According to Porter, even though not all companies that compete in a given industry clearly define their competitive strategy, they certainly have one. The competitive strategy that is formed through analysis of the industry as a whole, and making forecasts about industrial developments in the future, understanding competitors and its own position, and converting this analysis into a well-planned road map and in the end is compiled, so that the company’s own capabilities that will ensure superiority are brought together with the benefits of environmental opportunities. New-Generation Banks
In fact, the concept of competitive strategy in the literature emerged with Porter. Porter placed ‘competition’ as a focus of the strategy idea instead of planning and ‘competitive strategy’ as a focus of strategy instead of strategic planning. This approach caused a definite shift in the idea of strategic management, in the sense that the focus shifted from “strategic planning to competitive strategy”. Porter takes the competition concept as enhanced competition: direct competition (competition coming from existing competitors), indirect competition (competition coming from substitutes) and potential competition (competition pressure created by new investors that may potentially enter the industry). Taking this as the basis, Porter defines competitive strategy as a concept that is shaped according to the strategic position a firm has in the industry.
According to Porter, there are three general types of competitive strategies that a firm may implement within an industry: Cost Leadership, Differentiation and Focus. These three generic strategies define the general features of competition that will enable a firm to outperform its rivals in the market place.
Cost leadership strategy is a strategy based on a firm’s focusing on cost, so that all the activities are designed to reduce cost and thus the firm is able to compete with competitors by offering lower prices to customers with low cost advantage. In cost leadership strategy, firms aim to offer simple products to typical customers. Designing products or service appropriately, so that the manufacturing process or the presentation is made easier, and having a large volume by serving big customer groups, will ensure that the firm achieves a cost advantage.
In differentiation strategy, a firm uses certain features that are regarded as important and valuable by the customer and it differentiates the product or the service it offers, striving for uniqueness in its market. The firm is rewarded with high prices for this uniqueness. Differentiation strategy is not only composed of the differentiation the business will make in products and services, but it is also a competitive strategy to bring differentiation in all the activities of the firm that create a value, so that the firm generates yield above the average. However, this differentiation strategy does not suggest that the firm shall ignore the cost items.
Focus strategy is about focusing on a specific customer group, production and distribution line or on a specific geographical market, and shaping all operational activities according to the target selected. Cost leadership and differentiation strategies target the market in general, whereas a focus strategy aims at a narrow area within the industry. It aims to form a strategy for this narrow market scope and provide services in this area in a more successful way than its competitors. Thus it excludes other areas and specializes in one single area, earning the capability to offer services in a more efficient and productive way, eventually, as with the other two strategies, will gain a competitive advantage. Focus strategy may be implemented in two ways; by ‘focusing on cost leadership’ or by ‘focusing on differentiation’.
According to Porter, these three strategies are alternatives to one another and that a firm with the lowest cost and a firm that fully implements differentiation are two different qualities that are hardly compatible because successful implementation of each strategy requires different competencies, resources, organizational arrangements and management styles. So, it does not seem possible that a firm is eligible for each of these three strategies at the same time. Firms that do not clearly implement any one of these three strategies are seen as stuck in the middle and there is a high probability that they are faced with failure.