Tag Archives: michael porter

Dead-End Strategy– The Road to Nowhere: Stuck-in-the-Middle, Caught-Between-Rock-and-Hard-Place…

Business is damned if they do and damned if they don’t, especially when it’s — stuck-in-the-middle, caught-in-the-middle, being-between-rock-and-hard-place… In a book published by Michael E. Porter, several decades ago, he defined a central premise of competitive business positioning… In it he said– business strategy provides a unique way of creating sustainable competitive advantage, consequently companies must make a decision between one of three generic strategies– cost-leadership, differentiation, niche focus… or the business will get ‘stuck-in-the middle’ without a coherent strategy...

This notion of generic strategies has shaped thinking on strategic positioning ever since… However, this theory has been plagued by one inconvenient fact; the real world is full of business that do succeed from the ‘middle’… But according to many experts; the real issue is not the ‘middle’, it’s the fact that businesses are just getting ‘stuck’ without viable strategy… For businesses to succeed they must be the– ‘most’ or ‘best’ in something, e.g.; most affordable, most performance, best value… Just being ‘ordinary’ and ‘middle-of-the-road’ in age of hyper-competition and non-stop innovation– is the road to nowhere. As they say in Texas; only thing in ‘middle-of-the-road’ are yellow lines and dead armadillos… To which you might add; and that’s where many once-great businesses go to slowly die…

In the book Competitive Strategy by Michael Porter writes: Business can secure a sustainable competitive advantage by adopting only ‘one’ of three generic strategies, i.e.; cost leadership, differentiation, niche focus… and when a business attempts to adopts more than one or combination of these three strategies, then the business becomes ‘stuck in the middle’, which is a losing proposition… That is to say; a business that is ‘stuck in the middle’ has no clear business strategy and is at serious risk for failure…

However, according to John Kay; Porter’s strategy is embarrassingly simple, i.e.; it’s true that a business that fails to develop strategy in at least one of these three directions is in a very poor strategic situation, but the notion that business cannot pursue a hybrid strategy, e.g.; both cost leadership, differentiation… at same time is clearly false. However, there are differing options on this ‘stuck-in-the-middle’ theory, e.g.; business must understand that customers, markets, competition… are not static and for them to survive, grow, prosper… they  must be flexible, nimble, innovative… and avoid getting ‘stuck’ at all…

In the article Stuck-In-The-Middle by Paul Simister writes: Being stuck-in-the-middle comes from trying to compromise in developing a strategy– it creates ‘muddle’ and muddle is bad, muddle confuses customers– they don’t really know what a business stand for, or what to expect from a business… Muddle confuses employees– they don’t understand priorities and that impacts work performance…

A stuck-in-the-middle position can happen when a business, e.g.; that was created to be ‘low cost’ provider starts adding extra frills, which don’t add corresponding value to customers; and that results in additional cost to the business, without additional value to the customer… Or, when a business strategy based on ‘differentiation’ comes under pressure on price– perhaps due to market disruption from new technology or low-priced competitor… and in reaction business starts panicking and cutting costs in areas which damages their original competitive advantage…

If  a business is ‘stuck-in-the-middle’, or heading in that direction– they must critically review and adjust, or complete rethink their strategy going forward: They must decide; what the business mission and purpose is, and what it isn’t. They must decide; what the target market is, and what it isn’t. They must decide who the customers are, and who they are not. They must decide what the value proposition is, and what it isn’t… Strategy is about making wise choices and then having the courage, conviction to follow through– it’s commitment to turning– words, ideas, plans… into action…

In the article Stuck-In-The-Middle by Bob Bruner writes: The issue is not being in the ‘middle’; it’s allowing a business to get– stuck, in the first place. There is much research on business strategy suggesting the ‘middle’ should be avoided for fear of being ‘stuck’ with limited options to compete… The conventional wisdom is to view the ‘middle’ or ‘caught between two competitors’ as a no-win situation… But the challenge for business leaders is not to avoid being in the ‘middle’, but rather to avoid an inability to respond to different competitive conditions… 

But days of muddling along without a clear strategy are numbered in this fast pace, highly competitive age of technology, e.g.; internet, smart phones, social media, big data, cloud… These are the nightmare of many organizations that are just ‘muddling along’, ‘stuck somewhere’ without a well-crafted strategy… These are organizations that have long relied on customer confusion, or ignorance, or apathy… However in this age of technology competitive rules are different and organizations must choose a coherent, winning strategy, or they will be on a dead-end road to nowhere…

