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the big picture has to be given to Michael E Porter； who trained as an
economist at Princeton； taking an MBA （1971） and PhD （1973） at Harvard
Business School where he is now a professor。 His book； petitive Strategy：
Techniques for Analyzing Industries and petitors （1980； Free Press； Old
Tappan； New Jersey； United States）； which is in its 63rd printing and has
been translated into 19 languages； sets out the now accepted methodology
for devising strategy。 As well as being essential reading in most business
schools； courses based on Porter’s work are taught in partnership with
more than 80 other universities around the world； using curriculum； video
content and instructor support developed at Harvard。
The three generic strategies
Porter’s first observation was that two factors above all influenced a business’s
chances of making superior profits。 First； there was the a。。ractiveness
or otherwise of the industry in which it primarily operated。 Second； and in
terms of an organization’s sphere of influence more important； was how
the business positioned itself within that industry。 In that respect a business
could only have a cost advantage in that it could make product or deliver
service for less than others。 Or it could be different in a way that ma。。ered
to consumers； so that its offers would be unique； or at least relatively so。 He
added a further twist to his prescription。 Businesses could follow either a
cost advantage path or a differentiation path industry wide； or they could
take a third path – they could concentrate on a narrow specific segment
（see Chapter 3 for more on market segments）； either with cost advantage or
with differentiation。 This he termed ‘focus’ strategy。
Cost leadership
Low cost should not be confused with low price。 A business with low
costs may or may not pass those savings on to customers。 Alternatively；
it could use that position alongside tight cost controls and low margins to
create an effective barrier to others considering either entering or extending
their penetration of that market。 Low…cost strategies are most likely to
264 The Thirty…Day MBA
be achievable in large markets； requiring large…scale capital investment；
where production or service volumes are high and economies of scale can
be achieved from long runs。
Low costs are not a lucky accident； they can be achieved through these
main activities：
。 Operating efficiencies： New processes； methods of working or less
costly ways of working。 Ryanair and easyJet are examples where analysing
every ponent of the business made it possible to strip out
major elements of cost； meals； free baggage and allocated seating； for
example； while leaving the essential proposition – we will fly you from
A to B – intact。
。 Product redesign： This involves rethinking a product or service
proposition fundamentally； to look for more efficient ways to work
or cheaper substitute materials to work with。 The motor industry has
adopted this approach with ‘platform sharing’； where major players
including Citroen； Peugeot and Toyota have rethought their entry car
models to share major ponents； this has bee monplace in
the industry。
。 Product standardization： A wide range of product and service offers
claiming to extend customer choice invariably leads to higher costs。
The challenge is to be sure that proliferation gives real choice and adds
value。 In 2008 the UK railway network took a long； hard look at its
dozens of different fare structures and scores of names； o。。en for identical
price structures； which had remained largely unchanged since the
1960s； and reduced them to three basic product propositions。 Adopting
this and other mon standards across the rail network they estimate
will substantially reduce the currently excessive ￡。 billion transaction
cost of selling ￡5 billion worth of tickets。
。 Economies of scale： This can be achieved only by being big or bold。
The same head office； warehousing network and distribution chain can
support Tesco’s 3；263 stores as well it can； say； the 997 that Somerfield
has。 The former will have a lower cost base by virtue of having more
outlets to spread its costs over； as well as having more purchasing
power。
THE EXPERIENCE （OR LEARNING） CURVE
The fact that costs declined as the output volume of a product or service
increased； though well known earlier； was first developed as a usable
accounting process by T P Wright； an American aeronautical engineer；
in 1936。 His process became known as the cumulative average model
or Wright’s model。 Subsequently； models were developed by a team of
Strategy 265
researchers at Stanford； known as the unit time model or Crawford’s model；
and the Boston Consulting Group （BCG） popularized the process with its
experience curve； showing that each time the cumulative volume of doing
something – either making a product or delivering a service – doubled； the
unit cost dropped by a constant and predictable amount。 The reasons for
the cost drop include：
。 Repetition makes people more familiar with tasks and consequently
faster。
。 More efficient materials and equipment bee available from suppliers
themselves as their costs go down through the experience curve effect。
。 Organization； management and control procedures improve。
。 Engineering and production problems are solved。
BCG itself was founded in 1963 by Bruce D Henderson； a former Bible
salesman and engineering graduate from Vanderbilt University； who
le。。 the Harvard Business School 90 days before graduation to work for
Westinghouse Corporation。 From there he went on to head Arthur D Li。。le’s
management services unit before joining the Boston Safe Deposit and Trust
pany to start a consulting arm for the bank。 Naming this the experience
curve； it was the strategy tool that put BCG on the path to success and has
served it well ever since （Figure 12。1）。
The value of the experience curve as a strategic process is that it helps
a business predict future unit costs and gives a signal when costs fail to
drop at the historic rate； both vital pieces of information