Stuck In The Middle? You're Doing Too Much

To maximize your profits, your company needs to be focused on one of three strategies. Any of them will result in a defendable position in the marketplace and you will outperform your competitors. Companies that fail to develop their strategy in at least one of these directions are in a poor strategic position. Companies that try to combine any of these strategies without a high degree of organization, though, find themselves stuck in the middle.Porter's Generic Strategies are:1) Overall Cost Leadership - as the name implies, your strategic theme is that you will become a low-cost company relative to your competitors. The central elements of this strategy are: efficient operations, aggressive cost reductions, the avoidance of marginal customers, and minimal spend on elements such as R&D, sales, service, and advertising. Despite the lack of commercial spend, market share and profits are strong because of aggressive pricing.2) Differentiation - when your strategy is to offer a product or service that is perceived industry-wide as being unique. Examples include: design or brand image, technology, exceptional customer service, or a strong distribution network. This strategy requires an investment in R&D or a focus on service. Costs are higher, but so are sell prices. Market share is strong due to exclusivity.3) Focus (aka Segmentation) - this strategy includes elements of both Overall Cost Leadership and Differentiation, BUT limiting your focus to a specific market segment (industry or geographical). The rationale for the Focus strategy is that it allows your company to serve a narrow target group more effectively and efficiently than your competitors. If you decide to pursue this strategy, you will apply both low costs and differentiation to a niche market. Your market share and profits in this niche are high because you have chosen to forego other markets.


All of this sounds simple enough - pick a strategy and enjoy strong profits. So why do so many companies struggle to find their identities? The most common answer is that they have chosen their strategy but they have not committed to every aspect of it. Unfortunately, many companies lack the focus to create either Differentiation or a Cost Leadership position. Others try to pursue multiple strategies, and while this has proven successful in some cases, it must be executed with a high degree of discipline and organizational alignment. Tensions within organizations often derail the combined strategy effort. For example, I've seen companies where the Production and Sales departments are so misaligned that you would think they were two different companies, seemingly competing with each other. It's a shame, but it's not difficult to correct.