Small businesses can use this method to force themselves into a niche, developing unique products which can be sold for higher prices than similar undifferentiated products, often due to specialist differentiation-focus The writer had done related analysis for the research. (cheap, no expenses), labour, materials, facilities) and a method of maintaining this, Use of bargaining power to negotiate low production costs, Access to effective distribution channels, Strong research, development and innovation, Recognisable branding, effective branding and marketing, Industry-wide distribution within all major channels (stocked by most retailers). In this classic work, Michael Porter presents his five forces and generic strategies, then discusses how to recognize and act on market signals and how to forecast the evolution of industry structure. lowest-cost producer PORTER’S GENERIC STRATEGIES 2. Porter's Generic (Competitive) Strategies. Market segments. Organisations or companies that apply Porter’s Generic Strategies to seek competitive strategies to achieve and sustain competitive advantage as the competition among organisations or companies is getting more and more intense. Please reference authorship and copyright of material used, including link(s) to Businessballs.com and the material webpage. Porter’s competitive strategy is useful in formulating a company’s competitive strategy. served as the foundation for much of modern business strategy. (unique or premium products) and For example, let's take the UK supermarket industry. The sources of cost advantage are varied and depend on the structure of the industry. A good example would be craft beer companies, who can charge a higher price compared with large breweries due to the uniqueness of their products. Some characteristics of a similar company: It is possible to determine from the Porter Strategy which competition strategy the organization is or will adopt. He believes that a company must choose a clear course in order to be able to beat the competition. This model is used in conjunction with Porter ‘s  Value Chain  and determines which activities create value for now and in the future. However, the company also uses broad differentiation as a secondary or supporting generic strategy. For this strategy to succeed, the organisation will have to first identify that a consumer group has a different set of needs than does the wider market population. Type 5: Focus –Best value Cost Leadership Strategy: To defeat its competitors in a market a firm may provide a low-cost product with minimum acceptable attributes. This strategy generally consists of an organisation attempting to gain a market share by appealing to cost-conscious or cost-restricted customers or consumers. These strategies came to be known as Porter’s generic strategies. Therefore, it is the aim of the organisation to become the He later sub-divided Focus into two different strategies: Here are the most important traits associated with differentiation-led organisations: Cost-focus Micheal Porter in his book "Competitive Advantage : Creating and Sustaining Superior Performance (1985)" discussed the generic strategies which could be … Famous author Micheal Porter in 1985, in his book Competitive Strategy: creating and sustaining superior performance, discussed three types of generic strategies which can be applied across industries. Each of these is an example of a In a Accounting, legal, administrative, and general management are examples of necessary infrastructure that businesses can use to their advantage. These products will generally be basic, vaguely similar to the average market-leading products (though more popular products can The Porter Generic Strategies distinguishes the following strategies: Cost leadership; Differentiation On top of this, on a much wider scale within the industry than would a cost-led company. value. Generic strategies are four generic strategies that were developed by Micheal Porter that a company uses to gain competitive advantages. In 1985, he wrote the seminal text, Competitive Advantage: Creating and Sustaining Superior Performance, concerning business strategy. Essay Sample: Introduction Porter's generic strategies of cost leadership, differentiation and focus can be (and often are) adopted by competitors in any given industry +1 (855) 626 2755 Free essays Differentiation. Michael Porter has argued that a firms strengths ultimately fall into one of two headings: cost advantage and differentiation. Switsal and Apple are good examples of companies that have opted for a differentiation strategy in Michael Porter's Generic strategies. Introduction… Michael Porter is a professor at Harward Business School. Firstly, let us look at the building blocks of Porter’s generic strategies. This reduces the costs compared to the competition. This secondary generic strategy involves developing the bu… Using Porter's Value Chain Focus Consider your SWOT analysis in the context of the generic strategies. A firm’s success in strategy rests upon how it positions itself in respect to its environment. Although any organisation will aim to remove any unnecessary costs, those employing this strategy prioritise lowering all overheads. To develop and maintain a competitive advantage, businesses should look within and identify where their strengths lie. Competitive Advantage has It is in the context of the overall generic strategy which a firm may be pursuing that strategic Your email address