Module 3
Formation of the organization's strategy

Topic 6
Reference Organizational Strategists

6.1. Porter's typology of strategies

M. Porter in the early 80s. XX century put forward ideas regarding competitive strategies derived from certain basic postulates. In his book Competitive Strategy, he presented three types of general strategies aimed at increasing competitiveness: cost leadership (keeping costs lower than competitors); differentiation (production of unique products); focusing (focusing on a specific group of buyers).

Porter proposed typologizing competitive strategies, based, on the one hand, on the scale of the market (wide, narrow) and, on the other hand, on the direction of the organization’s efforts either to minimize costs or to produce unique products (giving specific features to the product), which allows setting higher prices. Combinations of the listed preferences allow us to distinguish four types of strategies (Fig. 1.18):

Cost leadership strategy (maintaining costs at a lower level than competitors);

Differentiation strategy;

Cost Focus Strategy;

Focus on differentiation.

According to Porter, an organization must decide whether it should produce unique products and sell them at an inflated price, or whether it should reduce costs below those of competitors and thus achieve competitive advantage.

Rice. 1.18. Scheme of a generic strategy

Porter's concept of general (reference) strategies has a number of disadvantages. Thus, the concepts of differentiation and cost leadership have much in common: when differentiating, you need to remember the cost, and when reducing costs, you should not forget about quality standards. And cost leadership does not always bring more benefits than second, or, say, third place in the industry.

In addition, difficulties arise due to the contradictory requirements for organizing activities that each strategy implies.

And it is not clear why it is necessary to choose only one of the strategies, while the best solution can be provided by a combination of several of them.

6.2. Typology of strategies according to Thompson and Strickland

A decade later A.A. Thompson and A.J. Strickland proposed a slightly different model for classifying such strategies - five options for approaches to competition strategy:

Cost leadership strategy (cost reduction, which attracts a large number of buyers);

Broad differentiation strategy (giving products specific features that attracts a large number of buyers);

Optimal cost strategy (great value for customers through a combination of low costs and broad differentiation);

Focused or market niche strategy based on low costs (low costs and a narrow segment of buyers);

Focused or market niche strategy based on product differentiation (full satisfaction of customer requirements from a selected segment).

6.3. Business development strategies according to Kotler

In addition to general strategies aimed at increasing competitiveness, there are classifications of strategies that determine changes in their scope. For example, business growth strategies according to Kotler (Fig. 1.19):

Concentrated growth strategy: strengthening market position (growth through victory over competitors); market development (following market development regional center, the market of small towns and villages is being developed); product development, when, for example, following the release of yogurt, the organization begins to produce yogurt with raspberries, yogurt with blueberries, etc., which makes it possible to better satisfy the tastes of consumers and thereby ensure business growth;

Integrated growth strategy: “reverse” vertical integration” and “forward” vertical integration. In the first case, the organization acquires a share in the supplier’s property in order to establish order in his business, ensuring a reduction in costs, an increase in the quality and volume of rhythmically produced products, etc. Investments ensure business growth both through the activities of the supplier and through the emergence of new competitive advantages in the products of the organization itself due to the noted improvements in supplies. In the second case, integration with wholesale buyers or creating your own dealer network allows for growth both through volumes additional type activities, and by increasing sensitivity to changes in the situation on the goods market of the organization itself;

Diversified growth strategy: centered diversification (as expanding the range of products, for example, cars); horizontal diversification (as a partial transition to an industry adjacent to the main activity: for example, by producing cars, we master the production chemical industry – detergents for cars); conglomerate diversification, when key competence allows on its basis to organize the production of products from various industries (for example, competence in the production of microprocessors allows the production of sewing machines, refrigerators, cars and other technically difficult-to-manage products);

Reduction strategy: liquidation in case of bankruptcy or near bankruptcy; harvesting, when a “promoted” business is sold to invest the proceeds in a fast-growing market segment; cutting costs (for example, during an economic downturn).

Rice. 1.19. Combination of growth strategies

stability strategy – focusing on existing business areas and supporting them;

growth strategy - increasing the organization, often through penetration and capture of new markets (varieties of growth strategy are vertical and horizontal integration; the latter, in particular, manifests itself through acquisition, merger, accession and the creation of joint organizations);

the reduction strategy is used in cases where the survival of the organization is under threat (varieties of the noted strategy are: turnaround strategy - abandoning inefficient use of resources and searching for a new strategy; separation strategy - sale structural unit or separating it into an independent organization; liquidation strategy – sale of assets).

6.4. Typology based on the competence/resource approach

The most successful definition of core competence is given by K. Prahalad and G. Hamel: core competencies are the collective knowledge of an organization aimed at coordinating diverse production skills and linking together multiple technological streams.

Core competencies should:

Provide the company with the opportunity to penetrate the market and compete successfully in several markets;

Increase the importance of the product in the eyes of the buyer compared to its competitive analogue;

Have properties that cannot be reproduced by competitors.

A company's core competencies and distinctive capabilities help us understand how an organization can achieve the quality that drives superior performance and determine where the company can apply its competencies and capabilities.

6.5. Typology of strategies based on the product-market model by I. Ansoff

One of the most common models for analyzing other possible strategic directions is the Ansoff matrix, presented in Fig. 1.20. This matrix shows potential areas of application of core competencies and generic strategies. Four broad alternatives are possible:

penetration to market – increasing market share in old markets using existing products;

market development - introduction into new markets and new market segments using existing products;

product development - development new products to serve old markets;

diversification - developing new products to serve new markets.

