10 Sep Overall cost leadership (you make something everybody else makes at lower unit cost) (2) Differentiation (nobody else makes exac
Michael Porter wrote a book, Competitive Advantage (New York: The Free Press, 1980), which became the standard text on corporate strategy during the 1980s and 1990s, and remains so even today. In it, he claims that there are three sources of competitive advantage (1980, pp. 35-40):
(1) Overall cost leadership (you make something everybody else makes at lower unit cost)
(2) Differentiation (nobody else makes exactly what you make, and consumers are willing to pay a little extra to buy what you make rather than a substitute)
(3) Focus (you make a product or produce a service which is generally available, but focus on serving a narrow customer base and doing it better than anyone else)
Approach (3), if you think hard about it, is really just a combination of the other two, focused on a specific, often narrow customer base. Porter refers to the first two as “pure strategies.” See Slides 4-10 of the Lesson 10 Power Point for an analysis of these two pure strategies.
The rest of Porter’s book is a framework—the 5 Forces Model and its application—for assessing a business’s competitive situation, and how to direct its energies towards “winning.”
- What is the relationship between Porter’s approach and that of “Blue Ocean” theory? What significant differences are there between them (if there are any)?
- How are these approaches related to Drucker’s concept of “creating a customer”? Justify your position.
- How are each of them related to Drucker’s 5th principle of systematic entrepreneurship (“Aim at market leadership”)? Justify your position.
- Do you prefer one of these approaches over the other? Why or why not?
This written assignment is 6 pages, not including the title page and references. Use Times New Roman 12-pt font.
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