Porter's generic strategies and strategic management tools

Strategy Tools

Cost Leadership / Differentiation / Best-Cost

Cost leadership creates a low cost for a given level of quality (Porter's Generic Strategies). Products get sold at industry average to earn a higher profit than rivals or below industry average to gain market share. By producing a cheaper price, the firm stays profitable for longer periods targeting a broad market. It is useful for improving processes, lowering material costs, making decisions, and efforts of eliminating some costs. It is also used to create barriers to entry. Differentiation is developing products that have unique attributes that give value competitor products do not have. It creates a competitive advantage with products and may allow for premium pricing to cover all associated costs. Best cost combines cost leadership with differentiation to create value added products for the least cost for the level of quality, which in turn, creates a bigger competitive advantage.

Product Life Cycle

Product life cycle is where a product goes through the cycle of introduction, growth, maturity, and decline (Product Life Cycle). Introduction builds product awareness and develops the market. Growth builds brand preference and market share. Maturity is where sales growth starts to decline and acts as a signal to make decisions for product improvement or strategy change. As sales decline, decline is a signal for decisions to add new features, lower price, or discontinue the product.

TOWS Matrix

The TOWS matrix is a tool used to analyze threats, opportunity, weakness, and strengths of a firm at a given time (Weihrich). The use of TOWS enables a firm to analyze a situation to make strategy decisions, maximize opportunity, and create alternative strategy for weaknesses.

Strategy Diamond

The strategy diamond is a checklist that answers questions concerning target markets, growth, strategic change, and finances (Hambrick). It allows managers to consider all aspects of strategy at the same time.

Balanced Scorecard

The balanced scorecard is a tool used to align business processes with the firm's vision and mission statements (Balanced Scorecard Basics). The balanced scorecard focuses on the vision and mission to evaluate and drive efficiency for improvements in business practices. It works on a continual basis with each employee in working for efficiency to reduce wastes in time used, materials used, etc., and produces more efficiency for continued improvements in processes.