False Dilemma

Harvard Business School Professor Michael Porter argued back in 1985 that there are three generic strategies that an organisation can follow to achieve above average performance.

You can operate at low cost, provide distinct value to customers, or focus on doing one of these things while targeting a specific niche in the market.

The unfortunate fallacy that Porter introduced is that he made us think of these three choices, “low cost”, “differentiation” and “focus”, as three separate strategy alternatives.

In reality, they might more accurately be thought of as three necessary ingredients of any strategy that stands a chance of thriving in the long run.

Two companies that appear to have adopted the strategy trifecta are Aldi and Ikea.

Both firms have focused on a particular market niche. Ikea provides nicely designed furniture, and Aldi provides good quality groceries.

Both firms have designed their organisations to enable them to operate at low cost and they have passed these savings on to the customer.

The additional beauty of pursuing this strategy is that delighted customers can’t help but talk about the value for money that they receive, and so the firms make further savings by being able to reduce their marketing costs.

The choice of pursuing low cost or high value is a false dilemma.

While it is true that it might be difficult to achieve both on any given day if the resources and systems are not in place, it is also true that organisations don’t exist merely at a point in time.

Most organisations exist for many years and a sound strategy is one that will make this enduring existence more certain, sustained and successful.