Market penetration. The main objective of this strategy is to increase market share in old markets with existing products. This means the development of measures aimed at strengthening existing core competencies or creating new ones. Such measures are designed to improve the quality of service or product quality and at the same time enhance the company's reputation, distinguishing it from its competitors. When developing a competency, the emphasis can be on increasing productivity to achieve costs below those of competitors.

Rice. 1.20. Ansoff matrix

Penetrating mature or declining markets is more difficult than penetrating markets in growth. If the market is declining, the company may consider exit from the market and shifting resources to more profitable markets.

If a company's markets are showing signs of saturation, it can explore opportunities in new directions for its development.

Market development involves entering new markets or new segments of old markets using existing products. The basis for entering new markets is strengthening existing competencies, as well as creating new competencies. To penetrate new segments of existing markets, it is sometimes necessary to develop new competencies that will serve the specific needs of buyers in those segments.

Internationalization and globalization are prime examples of how existing markets can be developed. When penetrating international markets, a company must create new competencies in order to successfully cope with language, cultural, sales issues, etc.

The main risk associated with developing a new market is that the company may not have enough practice and experience in operating in new markets.

Product development means creating new products for existing markets. The goals of this direction, like the previous ones, are to attract new customers, retain old customers and increase market share. The development of a new product may take place on the basis of existing competencies or require the creation of new ones (such as those that may be needed for scientific research).

Product development has its advantages, since the company already has experience working with customers in existing market. Today, when the life of a product is very short, the possibilities of its development become an important aspect strategic direction many organizations.

Diversification – is the development of the company with the help of new products and new markets. In conditions where modern markets are quickly saturated, and the product life cycle is measured in an extremely short period of time, diversification is a good alternative. It can create synergies and help spread risk by expanding the portfolio of products and markets.

6.6. GAP analysis

GAP analysis methods developed at Stanford research institute in California. They allow, through the formation of a strategy, to bring the company’s affairs into line with the highest level of aspirations (Fig. 1.21).

Rice. 1.21. Gap between trend and target (example)

1) preliminary formulation of activity goals for one year, three years, five years;

2) forecast of the dynamics of the rate of profit in connection with established goals for existing divisions;

3) establishing the gap between goals and forecasts;

4) identification of investment alternatives for each division and forecast of results;

5) determination of common alternative competitive positions for each division and forecast of results;

6) consideration of investments and business strategy alternatives for each division;

7) alignment of the strategic goals of each division with the prospects of the business portfolio as a whole;

8) establishing the gap between preliminary performance goals and the forecast for each unit;

9) clarifying the profile of possible acquisitions of new divisions;

10) determining the resources required for such acquisitions and the nature of their possible impact on other divisions;

11) reviewing the goals and strategies of existing units to create these resources.

Thus, GAP analysis can be called an organized attack on the gap between desired and predicted activities.

6.7. BCG Matrix

Quite often the method of the Boston Consulting Group is used - the Boston Consulting Group (BCG), according to which the company classifies all its types of business according to the growth/share matrix (Fig. 1.22).

Rice. 1.22. Boston Advisory Group Matrix

The vertical axis—market growth rate—determines the measure of market attractiveness; the horizontal axis—relative market share—reflects the strength of the company's position in the market. When dividing the growth/share matrix into sectors, four types of business status can be distinguished.

The BCG matrix is ​​filled out as follows: first, by calculation and (or) expert analysis, a kind of “watershed” is determined - a point corresponding to the average market growth rate and the average level of its share, and also the indicated four sectors are delineated.

Then the pre-calculated coordinates (values ​​of growth rates and market share) for each business are entered into a matrix in the form of circles, the size of which is directly proportional to the sales volume of the business in question.

Topic 7
Approaches to developing an organization's strategy

7.1. Strategy Development Methods Configurator

All approaches to developing an organization's strategy come down to the fact that strategy is a combination of theoretical analysis and intuition of developers, who, first of all, should be those subjects who will detail and implement the strategy. It is also important that a strategy can never be thought out and calculated to the end, and its adjustment as external and internal conditions change is a necessary procedure.

From the above it follows that There is no universal strategy development method suitable for all occasions., but experience suggests several possible directions for development.

Harvard Business School is considered the leader in the development of strategy formation procedures. K. Andrews, M. Porter, G. Hamel and K. Prahalad developed the main approaches (35, pp. 74 – 136) to the formation of strategies, the main provisions of which are given in table. 1.11.

Table 1.11

Approaches to developing strategies in the twentieth century.

K. Andrews proposed a strategy based on the correspondence between existing market opportunities and the capabilities of the organization at a given level of risks (economic strategy). Approaches to developing business strategy based on the competitive position of the organization, and the competitive strategies themselves, were developed by M. Porter, and the concept of core competencies belongs to K. Prahalad and G. Hamel.

7.2. Traditional Strategy Development Methods

Today it has become a truism for managers SWOT analysis external and internal parameters of the organization allows:

Identify opportunities and threats;

Construct a SWOT analysis matrix;

Select products and markets in which they will be sold;

Construct an economic strategy by identifying the available resources necessary for its implementation.

Five Forces Model Analysis competition makes it possible to determine the strengths and weaknesses of the organization in the market and identify areas in which strategic changes (in accordance with the forecast) can give maximum results for business development.

According to Porter, it is necessary:

Determine the advantageous market position that provides the best protection against the five forces of competition;

Make a forecast of the likely profitability potential of the industry;

Develop measures (as strategic moves) aimed at taking the most advantageous position in the market.