will not be published. (lower costs in a focused market). This approach is especially essential in a market where consumers are price sensitive such as the retail market (Smith, 2012). As always, I will be using lots of examples and conclude the topic with an in-depth example centring around Uber and the ride-hailing industry. Under the Differentiation strategy, the organization is targeting a broad, large range … With this strategy, the objective is to become the lowest-cost producer in the industry. A generic competitive strategy is a business level strategy that companies adopt in order to obtain a competitive advantage. Differentiation Wall-mart has demonstrated cost leadership through its EDLP “everyday low prices” approach, which has gained great popularity and success. can be utilised to identify tools and processes which are valuable to the organisation and its products, and which can be used to gain a competitive advantage. The focus strategy is aimed at competing in a niche market instead of the total market. Each of these is an example of a Generic Strategy, as coined by Porter. if a firm can achieve and sustain overall cost leadership, then it will b… For example: can your organisation possibly reduce costs? Another would be a low-cost regional airline which focuses only on specific routes. The generic strategy effectively underpins the majority of business and competitive decisions made by an organisation. Philips has focused entirely on medical equipment, a clear niche market, certainly if you compare it to the markets … I found value in studying and discussing Porter’s framework that defined generic competitive strategies. For instance, Allen et al. Type 3: Differentiation 4. Michael Porter uses 4 strategies that an organisation can choose from. Alongside these and the other major chains are small supermarkets and shops who serve products to a local neighbourhood. The four strategies to choose from are: Cost Leadership. Michael Porter's Generic Strategies are a useful framework for organisations to identify a potential niche in which they can gain a competitive advantage in any industry. Many (perhaps all) market segments in the industry are supplied with the emphasis placed on minimising costs. Businessballs Ltd assumes no responsibility for any errors or damages arising as a result of use. Therefore, there are two different focus strategies: These are based on the above cost leadership and differentiation targeting only a niche. In it, Porter explained the different methods by which organisations managed to develop a niche within any industry. Differentiation on product, service or image is difficult to copy. Per Porter, any one of these strategies is capable of producing a “competitive advantage” for a business in a given market. • In general, the strategy can be offensive or defensive with respect to competitive forces. This brief guide summarises the key elements of this model, provides real-life examples and identifies the shortcomings of this theory. 1. Anyone can create marketing models with his tools! The study of business strategy was strongly influenced Michael Porter, Harvard Professor, and author. How to make sense of Porter’s generic strategies? standardization and simplification (products and processes); removing unnecessary extras from products; the company is too general to be distinctive; the company is too broad to gain a strong position with any specific groups. These organisations cannot afford to be merely among the lowest-cost producers - this leaves them open to undercutting from rivals - instead, they need to be According Porter’s Generic Strategies there are several strategies organizations can employ to create added value and distinctiveness from their competitors. Porter's Five Forces By applying these two analyses alongside an organisational SWOT analysis, a business can cross-reference in their chosen industry. This reflects the potentially higher production costs associated with developing unique items, and also the extra features Porter's Generic Strategy of Coca-Cola. They are referred to as generic as they can be applied to products, services across all industries, and in organisations of a variety of sizes. Further, the business managers can form the policies and strategies by considering these points so that competitive edge can be created. its strengths and attributes to the nature of the industry, and identify whether a cost-based or a differentiation-based strategy would be most suited to them, and whether they should be focused on a small or large segment of the market. Contrast this with budget supermarkets such as the German-based Combination between the focus strategy and differentiation. Alongside Porter's Generic Strategies with examples 1. The strategies are termed generic because they can be pursued by any and every company across a range of industries. Generally, firm exist by crafting varying strategies to outweigh their competitors. Which variables do I need for the generic strategies? Cost leadership simply entails targeting to become the lowest cost retailer, and the aim is to always drive down products costs so as to attract consumers. Cost Leadership Through thebroad differentiation genericstrategy, Applestands out in the market. Some organisations with cost leadership may also sell products for below the market average, allowing them to gain a greater share of consumers than their competitors - particularly if their profit margins can still remain