leadership, differentiation, and focus are discussed along with the advantages a nd risks inherent with each strategic

option. The article includes tips for stud ents and analysts on how to write good generic strategies analysis for a firm. M oreover, sources of findings information for generic strategies analysis have be en discussed. The limitations of Porter's generic strategies analysis have been discussed, and the relationship between these strategies and industry forces is also discussed. Introduction Porter's generic strategies framework constitutes a major contribution to the de velopment of the strategic management literature. Generic strategies were first presented in two books by Professor Michael Porter of the Harvard Business Schoo l (Porter, 1980, 1985). Porter (1980, 1985) suggested that some of the most basi c choices faced by companies are essentially the scope of the markets that the c ompany would serve and how the company would compete in the selected markets. Co mpetitive strategies focus on ways in which a company can achieve the most advan tageous position that it possibly can in its industry (Pearson, 1999). The profi t of a company is essentially the difference between its revenues and costs. The refore high profitability can be achieved through achieving the lowest costs or the highest prices vis--vis the competition. Porter used the terms cost leadership' a nd differentiation', wherein the latter is the way in which companies can earn a pr ice premium. Main aspects of Porter's Generic Strategies Analysis Companies can achieve competitive advantages essentially by differentiating thei r products and services from those of competitors and through low costs. Firms c an target their products by a broad target, thereby covering most of the marketp lace, or they can focus on a narrow target in the market (Lynch, 2003) (Figure 1 ). According to Porter, there are three generic strategies that a company can un dertake to attain competitive advantage: cost leadership, differentiation, and f ocus. Figure 1: Source: Porter (1985) Cost leadership The companies that attempt to become the lowest-cost producers in an industry ca n be referred to as those following a cost leadership strategy. The company with the lowest costs would earn the highest profits in the event when the competing products are essentially undifferentiated, and selling at a standard market pri ce. Companies following this strategy place emphasis on cost reduction in every activity in the value chain. It is important to note that a company might be a c ost leader but that does not necessarily imply that the company's products would have a low price. In certain instances, the company can for instance charge an average price while following the low cost leadership strategy and reinvest the extra profits into the business (Lynch, 2003). Examples of companies following a cost leadership strategy include RyanAir, and easyJet, in airlines, and ASDA an d Tesco, in superstores. The risk of following the cost leadership strategy is that the company's focus o n reducing costs, even sometimes at the expense of other vital factors, may beco me so dominant that the company loses vision of why it embarked on one such stra tegy in the first place. Differentiation When a company differentiates its products, it is often able to charge a premium price for its products or services in the market. Some general examples of diff erentiation include better service levels to customers, better product performan ce etc. in comparison with the existing competitors. Porter (1980) has argued th at for a company employing a differentiation strategy, there would be extra cost s that the company would have to incur. Such extra costs may include high advert ising spending to promote a differentiated brand image for the product, which in fact can be considered as a cost and an investment. McDonalds , for example, is differentiated by its very brand name and brand images of Big Mac and Ronald Mc Donald. Differentiation has many advantages for the firm which makes use of the strategy . Some problematic areas include the difficulty on part of the firm to estimate

if the extra costs entailed in differentiation can actually be recovered from th e customer through premium pricing. Moreover, successful differentiation strateg y of a firm may attract competitors to enter the company's market segment and co py the differentiated product (Lynch, 2003). Focus Porter initially presented focus as one of the three generic strategies, but lat er identified focus as a moderator of the two strategies. Companies employ this strategy by focusing on the areas in a market where there is the least amount of competition (Pearson, 1999). Organisations can make use of the focus strategy b y focusing on a specific niche in the market and offering specialised products f or that niche. This is why the focus strategy is also sometimes referred to as t he niche strategy (Lynch, 2003). Therefore, competitive advantage can be achieve d only in the company's target segments by employing the focus strategy. The com pany can make use of the cost leadership or differentiation approach with regard to the focus strategy. In that, a company using the cost focus approach would a im for a cost advantage in its target segment only. If a company is using the di fferentiation focus approach, it would aim for differentiation in its target seg ment only, and not the overall market. This strategy provides the company the possibility to charge a premium price for superior quality (differentiation focus) or by offering a low price product to a small and specialised group of buyers (cost focus). Ferrari and Rolls-Royce ar e classic examples of niche players in the automobile industry. Both these compa nies have a niche of premium products available at a premium price. Moreover, th ey have a small percentage of the worldwide market, which is a trait characteris tic of niche players. The downside of the focus strategy, however, is that the n iche characteristically is small and may not be significant or large enough to j ustify a company's attention. The focus on costs can be difficult in industries where economies of scale play an important role. There is the evident danger tha t the niche may disappear over time, as the business environment and customer pr eferences change over time.