Core competencies how the organization’s ability to do something unique, providing a leadership position among competitors, formed the basis for developing a strategy within the framework of the following procedures:

Determining the unique properties of the organization and its final product;

Assessment of collective skills (total system competence) of the organization’s employees;

Focusing the organization's attention on core competencies that form the basis of the strategy;

Ensuring the non-reproducibility of the organization’s core competencies;

Development of a leadership strategy.

7.3. General strategy development framework

The procedure for developing a strategy based on defining a vision, mission and purpose is to form the very specified characteristics of the organization in the future; speculative transfer the developer into the state of the organization that corresponds to these characteristics; projecting the specified state onto the real environment in order to determine actions leading to an ideal result.

A model illustrating the procedure for forming a strategy is the planning of one’s life by an elderly person for oneself, as if being in the past (in youth): what goal should one set for oneself and what paths to take towards it in order to get a result while in the present, corresponding to the ideal picture of possible success from the point of view of the person himself. However, once the vision, mission and goals are formulated, it is premature to move on to developing a strategy. Strategy cannot be divorced from a specific organization and its real state. Therefore, significant analytical work needs to be done to identify the strengths and weaknesses organization, the opportunities and threats that the external environment opens up for it, to study the problem field and analyze the current strategy in the organization.

The general scheme of strategy development is shown in Fig. 1.23.

Rice. 1.23. General strategy development framework

To present the situation as a whole for the organization, a well-known Swedish specialist in the field of management and organizational development B. Karlof recommends analyze the logic of the industry and the organization itself, and briefcase corporate papers. OS offers something similar. Vikhansky: take into account both external and internal factors functioning of the organization, as well as the portfolio of products. But not to get bogged down in details and trifles, but to see the main thing and the whole picture allows a systematic view of the organization. The unit of a system such as an organization, in this case, can be represented by subsystems compiled in different description languages ​​- configurator. The organization configurator, consisting of four descriptions, looks like this:

ideological basis organizations (vision, mission, goals and strategies);

market efficiency(market needs and the degree to which they are satisfied by the organization, the organization’s market share and trends in their changes, the organization’s ability to create new areas of activity, consumer assessment of the organization’s potential);

internal efficiency use of resources - labor, property and capital;

strategic management organization (the ability of management to chart a strategic course and organize the implementation of necessary changes).

When analyzing an organization's strategy, it is difficult to imagine that it is always possible to detect any publicly presented strategy. However, trying to identify the factors characterizing the activities of an organization is necessary in order to then put forward a hypothesis about the content of a possible current strategy. In this case, it is necessary to analyze both internal and external parameters for the organization.

As criteria for choosing a strategy, it is advisable to use the strengths of the organization and external opportunities, the goals of the organization and all types of resources, as well as solving the main problems of the organization.

To summarize the consideration of the issue of modeling the process of developing an organization's management strategy, we present Fig. 1.24, from which it follows that strategy development is carried out by successively approaching the answer to the question: what will bring success to the organization in the future?

Rice. 1.24. Factors that determine an organization's strategy

First you need "see" your organization in the future, and the image of the organization, on the one hand, is created as its ideal image, but, on the other hand, this image must correspond exactly to the organization for which the strategy is being developed, since not from any initial state of the organization it is possible to achieve the desired better future . This image is necessary fill with content what the organization wants to offer to society and itself - its employees, i.e. the content of the mission that the organization would like to fulfill in the future.

Defining a specific result that can manifest itself and grow from the image of the future and mission provides formulation of goals organizations for which the strategy is being developed.

A kind of model is being developed, the implementation of which should ensure the success of the organization. The strategy formation diagram is shown in Fig. 1.25.

Rice. 1.25. Scheme of strategy formation

The simplest model for describing an organization, as follows from systems theory, is the model "black box", in which only the parameters at the entrance to the system and at the exit from it are known. The output parameters from the system are the goals we have considered, and the input parameters are descriptions of the actual state of the organization and its environment. What is inside the “black box” (the content of the strategy itself) requires separate consideration.

Even if an organization does not have a document called “Development Strategy...”, the organization itself is still developing in some direction, and it is important to identify such a “hidden” development strategy.

Relationship. Almost all countries of the world participate in them to one degree or another. At the same time, some states receive large profits from foreign economic activity, are constantly expanding production, while others can barely maintain existing capacity. This situation is determined by the level of competitiveness of the economy.

Relevance of the problem

The concept of competitiveness is the subject of much discussion in circles of people taking corporate and government management decisions. The increasing interest in the problem is due to various reasons. One of the key ones is the desire of countries to take into account the economic requirements changing within the framework of globalization. Michael Porter made a great contribution to the development of the concept of state competitiveness. Let's take a closer look at his ideas.

General concept

The standard of living in a particular state is measured by national income per person. It increases with improvement economic system in the country. Michael Porter's analysis showed that state stability in the foreign market should not be considered as a macroeconomic category that is achieved through the methods of fiscal and monetary policy. It should be defined as productivity efficient use capital and work force. is formed at the enterprise level. In this regard, the welfare of the state’s economy must be considered in relation to each company separately.

Michael Porter's theory (briefly)

For successful work enterprises must have low costs or provide differentiated quality to higher-cost products. To maintain their position in the market, companies need to constantly improve products and services, reduce production costs, thus increasing productivity. Foreign investment and international competition. They provide strong motivation for businesses. Together with the international level, it can have not only a beneficial effect on the activities of companies, but also make certain industries completely unprofitable. However, this situation cannot be considered completely negative. Michael Porter points out that the government can specialize in those segments in which its enterprises are most productive. Accordingly, it is necessary to import those products in the production of which companies show worse results than foreign companies. As a result, the overall level of productivity will increase. One of the key components in it will be imports. Productivity can be increased by establishing affiliated enterprises abroad. Part of production is transferred to them - less efficient, but more adapted to new conditions. Profits generated from production are funneled back into the state, thus increasing national income.