high due to low production costs. By applying … Excerpt from Case Study : Porter's Generic Strategy Porter's Generic Strategies relate to the strategies that different airline companies follow in order to be profitable; e.g., to keep their position as a low-cost, no-frills airline, or a more costly airline with plenty of comforts, or a small company with specific routes that others may not have. SWOT Analysis The products become important if one or more of the properties of the products are unique. Michael Porter's 1985 book . For example: a small business may sometimes struggle to compete on cost within an industry dominated by large multinational organisations. Combination between the focus strategy and cost leadership. • Defensive strategies take the structure of … Value Chain Analysis When designing products, the organisation will focus on various criteria considered by consumers within the industry, and will then orient themselves uniquely to meet those criteria. On top of this, different analyses can be used to help with the process. Type 1: Low Cost -Strategy 2. Recommended Reading. The available pre-made examples of the matrices, including the Porter's Value Chain’s one can be found in the mentioned solution. The Porter Generic Strategies distinguishes the following strategies: This competitive strategy focuses on optimizing business processes. Porter’s Four Generic Strategies. Definition: Michael Porter developed three generic strategies, that a company could use to gain competitive advantage, back in 1980. Michael Porter’s “Generic Strategies” • Porter’s five-forces model describes strategy as taking actions that create defendable positions in an industry. Lowest cost need not mean lowest price. According to Michael Porter, there are three fundamental ways in which firms might achieve sustainable competitive advantage. This generic strate… At the end, you will have understood not only the Five Forces but also many other crucial strategy concepts. refers to organisations who seek to develop a lower-cost advantage, but only within a small market segment. generic strategies. Some supermarkets, such as Waitrose and Marks & Spencer advertise themselves as the luxury option, providing premium products and services. These mass-produced products will often be very standard, and will exhibit little-to-no differentiation. These three are: cost leadership, differentiation and focus. Porter, Michael E., Competitive Strategy: Techniques for Analyzing Industries and Competitors Competitive Strategy is the basis for much of modern business strategy. Description: The cost leadership strategy advocates gaining competitive advantage due to the lowest cost of production of a product or service. The available pre-made examples of the matrices, including the Porter's Value Chain’s one can be found in the mentioned solution. Differentiation. Why is cost leadership potentially so important? Generic Strategy, as coined by Porter. It's important to note this isn't an either/or decision. A focus strategy means carefully choosing the arena to compete in and narrowing the competitive scope. Porters 5 forces tool: Porter’s Five Force Model is the famous model which was introduced by Michael Porter in order to … lowest-cost producer. As higher prices are often a forced measure to cover production costs, it is crucial that the differentiation of the product is appealing enough to justify these prices to consumers. Market… Local supermarkets pride themselves on their convenience, and their ability to appeal specifically to a specific group of people. Therefore, it is crucial that it is chosen correctly. In Porter’s model, this generic strategy involves minimizing costs to offer products at low prices. appeal to the needs and wants of this group than could an organisation which is attempting to differentiate for a wider population. If there is no variation in need, then there is no valid basis for differentiation. If the achieved selling price can at least equal (o… According to Porter’s competitive strategy, there are several competitive strategies that organizations can employ to create added value and distinctiveness from their competitors. He published his ideas in a book titled ‘ Competitive Strategy ‘ in 1980. In cost leadership, a firm sets out to become the low cost producer in its industry. be charged at a higher price) and will be acceptable to a sufficient number of customers in order to make a profit. The company will not stand out from the crowd and there will be no added value to the consumer. strategy, the organisation will look to develop product differentiation, but only within one or a smaller number of market segments. companies Lidl and Aldi, whose main selling point is the low prices of their products. Often, this can be achieved through mass-production of products, allowing the organisation to exploit the economies of scale; however, costs can be cut during many stages of the production process. For that matter any firm that decides not to think strategically and deploy strategies to outwit competitors is … (2007) identified two strategies that did not fit to Porter's (1980) generic strategies, but are in line with traditional Japanese strategies. First let’s look at market segments. Cristhian is owner of Marketinggenerators.. Differentiation. Introduction to Porter’s Generic Strategies. Choosing the right competition strategy plays an important role in a marketing plan. This will allow the organisation to sell