Loading...

Generic vs. hybrid competitive strategies

A comparison

Term Paper 2015 22 Pages

Business economics - Business Management, Corporate Governance

Excerpt

List of Contents

List of Abbreviations

1 Introduction

2 Being successful through competitive advantages
2.1 Competitive advantage
2.2 The PIMS-Research study
2.3 Porters U-Curve

3 Competitive strategies
3.1 Relevance of competitive strategies
3.2 Generic competitive strategies
3.3 Being “Stuck in the middle”
3.4 Hybrid competitive strategies

4 Literature review
4.1 Hall
4.2 White
4.3 Wright et al.
4.4 Miller & Dess
4.5 Thornhill & White

5 Conclusion

Bibliography

List of Abbreviations

illustration not visible in this excerpt

1 Introduction

The strength of competition rises from day to day caused by a more globalized world economy. Because of that it is even more important to be prepared in order to remain globally successful in competition. Therefore the discussion about competitive strategies as a path to success was promoted over the last years.

One of the general frameworks, the generic competitive strategies, linked to this topic was developed by Michael E. Porter. This framework is related to the hypothesis that only these generic strategies in their pure form would lead to above average performance in competition.[1] Besides that other authors described strategy models consisting of combinations of the generic strategies called combination or hybrid strategies although these theories contradict the hypothesis of porter. [2]

The purpose of this work is to find evidence for the existence and the performance of hybrid strategies in comparison to generic ones.

Therefore the first step is an explanation of competitive advantages. Then the coherence of return on investment and market share is explained. Further competitive advantages are derived from that relationship. After that the generic competitive strategies are annotated as a way to achieve competitive advantages. Besides that the hypothesis of inconsistency concerning hybrid strategies by Porter is explained. In addition the hybrid strategies are elucidated. In the last part of this work evidence for the existence and performance of these strategies shall be proven on an empirical basis by evaluating different studies from different authors.

2 Being successful through competitive advantages

2.1 Competitive advantage

A competitive advantage is defined as a value a company creates which is seen as superior by its consumers to competing companies.[3] An evidence that a company has a competitive advantage can be suitable profitability, which is gained over a long-term period by the company with its products.[4]

2.2 The PIMS-Research study

The PIMS-Research study started in 1972. The abbreviation PIMS stands for “Profit impact of market strategy” and shows the purpose of the survey which was to find a relationship between strategic means and profitability.

The survey led to a database of business segments of different companies which made a comparison of different financial and strategic key figures possible.[5]

Through this research a relationship between market share and profitability of business segments could be proven. The following figure shows this relationship on a basis of the 4-year average ROI values of 594 business segments in comparison to the market share in a segment.[6]

Figure 1: Coherence of ROI and Market share

illustration not visible in this excerpt

The figure shows a positive correlation between market share and return on investment. One possible reason for that is the economies of scale effect. The term economies of scale describes the inverse relationship between the quantity produced and per-unit costs.[7] This effect can lead to the fact, that the company with the highest market share is able to realize the lowest operating costs. Apart of that there are further reasons which explain the market share to ROI relationship. A certain market power is one of these reasons. The market power of a company rises with its market share. This can lead to the fact, that a company can occupy a better negotiation position towards suppliers and consumers. Through this position a company can get better prices for its products and realize cost saving in supply negotiations. Furthermore a company with a high market share has the advantage of the quality of management. That means that only skillful and good managers are able to motivate and lead a company’s personnel in order to achieve high market shares. Once reached it is much easier to retain its lead than for others to catch up. [8]

Altogether the underlying competitive advantage is the overall cost situation of a company.

2.3 Porters U-Curve

The mentioned relationship in chapter 2.2 between market share and ROI evoked the question if companies with a small market share would be able to gain above-average ROI values. [9] Because of that other authors considered this issue and concluded that small companies could have high ROI rates as well.[10] One model related to this topic was developed by Michael E. Porter. The following figures show his approach of this relationship.