Export

No state can be competitive in all production areas. Exporting to one industry increases labor and material costs. This, accordingly, negatively affects less competitive segments. Constantly increasing exports cause an increase in the exchange rate of the national currency. Michael Porter's strategy assumes that the normal expansion of exports will be facilitated by the transfer of production abroad. In some industries, positions will undoubtedly be lost, but in others they will become stronger. Michael Porter believes that they will limit the state's ability to foreign markets, will slow down the improvement in the standard of living of citizens in the long term.

The problem of attracting resources

And foreign investment can certainly significantly increase national productivity. However, they can also have Negative influence at her. This is due to the fact that in each industry there is a level of both absolute and relative productivity. For example, a segment may attract resources, but exports from it are not possible. The industry is not able to withstand import competition if the level of competitiveness is not absolute.

Michael Porter's Five Forces of Competition

If a country's industries that are losing ground to foreign enterprises are among the more productive in the country, then its overall ability to generate productivity increases is reduced. The same is true for firms that move more profitable activities abroad, since costs and earnings are lower there. Michael Porter's theory, in short, connects several indicators that determine a country's stability in the foreign market. Each state has several methods for increasing competitiveness. Collaborating with scientists from ten countries, Michael Porter formed a system of the following indicators:

Factor conditions

Michael Porter's model suggests that this category includes:

Explanations

Michael Porter points out that key factor conditions are not inherited, but created by the country itself. In this case, what matters is not their presence, but the pace of their formation and the mechanism for improvement. Another important point is the classification of factors into developed and basic, specialized and general. It follows from this that the stability of the state in the foreign market, based on the above conditions, is quite strong, although fragile and short-lived. There is ample evidence in practice to support Michael Porter's model. Example - Sweden. It profitably exploited its largest low-sulfur iron deposits until the main market Western Europe The metallurgical process has not changed. As a result, the quality of the ore no longer covered the high costs of its extraction. In a number of knowledge-intensive industries, certain basic conditions (for example, cheap labor resources and the abundance of natural resources) may not provide any advantages at all. To improve productivity, they must be tailored to specific industries. These may be specialized personnel in processing industrial enterprises, which are problematic to form elsewhere.

Compensation

Michael Porter's model admits that the lack of certain basic conditions can also act as a strength, motivating companies to improve and develop. Thus, in Japan there is a land shortage. Lack of this important factor began to act as the basis for the development and implementation of compact technological operations and processes, which, in turn, became very popular in the world market. The lack of certain conditions must be compensated by the advantages of others. Thus, innovation requires appropriate qualified personnel.

State in the system

Michael Porter's theory does not classify it as a basic factor. However, when describing the factors that influence the degree of stability of the country in foreign markets, the state is assigned a special role. Michael Porter believes that it should act as a kind of catalyst. Through its policies, the state can influence all elements of the system. At the same time, the influence can be both beneficial and negative. In this regard, it is important to clearly formulate the priorities of government policy. General recommendations include encouraging development, stimulating innovation activity, increasing competition in domestic markets.

Spheres of influence of the state

The indicators of production factors are influenced by subsidies, policies in the field of education, financial markets, etc. The government determines internal standards and standards for the production of certain products, approves instructions that influence consumer behavior. The state often acts as a major buyer of various products (goods for transport, army, education, communications, healthcare, and so on). The government can create conditions for the development of industries by establishing control over advertising media and regulating the operation of infrastructure facilities. State policy is able to influence the structure, strategy, and characteristics of competition between enterprises through tax mechanisms and legislative provisions. The government's influence on the level of competitiveness of the country is quite large, but in any case it is only partial.

Conclusion

Analysis of the system of elements that ensure the stability of any state allows us to determine the level of its development and the structure of the economy. A classification of individual countries was carried out in a specific time period. As a result, 4 stages of development were identified in accordance with four key forces: production factors, wealth, innovation, investment. Each stage is characterized by its own set of industries and its own areas of enterprise activity. Identification of stages allows us to illustrate the process of economic development and identify problems encountered by companies.

Test

Topic of work for the strategic planning course:

Competitive Analysis. Strategies according to M. Porter

Competitive analysis based on the five forces of competition according to M. Porter……..4

Strategies of M. Porter…………………………………………………………….9

Conclusion…………………………………………………………………………………12

List of references……………………………………………………………….

Introduction
The essence of competitive strategy is the company's attitude towards its external environment . 1
^ M.E. Porter
Over the past decades, increased competition has been observed virtually all over the world. Until recently, it was absent in many countries. Markets were protected and dominant positions in them were clearly defined. And even where there was rivalry, it was not so fierce. Increased competition was curbed by the direct intervention of governments and cartels.

Today, no country or company can afford to ignore the need for competition. They must try to understand and master the art of competition.

The structure and development of the economy and the ways in which companies achieve competitive advantage are the essence of competition theory. A clear understanding of them serves as the basis on which the company's competitive strategy is based.

A recognized leader in the development of competitive analysis is Harvard Business School professor M. Porter, the author of the main models for determining the main forces of competition and options for competitive strategies.

Target test work- give an idea of ​​the competitiveness of the enterprise. Analysis of literary sources was chosen as research methods.

^ Competitive analysis based on the five forces of competition according to M. Porter
Competitive conditions in different markets are never the same, and the processes of competition in them are similar. This was demonstrated by Professor Michael Porter from Harvard Business School: - the state of competition in an industry is the result of five competitive forces. 2

1. 
   Rivalry between competing sellers in an industry.
2. 
   Market attempts by companies in other industries to win over consumers with their substitute products.
3. 
   Potential emergence of new competitors.
4. 
   Market power and leverage used by raw material suppliers.
5. 
   Market power and leverage used by product consumers.

