porter warned against firms becoming 'stuck in the middle', where they feel threatened on all fronts by new competitors and respond by trying to compete on costs, image and quality rather than selecting the strategy most appropriate for the business. Unless the business focuses on the areas where it has a competitive advantage, customers will become confused about what the business is and what it represents.

Without looking at the diagram above, can you match the generic strategies with their market position?

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Porter's generic strategies Can you match each generic strategy with its market position? a) Cost leadership strategy Choose... Narrow market scope, unique product Narrow market scope, low cost Broad market scope, low cost Broad market scope, unique product b) Focus strategy (differentiation) Choose... Narrow market scope, unique product Narrow market scope, low cost Broad market scope, low cost Broad market scope, unique product c) Focus strategy (low cost) Choose... Narrow market scope, unique product Narrow market scope, low cost Broad market scope, low cost Broad market scope, unique product d) Differentiation strategy Choose... Narrow market scope, unique product Narrow market scope, low cost Broad market scope, low cost Broad market scope, unique product Yes, that's correct. Well done.No, that's not quite right. Check back to the diagram and then have another go.Your answer has been saved.