Figure 2: The relationship between ROI and Market share according to Porter

illustration not visible in this excerpt

As shown in the figure companies with high as well as low market shares can earn above-average return on investments. Following Porter’s approach companies are able to achieve two different types of competitive advantages in order to reach these ROI values.

One competitive advantage is based on the overall cost situation linked to high market shares and the other is based on the differentiation of the goods a company produces linked to a rather low market share.[11]

As a result of this consideration Porter developed competitive strategies in order to achieve one of these competitive advantages.

3 Competitive strategies

3.1 Relevance of competitive strategies

In the last chapter different competitive advantages which can lead to above average performance were introduced. The resulting question is how to achieve such a competitive advantage. The structured ways towards a competitive advantage are different competitive strategies. Basically all actions which support the achievement of the long-term company objectives can be summarized as a strategy. [12] Further is a competitive strategy focused on a favorable position in competition in order to gain above average return on investment values.[13]

3.2 Generic competitive strategies

In order to achieve competitive advantages Porter developed his model of generic competitive strategies. The following figure shows Porter’s approach of these strategies.

Figure 3: Porter's Generic Strategies

illustration not visible in this excerpt

One of the three generic strategies is the overall cost leadership. This strategy is defined by a competitive cost advantage in comparison to competing rivals reached through the lowest production costs per unit.[14] This competitive advantage can be passed to the consumer what can pave the way for the company towards the price leadership.[15] All in all the success of this strategy is based on a high market share and below-average prices while producing at even lower costs. [16]

The second competitive strategy which is to be mention is the so called differentiation strategy. The competitive advantage is based on a uniqueness perceived by the customer.[17] The uniqueness shall cause a reduction of the price elasticity of demand.[18] Through this reduction a company can achieve higher prices followed by above-average ROI values.

The third competitive strategy which was developed by Porter can be seen in the lower box of the figure. The strategy can lead to a competitive strategy by using the strategies mentioned above focused on a particular market segment. [19] Because of that Porter calls these strategic options focus strategies. The market segments are focused on different geo-, demo-, and sociographic factors. Essential for the success of the focus strategies is that the adaptation of customer needs in a certain niche has to be performed better than other rivals could do it while serving needs of a industry-wide segment.[20]

3.3 Being “Stuck in the middle”

Based on the strategies mentioned above Porter explains what happens if companies are not able to gain competitive advantages because of the fact that they try to pursue more than one or no competitive strategy. Porter calls this situation „stuck in the middle“. He explains that without a real competitive advantage a company is not able to generate above average return on investments.[21] The explanation of this fact is based on three major arguments.

The first argument refers to the relationship between market share and strategy type. The cost leadership strategy is linked to a high market share because of the fact that the aimed competitive advantage is based on economies of scale effects. Besides that the differentiation strategy comes along with a rather low market share because of the needed exclusivity of the products.[22] As a result of this the following figure shows that Porter describes a bended relationship between market share and the ROI of a company.[23]

Figure 4: The "stuck in the middle" hypothesis

illustration not visible in this excerpt

It is obvious that this perception includes a contradiction of the generic strategies because of the totally different approaches of the market share allocation. Because of the course of the graph this argument is called convexity hypothesis.[24]

Further there is a second argument for Porters “stuck in the middle” approach. It is based on the fact that a company has to concentrate its resources on the strategy it wants to follow. According to Porters approach the successful implementation of a competitive strategy requires special arrangements which are always inconsistent in comparison to the other strategies.[25] Because of that this argument is known as concentration principle in professional literature.[26]

The last argument which is linked to Porters approach deals with the question of consistency while pursuing a strategy. It states that at a certain point steps in order reach the goals of one strategy are in a conflict with steps of another strategy. These trade-offs make it impossible to follow two generic strategies at the same time.[27] In accordance with Simon this argument is called consistency principle.[28]

3.4 Hybrid competitive strategies

In literature some authors made the attempt to classify the hybrid competitive strategies.