Porter's Five Forces Model, shown in Figure 1, provides a powerful tool for diagnosing competitive market conditions and assessing how important and effective each force is. This is the most popular method of competition analysis and is easy to put into practice.

^ Rice. 1 Forces governing competition in the industry.
Using the five components of competitive structure, we can describe the prerequisites for the long-term profitability of an industry and the ways in which companies can keep it under control.

There is still a narrow and pessimistic view of competition, although some company executives make statements to the contrary.
1. New members. Their appearance in the industry can be prevented by the following entry barriers:

• 
  economies of scale and production experience of firms already established in the industry help keep costs at such a low level that is inaccessible to potential competitors;
• 
  differentiation of products and services, that is, reliance on trademarks that emphasize the uniqueness of the product and its recognition by customers (for example, it is difficult to compete with the unique properties of handicrafts - Palekh, Gzhel. The very appearance of numerous counterfeit goods emphasizes the practical unsurpassability of these brands);
• 
  need for capital. Very often, effective competition requires large initial investments. This barrier, combined with economies of experience and scale, creates, in particular, serious obstacles to new investment in the Russian automotive industry; reorientation costs associated with changing suppliers, retraining, scientific and design development of a new product, etc.;
• 
  the need to create new system distribution channels. Thus, due to the lack of well-established distribution channels, Apple was unable to widely implement its personal computers on Russian market;
• 
  state (government) policies that do not promote market penetration, for example, setting high customs duties for foreign competitors or the lack of preferential government subsidies for newcomers.

Obstacles to substitute products may include:

• 
  conducting price competition, which switches the buyer’s attention from quality problems to price reductions;
• 
  advertising attacks on consumers;
• 
  production of new, attractive products. For example, feeling competition from sausage manufacturers, cheese producers are starting to produce new, original varieties with various additives;
• 
  improving the quality of service when selling and distributing goods.

• 
  a large number of competitors;
• 
  uniformity of manufactured goods;
• 
  presence of cost reduction barriers, for example, consistently high fixed costs;
• 
  high exit barriers (when a firm cannot exit an industry without incurring significant losses);
• 
  maturity, saturation of markets (this situation today is typical for the global computer market, which is faced with saturation of customer needs).

4. The power of influence of sellers. The company competes, that is, wages an economic struggle, not only with similar manufacturers, but also with its counterparties-suppliers, competitors.

Strong sellers can:

• 
  increase the price of your goods;
• 
  reduce the quality of supplied products and services.

• 
  the presence of large selling companies;
• 
  lack of substitutes for supplied goods;
• 
  a situation where the industry to which supplies are made is one of the non-main customers;
• 
  the decisive importance of the supplied goods among the necessary economic resources;
• 
  the ability to join the acquiring company through vertical integration.

• 
  in putting pressure on prices to reduce them;
• 
  in requirements more High Quality;
• 
  in demands for better service;
• 
  pitting intra-industry competitors against each other.

• 
  cohesion and concentration of the consumer group;
• 
  the degree of importance of products for consumers;
• 
  range of its application;
• 
  degree of product homogeneity;
• 
  level of consumer awareness;
• 
  other factors.

Strategies according to M. Porter

To strengthen the position of the enterprise, M. Porter recommended using one of three strategies.

^ 1. Leadership through cost savings.

Enterprises that decide to use this strategy direct all their actions towards reducing costs in every possible way. An example is the company “British Ukrainian Shipbuilders” (B-U-ES) for the construction of dry cargo ships. The production of ship hulls will be carried out by low-paid workers of Ukrainian shipyards. Cheap Ukrainian steel will be used in the production of ships. The filling of the ships will be supplied mainly by British companies. Therefore, it is expected that the cost of new ships will be significantly lower than the price of similar products from European and Asian shipbuilders. Thus, a dry cargo ship with a displacement of 70 thousand tons is estimated at 25-26 million dollars, while a similar ship built in Japan costs 36 million dollars.

Prerequisites:

• 
  large market share,
• 
  presence of competitive advantages (access to cheap raw materials, low costs for delivery and sale of goods, etc.),
• 
  strict cost control,
• 
  opportunity to save costs on research, advertising, service

• 
  enterprises are profitable even in conditions of strong competition, when other competitors suffer losses;
• 
  low costs create high barriers to entry;
• 
  when substitute products appear, the cost-saving leader has greater freedom of action than competitors;
• 
  low costs reduce supplier power

• 
  competitors may adopt cost-cutting techniques;
• 
  serious technological innovations can eliminate

• 
  concentration on costs will make it difficult to timely detect changes in market requirements;
• 
  unforeseen factors that increase costs may lead to a narrowing of the price gap compared to competitors.

Enterprises that decide to use this strategy direct all their actions towards creating a product that has greater benefits for consumers compared to the product of competitors. At the same time, costs are not among the primary problems. An example of a differentiation strategy can be the strategies of Mercedes, Sony, Brown, etc.

Prerequisites:

• 
  special prestige of the enterprise;
• 
  high potential for R&D;
• 
  perfect design;
• 
  production and use of the highest quality materials;
• 
  full consideration of consumer requirements is possible;

• 
  consumers prefer the product of this enterprise;
• 
  consumer preference and product uniqueness create high barriers to entry;
• 
  product features reduce consumer influence;
• 
  high profits facilitate relationships with suppliers.

