Different Strategies, Different Risks

Patrick McConnell

This chapter provides a discussion of the main types of generic strategies that firms pursue and summarises the different types of risk, especially “external”, that arise for each of these strategy types. The chapter concludes by developing a model of strategic risks.

GENERIC STRATEGIES

Michael Porter (1980, 1996) and Johnson et al (2013) describe a number of basic types of strategy that hold across many kinds of business situations. These “generic strategies” are based on whether the firm has a broad or narrow “competitive scope” and whether a firm aims primarily for managing “costs” or for “differentiation” for its source of “competitive advantage”. Figure 4.1 shows the classic 2 by 2 model developed by Porter, with two dimensions:

• • competitive scope: whether the firm is targeting a “broad” market, such as retail customers, or a “narrow” one, such as high-net-worth individuals (HNWIs); and
• • competitive advantage: whether the firm aims to achieve “lower costs” than its competitors or to “differentiate” itself from its competitors.

These dimensions are distinguished by (Johnson et al 2013):

• • cost: strategies to become the “lowest-cost”