Harvard professor and world famous business strategist Michael Porter has a simple view to business and how you can generate superior returns from your business – the generic strategies - but you can get stuck in the middle, not one thing or the other.
These ideas were introduced in the book Competitive Strategy by Michael Porter.
The Keys To Successful Competitive Strategy
- Work in a business which is an attractive industry – this is a business that is well positioned against the five competitive forces that Porter identified (threat of new entrants, threat of substitutes, buyer power, supplier power and intensity of competition).
- Have a competitive advantage.
Michael Porter & The Generic Strategies
And when it comes to competitive advantage, Porter was equally simple because your competitive advantage can either be:
- From being the lowest cost operator supplier acceptable goods and services at a reasonable price (and having the ability to beat anyone else on price if necessary)
- From winning buyer preferences based on providing a product or service which is differentiated.
Those two cost advantages can either be applied to the broad market or to narrow focused or niched markets.
The Danger Of Being Stuck In The Middle
Unfortunately many businesses fall into the trap of being “stuck in the middle” of the generic strategies of differentiation and cost leadership.
They don’t offer the high value for money and distinctive product or service that you get from a differentiated business.
And they don’t offer the low prices that can come from buying from the cost leader.
It happens because the business managers don’t know that they have to choose or think that they can be both.
Effectively being stuck in the middle comes from trying to compromise and it creates a muddle.
A muddle for your customers who don’t really know what you stand for or what to expect from you.
And a muddle for your employee who don’t understand the priorities of their work performance.
Other Stuck In The Middle Concepts
Stuck in the middle in this strategic context does not mean:
- Being in the middle of a value chain from raw material supplier at one end to end user of final product at the other. It can be uncomfortable being squeezed by big suppliers and big buyers but that’s even more reason to follow a cost leadership or differentiation strategy.
- Nor does it mean being stuck in mid market between the premium priced luxury products and the low priced economy brands although that can also be uncomfortable if it’s not clear what your business stands for. This mid market position is sometimes combined with Porter’s stuck in the middle concept but it is a big simplification of what he’s trying to say. There’s is no reason why a business can’t have a very distinct and differentiated product offering and charge mid market prices for example in cars, think of the Mazda MX5 sports car.
How A Business Gets Stuck In The Middle
A stuck in the middle position happens when a business designed to be low cost starts adding little extra frills which don’t add a corresponding amount to the customer value of a product.
The business suffers the cost, the customer doesn’t get the benefit.
Or when a differentiated business comes under pressure on prices – perhaps there has been a market disruption from new technology or an ultra low priced competitor from overseas – and starts cutting costs in areas which damage the differentiation advantage.
What To Do If Your Business Is Stuck In the Middle
If you think that your business is stuck in the middle – or heading in that direction – then you need to get to grips with your business strategy.
You need to decide what your business is and isn’t.
You need to decide who your business will sell to and who it won’t.
You need to decide what your business will sell and what it won’t.
Strategy is about making wise choices and then having the courage and conviction to follow through and commit to turning words and ideas into action.
The Role Of The Value Chain In Creating Competitive Advantage
In his follow up book, Competitive Advantage, Michael Porter introduced the concept of value chain analysis to help you to analyse, understand and create competitive advantage so that a business isn’t stuck in the middle.
The value chain is an important technique which helps you to focus on advantage based on differentiation or cost leadership.
Paul Simister is a differentiation business coach who helps small business owners in the UK to profit from differentiating their businesses, being distinctive in the eyes of their customers and standing out in a crowded marketplace.
You too can move past your profit tipping point by answering the seven big questions of business success.