Answer: Generic strategy means one kind of competitive strategies that may take various firms within a given industry to cope their capabilities. Actually, it is a broad competitive strategy that a firm can take to gain competitive advantages.
There are three types of generic strategy:
- Cost leadership.
- Focus strategy
1. Cost leadership: Though cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost advantage are varied and depend on the structure of the industry.
Cost leadership requires:
- Efficient scale facilities.
- Cost reduction from experience.
- Tight cost and overhead control.
- Avoidance of marginal customer accounts.
- Cost minimization in R&D, service, sales force, Advertising etc.
In this regard, a great deal of managerial attention is required because, low cost relative to competitors becomes the theme (idea) running through the entire strategy, though quality, service and other areas cannot be ignored.
Required Skills and Resources
- Heavy capital investment is required.
- Engineering skills
- Intense supervision of labor
- Product designed for case in manufacture.
- Low cost distribution system.
Common organizational requirement
- Tight cost control
- Structured organization and responsibilities.
- Incentives based on achieving qualitative targets.
2. Differentiation: The second generic strategy is one of differentiating the product or service offering of the firm, creating that is perceived industry wide as being unique.
Various forms of differentiation;
- Though design or Brand image.
- Customer service
- Dealer network or other dimensions.
It should be mentioned that the differentiation strategy does not allow the firm to ignore cost. It is viable strategy for earning above-average returns in an industry because it creates a defensible position for coping with the five competitive forces.
Required skills and resources:
- Strong marketing abilities.
- Product engineering.
- Creative flair (natural ability to do something).
- Strong capability.
- Reputation for quality or technological leadership.
- Strong co-operation from channels.
- Strong co-ordination among functions in R&D, Product development and marketing
- Subjective measure (based on your own ideas or opinions rather than fact) and incentives instead of quantitative measures.
- Amenities to attract highly skilled labor, scientist, or creative people.
3. Focus strategy: Although the low cost and differentiation strategies are aimed at achieving their objectives industry wide but the focus strategy is built around serving a particular target and each functional policy is developed with this in mind.
It focuses on:
- Particular buyer group.
- Segment of the product line, and
- Geographic market.
As a result, the firm achieves either differentiation from better meeting the needs of the particular target, or lower cost is serving this target or both.