Creating Profit Through Alliances - business models for collaboration E-book | Page 24

The three strategies of Michael Porter (1980) The three directions of Treacy & Wiersema (1995) What happened in the internet age? Cost leadership: having the lowest costs Operational excellence: having the lowest total costs, including costs of your client Cost advantage is easily copied or leveled down. Scale can be bought Figure 12. Development of differentiation on costs This is not to say, incidentally, that operational excellence or the quest for lower costs is unnecessary. On the contrary, for a lot of businesses it is a condition for their existence. However, it no longer is a means to permanently differentiate yourself. Today, operational excellence is a commodity: something we simply need. McDonalds and the German discounter Aldi are often cited as successful examples of operational excellence. These businesses operate extremely efficiently, without a doubt. In addition however, Aldi offers its customers a very transparent guarantee of quality at a low price, and McDonalds also has a strong brand name and the promise that you will always get the same product. So having the lowest costs is not all that matters. Supermarket chain Tesco proves that cost leadership can go hand in hand with offering a wide range of products. The three strategies and their profitability The relationship between a company's strategy and actual profitability has been the subject of a large number of scientific studies. The most important studies carried out before 2000 have been combined in a meta-analysis by Colin Campbell-Hunt10. From these seventeen studies he distils six generic strategies, each with components (such as a high price, a lot of advertising or operational efficiency) that are often used in combination with each other. 22 Current validity  No sustainable strategy He has studied the correlation between the financial results for each of these strategies. Campbell-Hunt discovered that two of those generic strategies have a positive effect on profitability: he defines them as 'Innovation and operations leadership' and 'Leadership in broad quality and sales'. The 'Cost efficiency' strategy has a significant negative effect on profitability. The main components of these strategies are outlined in the Table 2. The 'innovation and operations leadership' strategy mainly seems to focus on marketing new special products (described earlier as unique products) at high prices. The 'leadership in broad quality and sales' ties in nicely with the term 'customer relevance'. This is about brand awareness and being highly capable of serving a wide group of customers with a lot of products. Another conclusion drawn by Campbell-Hunt is that these strategies do not exclude each other, whereas Porter for instance claims that combining a Cost leadership strategy with a Product differentiation strategy will lead to being 'stuck in the middle'. Innovation and operations leadership on the one hand and leadership in broad quality and sales on the other each affect profitability in their own way. This would suggest that a business can successfully try to develop unique products and become relevant to its market at the same time. The conclusions of Campbell-Hunt, as well as the research about the Treacy & Wiersema strategies cited earlier, are based on averages. Individual companies in stable markets, oligopolies or markets with high entry barriers might have reasonable to