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