• 
  the price of the product can be so significant that consumers, despite being loyal to this brand, will prefer the product of other companies;
• 
  imitation of other firms is possible, which will lead to a decrease in the advantages associated with differentiation;
• 
  a change in the value system of consumers can lead to a decrease or loss of the value of the features of a differentiated product.

Enterprises that decide to use this strategy direct all their actions to a specific market segment. At the same time, an enterprise can strive for leadership through cost savings, or product differentiation, or a combination of one or the other.

Prerequisites:

The company must satisfy customer requirements more effectively than its competitors.

^ Advantages of the strategy:

Indicated earlier.

Risks of the strategy:

• 
  differences in prices for products of specialized enterprises and enterprises serving the entire market may, in the eyes of consumers, not correspond to the advantages of products specific to this segment;
• 
  competitors can specialize their product even further by sub-segmenting within a segment.

As practice shows, successful and promising markets have high entry barriers, government protection, unpretentious consumers, a cheap supply chain and the smallest number of alternative industries that can replace them. Business with the latest technologies and high efficiency are most susceptible to attacks from competitors, the likelihood of bankruptcy in such markets is very high.

For many small businesses, competition comes down to being similar to their large (powerful) competitors. This gives them self-confidence. But to imitate others means to deprive yourself of any advantage. Lack of competitive advantages is a sure path to bankruptcy. Some enterprises, having a certain competitive advantage, do not make any efforts to avoid losing them. Having a competitive advantage should not stop further search.

The desire to be first in all areas of competition, the pursuit of short-term profits often forces enterprises to abandon a previously developed competitive strategy, which brings chaos to the activities of the enterprise and does not allow it to focus on long-term goals in the field of competition.

The question of where to compete, in which market to make a profit is always one of the key ones.
List of used literature

1. 
   A.A. Thompson, Jr. A.J. Strickland III. Strategic management. Textbook for universities - M INFRA-M, 2001.
2. 
   Gusev Yu.V. Strategic management: Tutorial/part 1. NGAEiU. - Novosibirsk, 1995.
3. 
   Zabelin P.V., Moiseeva N.K. Basics strategic management: Tutorial. - M.: Information and implementation center “Marketing”, 1997.
4. 
   Kono T. Strategy and structure of Japanese enterprises. - M.: Progress, 1987.
5. 
   M. Porter. Competition. M.: International relationships, 1993.
6. 
   Porter M. International competition./Ed. V.D. Shchetinina. - M.: International relations, 1993.

By general strategies, Porter means strategies that have universal applicability or are derived from some basic postulates. In his

Rice. 3. Porter's four-cell matrix illustrates the choice of strategy. Quadrant 1, for example, is occupied by small European manufacturing firms passenger cars, which have achieved leadership in cost reduction by expanding production and reducing costs per unit of production. Volvo could be placed in quadrant 2, and BMW, which makes luxury cars for a narrow circle of price-insensitive consumers, could be placed in quadrant 3B

In the book “Competitive Strategy” M. Porter presents three types of general strategies aimed at increasing competitiveness. A company that wants to create a competitive advantage must do strategic choice so as not to “lose your face.” There are three basic strategies for this:

• leadership in cost reduction;
• differentiation;
• focusing ( Special attention). To satisfy the first condition, the company must keep costs lower than those of its competitors.

To provide differentiation, it must be able to offer something unique of its own.

The third strategy option proposed by Porter involves the company focusing on a specific group of customers, a specific part of the product, or a specific geographic market.

Low-cost production is about more than simply moving down the experience curve. The product manufacturer must find and exploit every opportunity to gain cost advantages. Typically, these benefits are obtained by selling standard products without added value when goods are produced and sold mass demand and when the company has strong distribution chains.

Porter goes on to point out that a company that has achieved cost leadership cannot afford to ignore the principles of differentiation. If consumers do not consider the product to be comparable or acceptable, the leader will have to discount prices to weaken its competitors and thereby lose its leadership.

Porter concludes that a cost leader in product differentiation must be on par with, or at least not far behind, its competitors.

Differentiation, According to Porter, means that a company strives to be unique in some aspect that is considered important by a large number of customers. It selects one or more of these aspects and behaves in such a way as to satisfy the needs of consumers. The price of this behavior is higher production costs.

From the above it follows that the parameters of differentiation are specific to each industry. Differentiation may lie in the product itself, delivery methods, marketing conditions, or some other factor. A company that relies on differentiation must look for ways to improve production efficiency and reduce costs.

There are two types of focusing strategy. A company within a selected segment is either trying to achieve cost advantages or increasing product differentiation in an attempt to differentiate itself from other companies in the industry. Thus, it can achieve competitive advantage by focusing on specific market segments. Size target group depends on the degree, and not on the type of focus, while the essence of the strategy in question is to work with a narrow group of consumers that differs from other groups.

According to Porter, any of the three main types of strategy can be used as an effective means of achieving and maintaining competitive advantage.

Firms stuck in the middle.

The following excerpt is taken from Competitive Strategy by M. Porter.

“The three main strategies represent alternatives to sound approaches to competition. One of the negative conclusions that can be drawn from the foregoing discussion is that a firm that fails to direct its strategy along one of the three paths, a firm stuck in the middle, finds itself in an extremely poor strategic position. Its market share is insufficient, it is underinvested, and must either cut costs or differentiate products industry-wide to avoid cost competition, or cut costs and differentiate products within a more limited area.

A company stuck in the middle is almost guaranteed a low profit margin. Either it loses numerous consumers who demand low prices, or it must sacrifice profits to break away from low-price firms. She also loses the ability to lead highly profitable business, that is, it is deprived of the cream, leaving it to firms that were able to focus their efforts on generating high profits or achieved differentiation. A company stuck “halfway” is likely to have a low level of corporate culture and the inconsistency of the organizational structure and incentive system.