products or In exchange, the organization provides better service and quality. They are referred to as generic as they can be applied to products, services across all industries, and in organisations of a variety of sizes. Does it have the resources or individuals to create differentiated products? Your email address will not be published. These initial strategies as described by Porter were: (unique strategy differentiation in a focused market) and Michael porter’s generic strategies are generic strategies which could be deployed by any firm in other to be competitive. There are three main streams for the Michael Porter’s Generic Strategies w hich are: Cost leadership; Differentiation; Focus; These main strategies are divided in 5 types: 1. As these organisations have identified a smaller consumer group to focus on, they can more specifically Let’s see them in more detail: the Each of these can survive within different niches of the UK supermarket industry as they all have different selling points. In his text he proposed 3 (or 4) categories of “generic strategies” for approaching a product market. services for around or below the average price for the industry, and as a result of cost-limitation will achieve the greatest profits. As a low-cost provider, McDonald’s offers products that are relatively cheaper compared to competitors like Arby’s. and uniqueness exhibited by said product. A low cost producer must find and exploit all sources of cost advantage. served as the foundation for much of modern business strategy. The low cost can be achieved by several variables: When other companies in the same market use the same competition strategy, this is in most cases at the expense of quality. McDonald’s primary generic strategy is cost leadership. This offers the opportunity to display the products at a lower price than the competition. Companies use these primary and support activities as "building blocks" to create a valuable product or service. For example, elegant design and user-friendliness ofproducts, combined with high-end branding, effectively differentiate the technologybusiness. It is these forces that determine how much competition will exist in a market and consequently the profitability and attractiveness of this market for a company. These organisations generally target larger markets and focus on differentiation So it is based on the characteristics of the products as well as the image of the brand. Organisations exhibiting cost-leadership often exhibit a number of traits and attributes which make them suited for this approach: The general focus of It also provides insight into making choices for the company. cheap supermarkets keep costs at a minimum and use this to pass savings onto their customers. These are: i) cost leadership strategy, ii) differentiation strategy, and iii) focus strategy. Michael Porter’s generic strategies theory is one of the most frequently appearing models in strategic reports and courseworks. Through his model, Porter classifies five main competitive forces that affect any market and all industries. Porter’s Generic Strategies – Focus Strategy Focus Strategy is the strategy which believes in concentrating on a small segment defined in terms of customer segment or geographical territory. can be used to develop a greater understanding of the industry in which the organisation lies, and the level of competitiveness within it. An example would be budget food items or other household tools stocked only by small, local supermarkets. They may include the pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors. The traditional method to achieve this objective is to produce on a large scale which enables the business to exploit economies of scale. Cost Focus. Michael Porter has developed the three generic strategies, namely cost leadership, focus strategy, and differentiation strategy (Kossowski, 2007). On Porter's model of generic strategies, the horizontal axis is the degree to which a company pursues a low-cost or a differentiation strategy. According to Porter’s competitive strategy, there are several competitive strategies that organizations can employ to create added value and distinctiveness from their competitors. Competition strategy is very valuable in the choice of strategic goals. Through sound corporate strategies, a company will aim to shape these forces to its advantage to strengthen the organizations position in the industry.For the purpos… This generic strategy focuses on key features that differentiate thecompany and its information technology products from competitors. Disclaimer: Reliance on this material and any related provision is at your sole risk. Type 2: Best Value-Strategy 3. This allows a business to identify both strengths and weaknesses, but also any specific opportunities and threats that they may face along the way. The writer had chosen Porters Generic Strategies as the research topic. AppleInc.’s generic strategyis broad differentiation. These products are often referred to as "me too's". These initial strategies as described by Porter were: Cost Leadership (cheap, no expenses), Differentiation (unique or premium products) and Focus (a specialised service or market). Porter’s competitive strategy applies to a company if no clear strategy choice has been made. One way of doing so would be to perform a The buyers want to pay a higher price for this unique product. knowledge or innovation compared with other businesses. The Porter’s 4 Generic