Differentiation Versus Low-cost Strategies

William K. Hall conducted an in-depth study of 64 companies from eight major domestic industries. These industries were mature, faced relatively hostile environments, had below-average profitability and growth. Yet within each of these industries were several very profitable firms.

Hall concluded that the two (nondiversified) top performing companies in each of the eight industries had pursued either a differentiation strategy involving a high product/service/quality position or a low-cost strategy or both.

Although Hall identified two strategic thrusts, there are obviously a wide variety of ways to pursue each of them. In particular, whereas General Motors and Goodyear achieved their low-cost position with high market share and considerable vertical integration, Inland Steel, Whirlpool. Miller, and Philip Morris all relied upon modern, automated process technologies and efficient distribution systems.

Similarly, the "meaningful differentiation" strategies were based upon a variety of approaches. Promiment were such positioning elements as brand prestige, product quality, product reliability, service, and distribution.

Implementing Miles And Snow's Strategies

Miles and Snow identified four business-level strategies: defender, prospector, analyzer, and reactor.

Defender Strategy. Organizations implementing a defender strategy attempt to protect their market from new competitors. As result of this narrow focus, these organizations seldom need to make major adjustments in their technology, structure, or methods of operation. Instead, they devote primary attention to improving the efficiency of their existing operations. Defenders can be successful especially when they exist in a declining industry or a stable environment.

Prospector Strategy. Organizations implementing a prospector strategy are innovative, seek out new opportunities, take risks and grow. To implement this strategy, organizations need to encourage creativity and flexibility. They regularly experiment with potential responses to emerging environmental trends. Thus, these organizations often are the creators of change and uncertainty to which their competitors must respond. In such an environment, creativity is more important then efficiency.

Analyzer Strategy. Organizations implementing analyzer strategies attempt to maintain their current businesses and to be somewhat innovative in new businesses. Some products are targeted toward stable environments, in which an efficiency strategy designed to retain current customers is employed. Others are targeted toward new, more dynamic environments.

They attempt to balance efficient production for current lines along with the creative development of new product lines. Analyzers have tight accounting and financial controls and high flexibility, efficient production and customized products, creativity and low costs. However, it is difficult for organizations to maintain these multiple and contradictory processes. new product lines.

Reactor Strategy. Organizations that follow a reactor strategy have no a consistent strategy-structure relationship. Rather than defining a strategy to suit a specific environment, reactors respond to environmental threats and opportunities in ad hoc fashion.

Sometimes these organizations are innovative, sometimes they attempt to reduce costs, and sometimes they do both. Reactors are organizations in which top management frequently perceive change and uncertainty occurring in their organizational environments but are unable to respond effectively. Therefore, failed organizations often are the result of reactor strategies.