A firm stuck in the middle must make a fundamental strategic decision. It must: either take steps to achieve cost leadership, or at least reach the average level, which usually entails active investment in modernization and perhaps the need to spend money to gain a larger market share, or choose a specific goal, i.e., focus efforts on some aspect, or achieve some uniqueness (differentiation). The last two alternatives could very likely cause the company's market share and even sales to decline."

Risk associated with cost leadership

A company that is a leader in cost reduction is under constant pressure to maintain its position. This means that the leader must invest in modern equipment, ruthlessly replace outdated products, resist the temptation to expand the range and closely monitor technical innovations. Cost reduction does not in any way automatically follow expansion of production volume; without constant vigilance, it is also impossible to reap the benefits of economies of scale.

The following dangers must be kept in mind:

1) technological advances that reduce the value of the investments and know-how made;

2) new competitors and your followers who. achieve the same cost advantage through imitation or investment in modern equipment;

3) inability to grasp the need to change pro- < product or market as a result of being immersed in cost reduction problems;

4) cost inflation, which undermines the company's ability to maintain a price differential high enough to offset competitive efforts or other differentiation benefits.

Risk associated with differentiation

Differentiation comes with some dangers. Among them:

1) the cost gap between a company that differentiates its products and those competitors that have chosen a cost leadership strategy may be too large to compensate for it with the special product range, services or prestige that the company can offer its customers;

2) the need of buyers for product differentiation may decrease, which is possible with an increase in their awareness;

3) imitation can hide a noticeable difference, which is generally typical for industries reaching the stage of maturity.

The first circumstance is so important that it deserves special comment.

A company can differentiate its products, but differentiation can only go beyond price differences. So, if a differentiated company falls too far behind in reducing costs due to changes in technology or simple carelessness, the low-cost company can move into a strong attack position. Thus, Kawasaki and other Japanese motorcycle manufacturers were able to attack differentiated product manufacturers such as Harley Davidson and Triumph by significantly lowering prices.

Risk of Focusing

There are also various dangers associated with the focusing strategy:

1) increased differences in costs between companies that have chosen a focusing strategy and other manufacturers may negate the benefits associated with serving a narrow target group, or outweigh the effect of differentiation achieved through focusing;

2) differences between the types of products and services required by the strategic target group and the market as a whole may be reduced;

3) competitors can find target groups within the target group served by the company that has adopted the focus strategy and succeed in their new endeavor.

Many business practitioners consider Porter's theories too general to be used to explain real life situations. However, it is certain that the relationship between consumer rating product quality and price is a central issue. This is reflected in the concept of general strategies put forward by Porter.

Michael Porter identifies three basic competitive strategies for enterprises:

1. Absolute cost leadership

2. Differentiation

3. Focus

In some, although rare, cases, a firm may be able to successfully implement more than one approach.

Leadership strategy for low prices aims to achieve production at the lowest industry costs. The competitive advantage here is obvious - low costs compared to competitors allow the company to dictate the lower limit of the market price and, as a result, increase its market share. This provides the company not only with greater stability in relation to industry competitors, but also with greater opportunities to counter the entry of third-party firms and substitute products into the market. This type of strategy is effective when the industry is characterized by a high degree of product standardization and industry demand is sensitive to price changes.

A company can become a price leader only if it a) provides better control costs (control over factors of production) and b) will be able to transform cost chains in the direction of reducing them. The first can be achieved by intensifying production by refining technology, modernizing equipment and distributing production experience across departments, as well as increasing economies of scale by increasing market share and reducing product differentiation. The second can be achieved by reducing production costs by simplifying products, using different technology, cheaper materials and automating expensive processes, as well as by reducing transaction costs through the use of new methods of product promotion, relocation of production to economically favorable regions (proximity of sources of raw materials and buyers, low taxes) and deepening vertical integration both towards suppliers and towards distribution channels.

At the same time, the concentration of a company's efforts on reducing costs makes it vulnerable to changes in demand. In case of technological breakthroughs (creation of a new type of product) and changes consumer preferences the firm may lose all demand despite the low price. In addition, the low-price leadership strategy has the disadvantage that it can be easily imitated by competitors, reducing its long-term viability, thereby limiting the strategy's value to the firm.

Cost leadership imposes a number of obligations on the firm that it must fulfill in order to maintain its position: reinvest in modern equipment, ruthlessly write off obsolete assets, avoid expanding the specialization of production, and monitor technological improvements. “To achieve cost leadership, it is necessary to actively create production capacity cost-effective scale, vigorously pursue cost reduction based on experience, strictly control production and overhead costs, avoid small transactions with customers, minimize costs in areas such as research and development, service, distribution system, advertising, etc. All this requires great attention to cost control on the part of management. Lower costs relative to competitors become the keynote of the overall strategy, although product and service quality and other areas cannot be ignored,” Porter writes.

A low-cost position protects a firm from competitors because it means it can earn profits when its rivals have lost that ability. A low-cost position protects the firm from powerful buyers, since the latter can only use their power to reduce prices to the level of less efficient competitors. Low costs protect against powerful suppliers, giving the firm a greater degree of flexibility as input costs increase. The factors that provide a low-cost position also tend to create high barriers to entry associated with economies of scale or cost advantages. Finally, a low-cost position typically places a firm in a more favorable position with respect to substitutes than its competitors. Thus, a low-cost position protects the company from all five competitive forces.