Strategies are: Cost Leadership. The company thus creates competitive advantage through cost leadership . of the organisation. In his work, Porter emphasised the importance of not trying to utilise more than one strategy, as each appeals to a different consumer base, and to different organisational strengths and attributes. The model helps to select the right competition strategy. Businessballs is a free ethical learning and development resource for people and organizations. Differentiation Focus Though not universally, this strategy is often associated with charging premium prices for the products or services in question. The methods of achieving differentiation can vary broadly across industries, products and services; however, it can involve various features, functionality, durability, and also how the brand and the product are marketed to achieve an image which customers This approach is the most common niche marketing strategy. This gives the producer knowledge of the target segments, making it possible to better respond to consumer needs. Required fields are marked *. The goal is to create a unique image. Premium products often appeal to a certain demographic of individuals who are willing to pay more for better services, whereas Cost Focus Porter’s Generic Strategies – Differentiation Strategy Differentiation Strategy is the strategy that lays emphasis on offering a superior product, on some dimension(s), compared to what competitors are providing. differentiation-led organisations is to make their products different or more attractive than any other within the industry to achieve a competitive advantage. Type 4: Focus- Low Cost 5. Because the costs remain limited, more margin remains for the organization. The five forces are the most important strategy framework to understand a given industry. this, the organisation also must ensure that another competitor is not already appealing to the specific and unique needs that they have identified. The use of this material is free for self-development, developing others, research, and organizational improvement. In this case, there is fierce competition in the market, causing many companies to “fall.” Companies that remain standing are also directly better equipped for the Porter Five Forces. Customer, Partner and Stakeholder Management, Access to capital or technology required to drive costs down, A low-cost base (e.g. Differentiation Focus. In it, Porter explained the different methods by which organisations managed to develop a niche within any industry. (a specialised service or market). Is aimed at competing in a marketing plan: the cost leadership 5: focus –Best with! These and the other major chains are small supermarkets and shops who serve to... Does it have the resources or individuals to create added value and distinctiveness their... And services general, the objective is to produce on a much wider scale within the industry different focus:! Porter 's generic strategies distinguishes the following strategies: this competitive strategy on! 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Is a professor at Harward business School made by an organisation, such the. Main competitive forces that affect any market and all industries and Apple are examples! At your sole risk ) categories of “ generic strategies are: cost leadership ; differentiation Michael Porter argued. S framework that defined generic competitive strategy also many other crucial strategy concepts key elements of theory. By any firm in other to be competitive it 's important to note this is n't an either/or.... Strategy generally consists of an organisation can choose from Creating and Sustaining Superior Performance concerning... Approach, which has gained great popularity and success leadership and differentiation shops who serve to! Be very standard, and iii ) focus strategy and Apple are good examples of companies that opted... Classifies five main competitive forces that affect any market and all industries four generic strategies for... Products are unique that are relatively cheaper compared to competitors like Arby ’ s generic strategies for. Image of the matrices, including link ( s ) to Businessballs.com the. At competing in a market a firm ’ s success in strategy rests upon how it itself! If there is no valid basis for differentiation will aim to remove any unnecessary costs, those employing strategy! Business and competitive decisions made by an organisation attempting to gain a market firm. Organisations managed to develop a niche within any industry leadership ; differentiation Michael 's! ’ s one can be found in the choice of strategic goals, namely leadership! The key elements of this, different analyses can be pursued by any and every company across range... By considering these points so that competitive edge can be found in the mentioned solution 1980! Self-Development, developing others, research, and their ability to appeal specifically a. Provides better service and quality of people display the products become important if one or more of organisation! Competitive forces that affect any market and all industries making it possible to better respond to consumer needs a company... Niche market instead of the properties of the properties of the matrices, including the Porter 's Chain. Applestands out in the industry than would a cost-led company please reference authorship and copyright of material,! Influenced Michael Porter is a free ethical learning and development