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Cost leadership five forces
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This assignment will cover how a business can gain a competitive advantage over similar businesses in the same market using sources such as cost advantage and differentiation. What will also be discussed is the value chain model made by Porter, and this assignment will explain what the model was actually designed for. Furthermore, it will be explained how a business can use methods of competitive advantage through various stages of Porter’s Value Chain in order to help it maintain and increase the competitiveness of the business, and this will be done through assessing the operations of the business and locating exactly where any competitive advantage can be gained. Lastly, Porter’s value chain features 9 activities which can each be identified as being either a primary or support activity and what will then be explained will be how these primary and support activities can add value to a business, and whether or not support activities can be considered as being any more or any less important than a primary activity. It is suggested by many that there are two ways for a business to gain competitive advantage; this is done through either cost advantage or differentiation. Porter (2004, p.64) claims that cost advantage is when a “firm achieves a lower cumulative cost of performing value activities than its competitors”. A good example of this would be ASDA within the food retailer industry. ASDA (ASDA beats its full year sales and profit plan, 2009), known for their “commitment to everyday low prices”, are very much a cost-leading competitor in the food retailer industry and they stated that they beat their “full year sales and profit plan” for the fourth consecutive quarter in 2009 by introducing a “significant cost reduction prog... ... middle of paper ... ...l Group (2008) Annual Report 2008: Our key strengths. [Online] Available at: http://www.homeretailgroup.com/ar/2008/review/keystrengths/p2.shtml (Accessed: 19/11/2011) Johnson, G., Scholes, K. (2002) Exploring Corporate Strategy: Text and Cases. 6th edn. Harlow: Pearson Education Limited. McGeary, R. (2011) Anatomy of Market Research [Online] Available at: http://www.remnet.com/porter.html (Accessed: 14/11/2011) Millar, V., Porter, M. (1985) ‘How Information Gives You Competitive Advantage’, Harvard Business Review pp. 18-36. [Online] Available at: http://zaphod.mindlab.umd.edu/docSeminar/pdfs/Porter85.pdf (Accessed: 17/11/2011) Needle, D. (2000) Business in Context: An introduction to business and its environment. Third edition. London: Thomson Learning Porter, M. (2004) Competitive Advantage: Creating and Sustaining Superior Performance. New York: FREE PRESS.
Porter (1997) suggests in order to gain competitive advantages in the changing business environment, it is essential to design a generic strategy for the business: product differentiation or cost leadership. The competitive strategy is determined at round 2, when recognised our rivals held whole product profile which was the product differentiation strategy. To differentiate our strategy from rivals for competitive advantages, Digby designed to imply the cost
Dess, G. G., Lumpkin, G. T., Eisner, A. B., & McNamara, G. (2012). Strategic Management: Text & Cases (6th Ed.). New York, NY: McGraw-Hill.
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 25-40.
We strive to create value for all our stakeholders with a highly disciplined approach to materially strengthening our businesses through successful implementation of the Crane Business System, through strategic linkages among our businesses, and through utilization of strong free cash flow for strategic acquisitions.”
Narrow focus on limited value chain activities, competitor’s pricing war and lack of differentiation parity can erode the competitive advantage associated with cost leadership strategy. Similarly, imitation of differentiating features by competition and lack of perceived value of the differentiating features can erode the competitive advantage associated with differentiation strategy.
The scope of this essay is to address coherently with examples a number of key areas of strategy; strategy and its importance, challenges in relation to development and implementation of strategies, and a discussion of the relevance of strategy in the modern
Value Chain Analysis is used to describe the activities that take place within the organization and relates them to an analysis of the competitive strength of the organization. Michael E. Porter (1991) stated that the activities of an organization could be divided into two groups: Primary Activities- Those that are directly concerned with creating and delivering a product and Support Activities- this group consist of those not directly involved in production, this group also add values to the organization because they help to increase effectiveness or efficiency (e.g. human resource management). Porter also stated that is not common for an organization to undertake all primary and support activities (Porter, 1991).
Porter, M. E., 1999. The Five Forces that Shape Competitive Strategy. Harvard business review, p. 80.
John G. S., 2008: Strategically thinking about the subject of Strategy [e-journal] 9(4) p.2 Available through:
of a firm to attain new forms of competitive advantage (Müller, 2011). It is due to these
Hendersern and Stern 2000, ‘Untangling the origins of competitive advantage’,Strategic Management Journal, Vol. 21, pp. 1123-1145.
Everybody is looking for prospects, clients and customers. In this challenging new economy you need every advantage you can get, especially in business. It is one of the crucial things that company should have as it is an advantage over competitors gained by offering consumers greater value providing greater benefits of product. However, we have to learn more of this advantage to create a competitive business strategy in order to answer the constantly increasing market competition (Grant, 2010).
...M. E. (2008). Competitive advantage: Creating and sustaining superior performance. New York: Simon and Schuster.
Johnson, G., Whittington, R., Scholes, K., Angwin, D. & Regnér, P. (2014) Exploring strategy text & cases. 10th Ed. Harlow: Pearson.
Competitive strategy is the approach that an organisation takes in order to gain advantage over its competitors. According to Porter, there are two major sources of competitive advantages: costs and differentiation. Cost-based competitive advantage involves reducing production costs so that an organisation can earn higher profit margin or offer products at lower price compared to competitors. Differentiation-based competitive advantage involves offering unique properties that are not offered by competitors’ products. Differentiation allows an organisation to charge a premium for their products because they offer additional benefits to buyers.