2 As the process of making products unique and different is expensive, organizations that successfully pursue a differentiation strategy often charge a premium price for their products. D. “Stuck in the Middle” According to Porter, a company cannot pursue a low-cost and differentiation strategy simultaneously. He refers to managers and organizations that have not selected between the two as being “stuck in the middle.” E. Focused Low-Cost and Focused Differentiation Strategies 1. Porter identified two other business-level strategies used by companies aiming to serve the needs of customers in one or a few segments of the market. 2. A company pursuing a focused low-cost strategy serves one or a few segments of the market and aims to be the lowest-cost company serving that segment. 3. A company pursuing a focused differentiation
Chapter 06 - Planning, Strategy, and Competitive Advantage 6-11 strategy serves just one or a few segments of the market and aims to be the most differentiated company serving that segment. V. Formulating Corporate-Level Strategies A. Corporate-level strategy is a plan of action that determines the industries and countries an organization should invest its resources in to achieve its mission and goals. B. Concentration on a Single Industry: This is a corporate-level strategy in which a company reinvests its profits to strengthen its competitive position in its current industry. It is an appropriate strategy when managers see the need to reduce the size of their organizations to increase performance. C . Vertical Integration: It is the corporate-level strategy that involves a company expanding its business operations either backward into a new industry that produces inputs for the company’s products ( backward vertical integration) or forward into a new industry that uses, distribute s, or sells the company’s products (forward vertical integration). 1. Managers pursue vertical integration because it allows them to either add value to their products by making them special or unique or to lower the costs of making and selling them. 2. Although vertical integration can increase an organization’s performance , it can also reduce an organization’s flexibility to respond to changing environmental conditions. 3. Vertical integration may sometimes reduce a company’s ability to create value when the environment changes. Therefore, many companies outsource the production of component parts to other companies and exit the components industry – by vertically disintegrating backwards. D. Diversification: It is the strategy of expanding operations into a new business or industry in order to produce new goods or services There are two main types of diversification: related and unrelated.
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- Management, A. Michael Porter