Barriers to Market Entry– Build a Great Wall, Prepare the Moat, Defend Your Market: Dissuade the Barbarians at the Gates…

A critical component for an effective competitive strategy is a comprehensive plan for– market entry, market position, market defense… sustainable business growth is the cornerstone of a successful enterprise, and it requires constant market defense by building barriers-deterrence to manage competitive entry…

Barriers to entry affects a market by making it less contestable… that is, barriers seek to protect-defend the power of a market ‘incumbent’ and establish a defensible competitive position, in order to dissuade potential market ‘entrants’…

Strategic market entry deterrence are actions taken by an incumbent business seeking to block-discourage potential ‘entrants’ from competing in a market even when it impacts profitability, in the short-run… According to Michael Porter; there are six major deterrence, namely; economies of scale, differentiation, capital requirements, cost considerations, access to distribution channels, government policy… and later he added; demand-side benefits, customer switching costs, expected retaliation… One of the most important strategic elements is the ‘timing’ of market entry… 

According to K. Gurumurthy and R. Gurumurthy; management must be prepared to consider the following business issues: Should a business be first to enter a market? Is it better to wait and learn from experiences of first entrant? What is proper balance between risks and rewards? If you are an incumbent, what can be done to prevent share erosion when a new player enters the market? If you are a later entrant, what strategies should you adopt to make entry successful? Studies show, in most cases, that first market entry provides a significant and sustained market-share advantage over later entrants…

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Also, it’s important to note that barriers-deterrence to market entry change-evolve over time… many of these so-called barriers become ineffective, vulnerable… and do little to dissuade potential entrants… however, the classic competitive strategies, such as; market leadership, consumer loyalty, branding… can deter potential entrants and make entry– very expensive, risky… these strategies that limit entry are some times called; a ‘moat’– capacity of a business to raise ‘moats’ (barriers to entry) will directly impacts a business’ competitive position and sustainability…

According to Robert Smiley; in survey businesses were asked whether they employed techniques to deter market entry: More than half of the respondents thought that entry considerations were at least as important as other strategic marketing and production decisions. Only 13% felt that market entry issues were unimportant… 

In the article Barriers to Entry by IES writes: Barriers to market entry are those aspects of a market that make it more difficult for a new company to enter a market profitably. Typical barriers to entry include– brands, patents, large assets required to achieve economies of scale, regulation, network effects, control of scarce resources… Economic theory states that without any barriers to market entry, incumbent businesses cannot earn sustainable profit beyond their cost of capital, because new entrants are attracted and will compete for profits down to the cost-of-capital. The stronger the barriers, the higher the economic profit potential…

Barriers to entry feature prominently in Michael Porters industry analysis; as a key determinants of industry profitability alongside competitive behavior and supplier-customer balance of power… When a business is crafting a business strategy; it’s important to ask: How will this strategy build barriers to deter competitive entry into our markets? For example, Coca Cola has built a huge barrier to entry through cumulative advertising over a hundred years. According to Warren Buffet; Coca-Cola has a deep ‘moat’ around their business and if you gave me $100 billion and said; Take away the soft-drink leadership of Coca-Cola, globally– I’d give it back to you, and say it can’t be done… 

When you are entering new markets the concept is critical: How to overcome barriers to market entry? In order to identify effective barriers to entry, put yourself in the shoes of a business that wants to enter your market… Then ask: What must I do to enter successfully? When you map out all steps, identify the ones most challenging, e.g.; costs, time, skills, culture… However, barriers can become vulnerable, e.g., a competitor’s ‘disruptive’ business models may completely change the dynamics of a market, bypassing the traditional barriers…

In the article Barriers to Entry, Profit, & Price by friedman writes: A high barrier to entry is one signal for the existence of a monopoly or oligopoly power… Normal profits cover the average cost of a business, whereas the existence of abnormal profits means the business can reinvest profits into R&D, increase the wages of workers, pay-out to shareholders… Also, abnormal profits may indicate existence of monopoly or oligopoly market structure… and, the market is less competitive, which means that the business has the potential to become a price setter…

For example; a barrier to market entry having leverage on prices, profits… can be identified in the automotive market for hatchbacks in Europe: Volkswagen is notable for their immense economies of scale, therefore posing a high barrier to entry for their share of the market… Also, their main rival PSA Peugeot Citroën is also able to create automobiles of a similar standard quality, price…

