The generic strategies function as a foundation when you choose a future strategy. There are three generic strategies; overall cost leadership, differentiation, and focus. These strategies can be used to develop the future strategy. If you follow the cost leadership strategy, basically you sell your products cheaper than your competitors. This requires that the overall cost level in the organization is kept at a minimum. Cost leaders that you probably have heard about are companies like IKEA and Wal-Mart. Differentiation involves the offering of a unique product, where the brand or service offering makes the product unique. These two strategies are usually not compatible. Focus is about focusing on a single segment or market. This strategy can be combined with the other two and create a focused cost leadership or focused differentiation.
A company can choose four different directions that can be based on the product-market grid. The market penetration is for companies who are already present with a product in a market who wish to penetrate the market more and turn more customers into regular customers. The market development focuses on breaking new grounds for existing products. Exporting is one option. Product development is about offering new or improved products in existing markets. Diversification is the last direction available where a company offers new products in new markets.
There are two ways to get the company started in the strategic direction you choose, either through internal development or through cooperation. Internal development has usually been preferred by companies since it gives more control and lower risk, and gives the opportunity for internal development. Cooperation on the other hand might be necessary in order to gain new knowledge and access into new markets.
Evaluation of alternatives can be made based on three criteria; the consequent criterion, the acceptable criterion, and the possible criterion. The consequent criterion is about making sure that the decision is consistent with previous decisions and the company’s objectives in order to avoid conflicts. The acceptable criterion makes sure that the choice is acceptable economically as well as politically, both internally and externally. Other possible criteria might also be relevant, like if the company has the right resources.
Making a choice
How a decision is taken and how choices are made has been subject to a number of theories. Choice can be made analytically-rationally, intuitively-emotionally, or politically-behaviorally. The two latter are the most common ones in practice, even though the first one is very useful to have in mind. Decision support tools can be very useful where certain criteria are given certain weights of importance and thereafter a ranking of the alternatives is made. Barriers to choice can be a lack of preparation, a lack of knowledge about strategic processes, narrow-mindedness, lack of control, over-optimistic capability assessment, and short-term shortcuts.
As was mentioned in the beginning, strategic choices can be made at different levels. At the business level there are several choices that a manager has to make in order to attain competitive advantage. A company is usually made up of a number of business units where each unit is responsible for its own competitive strategy since they often compete in different markets under different conditions. A competitive strategy can be viewed in different ways and there are usually several options available. The strategy clock can be used to evaluate the different options available to differentiate your firm and what kinds of strategies that are likely to fail. The strategies in the strategy clock have different focuses; there are strategies based on price, on product differentiation, a mixture of the two, or more focused strategies, and some strategies that are just doomed to fail. Regardless of what strategy you have, the competitive advantage that a company might have in the hypercompetitive markets today is only temporary, which requires more options and more choices that have to be acted on more rapidly than before. Choices you make are also likely to have an affect on the available options for others. Game theory is a theory about competitive moves in a market where every choice made affects the choices for the others.
At the corporate level the choice is about product and market diversity. There are different diversification strategies as has already been touched upon, as well as different types of integration.
At the international level the choice concerns market selection and market entry modes. You can read more about these in the International Management section.