The following figure gives an overview over the different typologies of hybrid strategies complemented by the most discussed models of concrete strategies.

Figure 5: Hybrid strategies summarized

illustration not visible in this excerpt

As shown in the figure the first classification of hybrid competitive strategies consists of the simultaneous strategies. The basic idea of this typology is that a company tries to gain two competitive advantages at the same time. The following figure shows that a combination of the differentiation and the low-cost approach shall maximize the benefit for the customer.

Figure 6: Procedure of simultaneous hybrid strategies

illustration not visible in this excerpt

In order of that a company is able to generate above average ROIs through a surcharge for the differentiation and the cost-leadership in a certain branch.[29] The most discussed simultaneous strategy is the so called “Mass Customatization“ which enables a individual production of goods at a low-cost level. [30]

The second typology of hybrid strategies is known as multilocal strategies. Essential for this strategy classification is a physical separation of cost and differentiation advantages.[31]

The following figure shows that a once gained low-cost advantage on a global basis can be adapted to other countries where the company tries to achieve differentiation advantages.

[...]


[1] Cf. Porter, M. E. (2008), p. 71ff

[2] Cf. Welge, M. K., Al-Laham, A. (2008), p. 534; Ehlebracht, F. (2010), p. 114 ????

[3] Cf. Porter, M. E. (2014), p. 13

[4] Cf. Porter, M. E. (2014), p. 21

[5] Cf. Buzzell, R. D., Gale, B. T. (1987), p. vii

[6] Cf. Buzzell, R. D.,Gale, B. T.,Sultan, R. G. M. (1975), p. 98

[7] Cf. Besanko, D., et al. (2010), p. 42

[8] Cf. Buzzell, R. D., Gale, B. T., Sultan, R. G. M. (1975), p. 98

[9] Cf. Buzzell, R. D., Gale, B. T. (1987), p. 84

[10] Cf. Hamermesh, R. G., Anderson, M. J., Harris, J. E. (1978), p. 95ff; Woo, C. Y.,Cooper, A. C. (1982), p. 106ff

[11] Cf. Porter, M. E. (2014), p. 33

[12] Cf. Welge, M. K., Al-Laham, A. (2008), p. 16

[13] Cf. Winkler, H., Slamanig, M. (2009), p. 546

[14] Cf. Porter M. E. (2014), S. 35

[15] Cf. Winkler, H., Slamanig, M. (2009), p.546

[16] Cf. Slamanig, M. (2011), p. 103

[17] Cf. Hungenberg, H. (2006), p. 189

[18] Cf. Slamanig, M. (2011), S. 104

[19] Cf. Müller, B. (2007), p. 16

[20] Cf. Porter, M. E. (2008), p. 76

[21] Cf. Porter, M. E. (2014), p. 40

[22] Cf. Porter, M. E. (2008), p. 75

[23] Cf. Fleck, A. (1995), p. 14

[24] Cf. Barzen, D., Wahle, P. (1990), p. 107

[25] Cf. Porter, M. E. (2014), p. 41; Porter, M. E. (2008), p. 79ff

[26] Cf. Simon, H. (1988), p. 469ff

[27] Cf. Porter, M. E. (2014), p. 43

[28] Cf. Simon, H. (1988), p. 471ff

[29] Cf. Welge, M. K., Al-Laham, A. (2008), p. 539; Fleck, A. (1995), p. 89

[30] Cf. Piller, F. T. (2001), p. 206

[31] Cf. Fleck, A. (1995), p. 71; Blecker, T. (1999), p. 172

Details

Pages
22
Year
2015
ISBN (eBook)
9783668195509
ISBN (Book)
9783668195516
File size
893 KB
Language
English
Catalog Number
v320272
Institution / College
University of Applied Sciences Essen
Grade
1,3
Tags
generic

Author

Share

Previous

Title: Generic vs. hybrid competitive strategies