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Porter’s Generic Strategies in Business


Business Unit Strategies

Chapter Outline 7-1 Porter’s Generic Strategies

7-1a Low-Cost (Cost Leadership) Strategy

7-1b Focus–Low-Cost Strategy

7-1c Differentiation Strategy (No Focus)

7-1d Focus-Differentiation Strategy

7-1e Low-Cost–Differentiation Strategy

7-1f Focus–Low-Cost/Differentiation Strategy

7-1g Multiple Strategies

7-2 Miles and Snow’s Strategy Framework

7-3 Business Size, Strategy, and Performance

7-4 Assessing Strategies

7-5 Global Concerns

7-6 Summary

Key Terms

Review Questions and Exercises

Practice Quiz


Reading 7-1


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9781111219802, Strategic Management: Theory and Practice, John Parnell – © Cengage Learning

W I L L I S , K A S S A N D R A 2 1 6 1 T S



150 Chapter 7

A fter a fi rm’s top managers have settled on a corporate-level strategy, their focus then shifts to how the fi rm’s business or businesses should compete. Whereas the corporate strategy concerns the basic thrust of the fi rm—where top managers would like to lead the fi rm—the busi-

ness or competitive strategy addresses the competitive aspect—who the business should serve, what needs should be satisfi ed, and how a business should develop core competencies and be positioned to satisfy customers’ needs.

Another way of addressing the task of formulating a business strategy is to consider whether a business should concentrate its efforts on exploiting current opportunities, exploring new ones, or attempting to balance the two. Exploitation generates returns in the short term; exploration can create forms of sustainable competitive advantage for the long term. The business strategy developed for an organization seeks, among other things, to resolve this challenge.1

A business unit is an organizational entity with its own mission, set of competi- tors, and industry. A single fi rm that operates within only one industry is also considered a business unit. Strategic managers craft competitive strategies for each business unit to attain and sustain competitive advantage, a state whereby its successful strategies cannot be easily duplicated by competitors.2 In most indus- tries, different competitive approaches can be successful, depending on the busi- ness unit’s resources

Each business competes with a unique competitive strategy. In the interest of simplicity, however, it is useful to categorize different strategies into a lim- ited number of generic strategies based on their similarities. Generic strategies emphasize the commonalities among different business strategies, not their differences. Businesses adopting the same generic strategy comprise what is commonly referred to as a strategic group.3 In the airline industry, for exam- ple, one strategic group may comprise carriers such as Southwest Airlines and AirTran that offer low fares and no frills on a limited number of domestic routes, thereby maintaining their low-cost structures (see Figure 7-1). A second strategic group may comprise many traditional carriers such as Continental, United, and American that serve both domestic and international routes and offer extra ser- vices such as meals and movies on extended fl ights.