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Therefore, due to their market power, these companies have developed a high barrier to market entry, and in doing so Volkswagen and PSA have created an oligopoly like structure relationship in the hatchback car market… Now, for example, enter another auto company like, Kia; clearly to enter this market Kia would be in a very difficult competitive position– e.g., high marginal costs, restricted quantity of units, other structural costs… also, Kia lacks the same brand recognition as PSA or Volkswagen…

Barriers to entry are what ultimately causes the formation of monopolies or oligopolies, which then can have a significant impact on prices, profits… in a certain market (i.e., possible increase), and the overall competitive nature of the market… There are various methods of getting around the high barriers to entry, but it would require a firm to either; create disruptive innovation or significant investment to launch and compete in the market, for example; Kia could offer autos with newer technology, better engines, greater fuel efficiency, lower price… in attempt to win market share, but, issues between risk and reward still remain…

Overtime high barriers to entry can be mitigated as greater symmetry in the market develops, and the introduction of new technologies, tools…

In the article Corporate Sardines–How Incumbent Firms Pack Markets by Economist writes: Some firms may be cramming markets in order to keep rivals out… One of the first studies on the way firms compete for shelf space in store outlets was published in 1929 by Harold Hotelling: He showed that many businesses face important trade-offs in deploying assets, for example; locating outlets too near rivals and ferocious competition will impact profit. Or, edge too far away and large chunks of the market are lost… Hotelling’s theory explained why firms in some industries– ‘cluster’ while others ‘scatter’ their store outlets…

When businesses own multiple store outlets, new tactics are possible and new trade-offs arise, for example; if a franchise adds a new outlet it will ‘cannibalize’ the profits of existing ones, pinching its own customers, as well as, rivals’. But there are upsides, deploying more outlets soak up more demand, which preempt the competition… When there are big start-up costs, preemptive can keep rivals out… This helps explain not just a physical proximity of some businesses’ outlets, but also similarity of products, services… sold by a business…

Breakfast cereals are an example: in 1950 America’s six big producers offered around 25 types of cereal; by 1972 it was around 80 types; today it’s well over 100 types… Clearly, the underlying motive is to keep rivals out… In markets where customers value proximity over brand, outlets mushroom; however, when shoppers like more options, differentiated brands proliferate… To keep rivals out, a business must mop-up demand. That means give customers what they want…

In the article Impact of Competitive Entry on Market Expansion and Incumbent Sales by Vijay Mahajan, Subhash Sharma, Robert D. Buzzell write: A central issue, in much of the earlier research on market entry, is about explaining market share–how much is achieved by new ‘entrants’ or retained by ‘incumbents’. By contrast, very little attention is given to issues related to the effect of entry on market size and the growth potential of incumbents.

These issues encompass questions, such as: (1) Under what conditions does entry of a new competitor lead to market expansion, and by how much? (2) Does entry of new competitor affect the sales potential of incumbents and, if so, by how much? It would seem reasonable to expect that the entry of a new competitor into a market might result in expansion of the market, diversion of demand from incumbent competitors, or some combination…

The addition of entrants should expand total market size, since market entry is usually accompanied by increases in product, services… variety, promotional activity, distribution, reductions in prices… These changes usually attract new buyers and that leads to market growth, expansion… In an evolving markets, new entrants create additional demand and therefore, contribute to overall expansion of the market…

Market expansion also creates opportunities for incumbents to appeal to new potential buyers… In addition, when new entrants don’t contribute to market expansion, their main strategy is to appeal to buyers of incumbents, usually in established markets where brands often cannot be significantly differentiated… There, new entrants attempts to divert buyers of  incumbent’s products, services… through heavy promotion, price reductions… However, it may be argued that a most likely scenario in where new entrants contributes to both; market expansion and also diverts the potential buyers of incumbents…

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Understanding markets, anticipating future trends, directions… provides the knowledge base required to react, defend, control… a competitive position… According to Kenneth J. Cook; in markets that are easy to enter, sources of competitive advantage tend to wane quickly, whereas, in markets that are difficult to enter, sources of competitive advantage last longer… The ease of market entry depends on two factors: 1. Reaction of incumbents to new entrants… 2. Type of barriers that prevail in the market…

According to Steven D. Peterson; if the business is entering a new (to you) market, expect to face some barriers as you seek to compete with already-established businesses. At the same time, think about building some barriers of your own in an effort to up-the-ante for competitors seeking to follow you into the market

All businesses strive to develop some competitive advantages, barriers… but, relatively few are successful over the long periods… Innovation is almost always followed by waves of imitation… and relatively few first ‘movers’ are able to maintain their initial market position…