A low cost strategy is especially important in the following cases:

· price competition especially strong among sellers;

· the product produced in the industry is standard;

· differences in price for the buyer are significant;

· most customers use the product in the same way;

· costs for buyers to switch from one product to another are low;

· There are a large number of buyers who have serious power to reduce the price.

Risks of a low-cost strategy: technological changes that undermine past investments or experience; the ability of companies or followers new to the industry to reduce costs by copying experience or investing in the latest equipment; the firm's inability to respond to necessary product changes or market changes due to increased cost concerns; cost inflation, which reduces a firm's ability to maintain sufficient price differentials to offset brand prestige or other competitive advantages in differentiation.

General requirements for resources, qualifications and production organization when implementing a low-cost strategy:

· Real investment and access to capital;

· Skills in technological process development;

· Careful supervision and control over labor processes;

· Product design to facilitate production;

· Low-cost distribution and sales system;

· Strict control over the level of costs;

· Frequent and detailed control reports;

· Clear organizational structure and responsibility;

· Incentives based on clear quantitative indicators.

The second basic strategy is the strategy of differentiating the product or service offered by the company, that is, creating a product or service that would be perceived as unique within the entire industry. Differentiation can take many forms: by design or brand prestige, by technology, by functionality, by service, by dealer network or other parameters. Ideally, a company differentiates itself in several areas. The differentiation strategy is associated with giving the product specific properties that will provide the company with consumer loyalty to its products.

Differentiation strategy in case successful implementation is an effective means of achieving profits above the industry average because it puts you in a strong position to confront the five competitive forces, although in a different way than the cost leadership strategy. Differentiation protects against competitive rivalry because it creates consumer brand loyalty and reduces sensitivity to product price. It leads to an increase in net profit, which reduces the severity of the cost problem. Consumer loyalty and the need for competitors to overcome the uniqueness factor creates a barrier to entry into the industry. Differentiation provides higher levels of profit to counter the power of suppliers, and also helps moderate the power of buyers, since the latter are deprived of comparable alternatives and are therefore less price sensitive. Finally, a firm that has differentiated and earned customer loyalty has a more favorable position with respect to substitutes than its competitors.

The use of a differentiation strategy is effective when there is a high consumer appreciation of the distinctive properties of the product and there are a variety of ways to use it, and product differentiation itself has many aspects. It can be achieved on the basis of technical excellence, quality, service delivery, value for money (credit sales). The most attractive differentiation is the one that is difficult or expensive to imitate.

The main task of developing a differentiation strategy is to ensure a reduction in the total costs of consumers for using the product, which is achieved by increasing convenience and ease of use and expanding the range of satisfaction of consumer needs. To do this, the firm must focus its efforts on identifying sources of value for the consumer, giving the product features that increase consumer satisfaction, and providing support in the process of consuming the product. All this is associated with extensive research and development and active marketing activities. Since the success of a differentiation strategy depends on the consumer's perception of the value of the product, the risks of differentiation are:

Cost differentials between the differentiation firm and the low-cost firm may become too large to retain the loyalty of customers who will choose savings over exceptional features of the product or service.

· as consumer experience accumulates, the importance of the differentiation factor for more sophisticated buyers may decrease;

· copying reduces the resulting differentiation, which typically occurs as an industry ages.

General requirements for resources, qualifications and production organization when implementing a differentiation strategy:

· Opportunities to attract highly qualified labor, researchers and creative personnel;

· Product design;

· Creative skills;

· High marketing potential and basic research;

· High reputation for product quality or technological leadership of the company;

· Significant industry experience or a unique combination of skills acquired in other industries;

· Close cooperation with sales channels;

· Close functional coordination of R&D, product design and marketing;

· Subjective assessments and incentives instead of quantitative indicators.

Focus, or concentration, is a type of strategy in which a firm concentrates its efforts on a specific group of customers, product type, or geographic market segment. Generated by specialization of activity competitive advantage firm may be associated with both lower costs and the uniqueness of the product. Even if a focus strategy does not lead to low cost or differentiation in terms of the market as a whole, it can achieve one or both of these positions in the space of a narrower target market. However, if the goals of a low-cost or differentiation strategy apply to the industry as a whole, then a focusing strategy means concentrating on a narrower goal, which is reflected in the activities of all functional areas of the business.

The benefits of such a strategy come from customer loyalty, which offsets the impact of economies of scale. A company can implement such a strategy if it is able to provide efficient service niches, and the size of the niche itself is small enough not to attract large firms.

Focusing is useful when:

· the segment is too large to be attractive;

· the segment has good growth potential;

· the segment is not critical for the success of most competitors;

· a company using a focusing strategy has enough skills and resources to successfully operate in the segment;

· The company can protect itself from challenging competitors due to customer goodwill toward its outstanding ability to serve segment customers. Risks of a focused strategy: there is a possibility that competitors will find an opportunity to approach the company's actions in a narrow target segment; the requirements and preferences of consumers of the target market segment gradually spread to the entire market;

· the segment may become so attractive that it will attract the interest of many competitors.

The following set of risks is associated with focusing:

*increasing cost differences between competitors operating across a wide range of strategic plan, and the firm pursuing a focusing strategy, leads to the elimination of the latter's cost advantage in serving a narrow target market or the neutralization of differentiation achieved through focusing;

* narrowing the differences between in-demand products or services in the target market and products or services in industry market generally;

* a situation in which competitors find narrower market segments within the strategic target market and thereby overcome the advantage of the firm pursuing a focusing strategy.

The general requirements for resources, qualifications and production organization for a focusing strategy are a combination of the conditions and measures indicated above for differentiation and cost leadership strategies aimed at achieving a specific strategic goal.