Industry Level Strategies

Let’s take a look at industry-level strategies. Industry-level strategy addresses the question, “How should we compete in this industry?” According to Harvard professor Michael Porter, five industry forces determine an industry’s overall attractiveness and potential for long-term profitability: the character of the rivalry, the threat of new entrants, the threat of substitute products or services, the bargaining power of sup-pliers, and the bargaining power of buyers.

After analyzing industry forces, the next step in industry-level strategy is to protect your company from the negative effects of industry-wide competition and to create a sustainable competitive advantage. Cost leadership means producing a product or service of acceptable quality at consistently lower production costs than competitors so that the firm can offer the product or service at the lowest price in the industry.

Differentiation means making your product or service sufficiently different from competitors’ offerings that customers are willing to pay a premium price for the extra value or performance that it provides. With a focus strategy, a company uses either cost leadership or differentiation to produce a specialized product or service for a limited, specially targeted group of customers in a particular geographic region or market segment.

Adaptive strategies are another set of industry-level strategies. Whereas the aim of positioning strategies is to minimize the effects of industry competition and build a sustainable competitive advantage, the purpose of adaptive strategies is to choose an industry-level strategy that is best suited to changes in the organization’s external environment.

Defenders seek moderate, steady growth by offering a limited range of products and services to a well-defined set of customers. Prospectors seek fast growth by searching for new market opportunities, encouraging risk taking, and being the first to bring innovative new products to market.

Analyzers are the blend of the defender and prospector strategies. Finally, unlike defenders, prospectors, or analyzers, reactors do not follow a consistent strategy. A reactor approach is inherently unstable, and firms that fall into this mode of operation must change their approach or face almost certain failure.