The simple truth is that most large expenditures designed to create competitive advantage, barriers… are unlikely to be successful, over the long-term, unless the advantage can be sustained… Market entry barriers are structural features of markets that enable incumbent companies to enjoy a ‘temporary’ competitive advantage…

Business Strategy — Stuck-in-the-Middle or Build-in-the-Middle: Bridging the Gap or Dead End Proposition…

Business Strategy–‘Stuck-in-the-Middle’ or ‘Build-in-the Middle’: Many business implement a ‘build-in-the-middle’ strategy, which tries to balance the key strategic elements of; competitive differentiation, product-service price, market focus… in order to build a sustainable, profitable business…

However, according to Michael Porter classic book ‘Competitive Strategy’; he hypothesis that a business can secure a sustainable competitive advantage by adopting and executing only ‘one’ of three generic strategies, namely; cost leadership, differentiation, niche focus… and, when a business attempts to adopts more than one or a combination of these three strategies, then the business becomes ‘stuck in the middle’, which is a losing proposition…

According to Robert F Bruner; a single-minded focus on ‘cost’ or ‘differentiation’ or ‘focus’… may be tomorrow’s business graveyard… Customers, markets, competition… are not static and business must be flexible, nimble, creative, innovative… to survive, grow, prosper… But, Porter says that business, which are ‘stuck in the middle’ have no clear business strategy, and are at serious risk… He stresses the idea that practising more than one strategy loses focus, and hence a clear direction for the future business trajectory cannot be established…

However, D. Miller– questions the notion of being ‘caught in the middle’. He claims that there is a viable middle ground between strategies. Many companies, for example, have entered a market as a niche player and gradually expanded… According to Baden-Fuller and Stopford; most successful companies are the ones that can resolve what they call ‘the dilemma of opposites’…

According to Davis; research has shown evidence of successful firms practicing a ‘hybrid strategy’… business employing a hybrid business strategy (e.g., low-cost and differentiation) outperform the ones adopting one generic strategy…

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According to Michael Porter in his book– Competitive Strategy: The business that fails to develop its strategy in one of the directions; cost leadership, differentiation, niche focus…  is a business  that is ‘stuck in the middle’ and is in an extremely poor strategic situation and is almost guaranteed low profitability… Businesses that are truly differentiated can fend off the competition because they are perceived as having a unique product-service, they are more likely to earn superior margins, and are virtually ‘competitive proof’…

Porter’s strategy is embarrassingly simple– just pick one these strategies and align with it… According to John Kay; it’s true that a company that fails to develop its strategy in at least one of these three directions (i.e., a business that is stuck in the middle) is in an extremely poor strategic situation but the notion that business cannot pursue both cost reduction and product differentiation is clearly false

According to Anthony Fensom; being in the middle isn’t bad position provided that you offer value… business strategy can be driven by many objectives; ranging from gaining new customers, market share, improving turnover… or just generally supporting product positioning… and, being stuck in the middle can be a good place, at times– if the price is right…

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There is ample research on business strategy that suggests that the ‘middle’ is to be avoided for fear of being ‘stuck’ in it… According to Bob Bruner; problem is not the ‘middle’… but allowing the business to get ‘stuck’ at all– is the real issue… How the problem is being perceived has big implications for taking action, for example; some business experts argue that the ‘middle’ may not be all that bad since it provides the opportunity to test and discover possible new segments of ‘demand’…

After all, demand can be defined well beyond just– cost and differentiation, for example; convenience, style, location… Then, there is the pesky problem that consumer demand keeps changing over time, which necessitates constant experimentation to discover new or evolving demand… Today’s single-minded focus on cost or differentiation may be tomorrow’s business graveyard; customers, competition, markets… are not static they are continually ‘changing’ and business is continually ‘jockeying for position’… But, being ‘stuck’ in a bad business without a viable exit strategy is a business waiting to fail...

According to Stealers Wheel; ‘stuck in the middle’ is like being caught between clowns and jokers, they may be weak competitors, and thus may present a great opportunity for business to better serve their market, create value… and accelerate business growth… When this is true, then the middle is bad…

In the article Stuck In The Middle by Paul Simister writes: Effectively being stuck in the middle comes from trying to compromise– and it creates ‘muddle’; muddle is bad, muddle confuses customers– they don’t really know what you stand for or what to expect from you… muddle confuses employees– they don’t understand the priorities, and it affects work performance…

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– that’s when business suffers additional cost, but customers don’t get additional value… Or, when differentiated business comes under pressure on price, perhaps due to a market disruption from new technology or a low-priced competitor, and in reaction the business starts cutting costs in areas which damages their advantage…

