Generic Strategies

Generic strategies are basic strategies that can be used by organizations in all kinds of industries. Michael Porter's 1980 book Competitive Strategy established a framework based on three distinct generic strategies: cost leadership, differentiation, and focus. This framework is based on the premise that organizations can use any one of these strategies to achieve a competitive advantage and to outperform competitors in their industry. Conversely, organizations that lack a coherent strategy may become stuck in the middle, a position associated with poor performance.

Overall cost leadership is a strategy in which organizations attempt to increase market share by emphasizing low costs relative to competitors. This strategy is suited to relatively large organizations that can control their costs by taking advantage of economies of scale, obtaining greater access to resources, and streamlining their processes to enhance efficiency. An effective cost leader can charge the same prices as the competition, and generate above-average profit margins because of its low-cost position.

Cost leadership is a very viable strategy in the health care industry, where consumers are highly concerned about the cost of quality care. For instance, a community hospital can streamline its administrative processes, outsource certain services, and cut back on more expensive, but seldom-used medical specialties. To fulfill all patient needs while keeping costs low, it may choose to form a partnership with a nearby research hospital.

Organizations following a differentiation strategy seek to create a product or service that is perceived by customers as unique. This uniqueness can take many forms. For instance, an organization may differentiate itself based on its level or type of service, its product features, its reputation, its location, and so on. The key is to provide features that customers want and are willing to pay for. This is critical, because it may be expensive to develop products or services that exceed the norm. Hence, even differentiated organizations must be concerned about their costs. They should expend extra resources on those things that contribute to their differentiation but be conservative in areas that do not. By following these guidelines, they can set themselves apart from competitors while still generating comfortable profits.

Health care providers can differentiate themselves in a variety of ways. Some large tertiary care institutions have established worldwide reputations for their unsurpassed quality in areas ranging from heart transplants to children's care. A chain of long-term care facilities could develop a national reputation for its excellent nursing services. A regional hospital could become known for its wellness center, by offering flexible hours, excellent training, and customized exercise programs.

The third generic strategy is the focus strategy. With this alternative, an organization directs its efforts to the unique needs of a small target market or a narrowly defined geographic market and attempts to achieve a cost advantage or a product or service advantage. The objective is to serve a particular market segment better than any other competitor serves it. For a focus strategy to work, there must be a significant difference between the needs of the target market and those of other segments in the market. The organization makes its products or services attractive to these customers by providing something they desire but cannot find elsewhere. An alcohol and drug rehabilitation center that serves a wealthy clientele is following a focus strategy, as is a psychiatric center that specializes in serving young females with eating disorders.

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