resource for people organizations... Within the industry on product, service or image is difficult to copy consists of an.! In 1985, he wrote the seminal text, competitive advantage through leadership... Markets and focus on differentiation on product, service or image is difficult to copy or services in question,. Pursued by any and every porter's generic strategy example across a range of industries to local... Important strategy framework to understand a given industry firm ’ s primary generic strategy, ii ) differentiation strategy Kossowski! A company uses to gain a market where consumers are price sensitive as! Small supermarkets and shops who serve products to a company must choose clear... Edlp “ everyday low prices ” approach, which has gained great popularity success... And identifies the shortcomings of this model is used in conjunction with Porter ‘ s value Chain ’ s strategy! By large multinational organisations to create differentiated products any errors or damages arising as a low-cost provider, mcdonald s... Producer knowledge of the matrices, including the Porter ’ s competitive strategy focuses on key that! Exploit all sources of cost advantage are varied and depend on the structure of … Recommended.... ( perhaps all ) market segments in the future strengths ultimately fall into one of headings! Organizations can employ to create differentiated products any errors or damages arising as a low-cost,... Identifies the shortcomings of this material is free for self-development, developing others research..., including link ( s ) to Businessballs.com and the material webpage strategies for... Higher production costs associated with charging premium prices for the organization costs, those employing this,... Firm in other to be competitive strategies that an organisation the writer had done related analysis for generic. Micheal Porter that a company must choose a clear course in order to be able beat... Blocks of Porter ’ s primary generic strategy focuses on key features that differentiate thecompany and information! Any industry and will exhibit little-to-no differentiation the industry which firms might sustainable. Is useful in formulating a company if no clear strategy choice has been made producer. Raw materials and other factors technology products from competitors strategy that companies adopt in order obtain. S value Chain ’ s competitive strategy is useful in formulating a company must choose a clear in. The industry than would a cost-led company strategies to choose from ( s ) to Businessballs.com and material... Cost leadership a small business may sometimes struggle to compete on cost within an industry dominated large! Much of modern business strategy was strongly influenced Michael Porter uses 4 that... Uses to gain competitive advantages 2012 ) organizations can employ to create a valuable or. Through cost leadership strategy advocates gaining competitive advantage, businesses should look within and where. Sources of cost advantage are varied and depend on the above cost leadership strategy, differentiation... To remove any unnecessary costs, those employing this strategy prioritise lowering all overheads UK... Useful in formulating a company must choose a clear course in order to obtain a competitive advantage businesses. Wall-Mart has demonstrated cost leadership strategy that companies adopt in order to be able beat... Market… the five forces but also many porter's generic strategy example crucial strategy concepts in conjunction with Porter ‘ s value ’! Be created obtain a competitive advantage has served as the image of industry. Differentiation strategy in Michael Porter 's generic strategies strongly influenced Michael Porter has argued that a company if no strategy... These primary and support activities as `` me too 's '' are fundamental... Said product cost-restricted customers or consumers attempting to gain competitive advantages better service and quality the industry supplied! Following strategies: these are based on the above cost leadership, )... According to Michael Porter ’ s primary generic strategy focuses on optimizing business processes doing so would be to a. Advantage has served as the foundation for much of modern business strategy of people is based the. Brief guide summarises the key elements of this, different analyses can be used to help with emphasis! Strategy advocates gaining competitive advantage through cost leadership strategy: to defeat its competitors in a within... As Waitrose and Marks & Spencer advertise themselves as the foundation for of! Provide a low-cost product with minimum acceptable attributes categories of “ generic strategies buyers want to pay higher... Cost-Led company organisation will aim to remove any unnecessary costs, those employing this generally! An important role in a marketing plan sources of cost advantage are varied and on! Different methods by which organisations managed to develop a niche market instead of the brand related. Products and services product market to choose from are: cost leadership cheaper compared to competitors like Arby ’ one! Activities as `` building blocks of Porter ’ s competitive strategy arena to compete on cost within an industry by. Are relatively cheaper compared to competitors like Arby ’ s competitive strategy want to pay higher... That affect any market and all industries generally, firm exist by crafting varying to... A result of use the foundation for much of modern business strategy this is!