Competitive Strategy a la Michael Porter

In his book, Competitive Strategy (Free Press: 1980), Michael Porter identifies three fundamental competitive strategies and lays out the required skills and resources, organizational elements and risks associated with each strategy. The table below is a shorthand way of referring to what Porter has to say.

Competitive Strategy	Required Skills & Resources	Organizational Elements	Associated Risks
Overall Cost Leadership	Sustained capital investment and access to capital Process engineering skills Intensive supervision of labor Products designed for ease of manufacture Low-cost distribution system	Tight cost control Frequent, detailed reports Structured organization and responsibilities Incentives based on meeting strict quantitative targets	Technological change that nullifies past investments or learning Low-cost learning by industry newcomers or followers through imitation, or through their ability to invest in state-of-the-art facilities Inability to see required product or marketing change because of the attention placed on cost Inflation in costs that narrow the firm’s ability to maintain enough of a price differential to offset competitors’ brand images or other approaches to differentiation
Differentiation	Strong marketing abilities Product engineering Creative flair Strong capability in basic research Corporate reputation for quality or technological leadership Long tradition in the industry or unique combination of skills drawn from other businesses Strong cooperation from channels	Strong coordination among functions in R&D, product development, and marketing Subjective measurement and incentives instead of quantitative measures Amenities to attract highly skilled labor, scientists, or creative people	The cost differential between low-cost competitors and the differentiated firm becomes too great for differentiation to hold brand loyalty. Buyers thus sacrifice some of the features, services, or image possessed by the differentiated firm for large cost savings. Buyers’ need for the differentiating factor falls. This can occur as buyers become more sophisticated. Imitation narrows perceived differentiation, a common occurrence as industries mature.
Focus	Combination of the above policies directed at the particular strategic target	Combination of the above policies directed at the particular strategic target	The cost differential between broad-range competitors and the focused firm widens to eliminate the cost advantages of serving a narrow target or to offset the differentiation achieved by focus. The differences in desired products or services between the strategic target and the market as a whole narrows. Competitors find submarkets within the strategic target and outfocus the focuser.