If you think the business is stuck in the middle – or heading in that direction – then you must critically review business strategy and implement the appropriate adjustments… That means– you must decide what the business is, and what it isn’t… You must decide who the business customers are, and who they aren’t… You must decide what the business is selling, and what it’s not… Strategy is about making wise choices, and then having the courage, conviction to follow through– it’s commit to turning words, ideas… into action…

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In the article Oh, Professor Porter, Whatever Did You Do? by John Kay writes: One of the most famous propositions in business strategy is Michael Porter’s injunction not to be ‘stuck in the middle’… According to Porter; the worst strategic error is to be stuck in the middle, or to try simultaneously to pursue all the strategies. This is a recipe for strategic mediocrity and low performance, because pursuing all these strategies simultaneously means that a business unable to achieve any, due to the inherent contradictions…

The trouble with Porter’s proposition is that– it’s just not true… Many successful businesses are stuck in the middle… to them ‘stuck in the middle’ means offering– medium cost, medium quality… in fact, they do slightly better than the clearly focused choices of high-cost, high-quality… or low-cost, low-quality… So perhaps Porter’s ‘don’t be stuck in the middle’ means– not that you must choose one or the other strategy, but if you don’t– you will fail… Perhaps then all that ‘don’t be stuck in the middle’ really means is that– it’s good to be good at something…

In the article Stuck In The Middle? Take Flexible Approach by Bob Bruner writes: The problem is not the middle; it’s allowing the business to get stuck at all… The ‘middle’ seems to be what every executive wants to avoid these days. And perhaps for good reason. There is ample research on business strategy that suggests the middle is to be avoided for fear of being ‘stuck’ in it. The conventional view is to see the ‘middle’ as a no-win situation. I see things slightly differently; the problem is not the middle it’s allowing the business to get stuck at all…

Being ‘stuck’ is one of the worst situations for business without a viable exit strategy, for example; think of manufacture operations that are obsolete and face exit costs that can ruin the economics of a business as it approaches its end… Or, minority investor who is stuck in an under-performing private firm looking to exit and investment-securities are illiquid… Or, an airline stuck with an aging fleet of airplanes, uneconomic union contracts, landing rights that don’t fit the more profitable segments of demand… Or, retailers stuck with stores in neighborhoods with the wrong demographic trends… Or, technology company stuck with commitment to obsolete technology…

There are many of examples of ‘stuckness’ situations, whereby management makes inflexible commitments to what they think could be sustainable and attractive business strategy… when, in fact, these ‘difficult-to-reversible’ strategic decisions and commitments– exposes the business to potentially catastrophic consequences…

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The challenge for business leadership is not to avoid the middle, but rather to develop flexibility– such as a sensible Plan B– if the competitive situation turn against you. The middle is bad if you are stuck in some important way, for example; the inability to respond appropriate under new competitive conditions… It’s not particularly difficult to think of companies that are neither cost leaders nor differentiators that produce sub-par returns on invested capital, but many have historically ‘muddled’ along for years with incoherent strategies… However, the days of muddling along without a clear strategy are numbered…

According to Porter; a company’s failure to make a choice between cost leadership and differentiation essentially implies that the company is stuck in the middle. There is no competitive advantage for a company that is stuck in the middle and the result is often poor financial performance… However, there is disagreement among scholars on this aspect of the analysis…

According to John Kay and D. Miller; cite empirical examples of successful companies like Toyota and Benetton, which have adopted more than one generic strategy. Both these companies used the generic strategies of differentiation and low-cost simultaneously, which led to the success of the companies...

In contrast, according to Tim Friesner; Yahoo has been stuck in the middle for number of year… and future for the business is looking less and less certain. Google occupies the search and online advertising position, and Microsoft has negated its problem in the search space, with the successful development of Bing. It looks like Yahoo has remained loyal to its long serving strategists, at a time when it really needed fresh ideas. This is an example of not moving with the times in a very fast-moving and dynamic tech sector… 

Michael Porter has noted that strategy is as much about executives deciding what a firm is ‘not going to do’ as it’s about deciding what the business ‘is going to do‘… In many cases, business is ‘stuck in the middle’ not because executives fail to arrive at a well-defined business strategy but because businesses are out-maneuvered by rivals…

According to Joseph Schumpeter, great economist; described the competitive turbulence of capitalism as ‘gale of creative destruction’… being stuck in a bad business without a viable exit strategy– is a business waiting to fail…