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IT and Micheal Porters Competitive Strategy January 4, 2010

Posted by Chris Eaton in EA, IT Architecture, IT strategy, Uncategorized.
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I recently rediscovered Michael Porters book – ‘Competitive Strategy: Techniques for Analyzing Industries and Competitors’. This is essential reading for anyone strategist in business or IT. I skim read through it to refresh my memory and a very thought-provoking read it was indeed.

In a nutshell Porter puts forward three generic strategies which any competitive organisation might decide to implement to win in the marketplace:

  • Cost Leadership – be the cheapest at performing a particular activity  or service
  • Differentiation – offer something of value (a service) that no one else offers
  • Focus – combine Cost Leadership and Differentiation to be the cheapest in some activities (services) and offer value add (services) in other activities

In reality the Focus strategy is the one most organisations will use, the trick is to choose where to minimise cost and where to differentiate.

Two simple examples

As an IT organisation within a larger non IT Business it is probable that your Focus Strategy will be to:

  • provide Cost Leadership for commodity activities like Application Hosting and Application Maintenance by providing the cheapest hosting and application maintenance possible whilst meeting business commitments. The most likely route to achieve this is outsourcing to specialist hosting and application maintenance organisations.
  • provide Differentiation by delivering IT solutions (mainly applications) which focus on how the business itself wishes to differentiate itself in the marketplace

As an IT organisation offering IT Services like Application Hosting and Application Maintenance the a possible Focus Strategy is to:

  • provide Differentiation in Application Hosting and Maintenance with a twist that no-one else offers which could be flexible pricing based on actual hosting usage and service levels rather than fixed costs or provide specialist services like high availability
  • provide Cost Leadership through employing staff and hosting at the most effective locations

The conclusion of this post is whether IT organisations are really thinking in these terms. Generally I would say that most organisations are focused on Cost Leadership by minimising the cost of IT. However, the real prize for IT to become an invaluable partner to the business is through differentiation which is arguably much more difficult than slashing costs, true business intimacy is needed to achieve this.

Do you know how you are differentiating for your business? and does the business know you are differentiating and offering something they cannot get from an external party?

Wikipedia has a good summary of these three generic strategies -> here

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Comments»

1. what is the future for the internal IT function? « artITecture - March 3, 2010

[…] of the internal IT function, IT strategy, outsourcing trackback Building on my previous post on competitive strategy I wonder what just is the future of the internal IT function? (of an organisation whose core […]

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[…] on the day and gave a very interesting presentation on the methods Microsoft are adopting including Porters Competitive Strategy and Good to Great and lastly and most importantly the Office of Strategy Management I had not heard […]


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