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Question 49-52 are based on the following passage.
In 1980, Michael Porter released the seminal book Competitive Strategy Techniques for Analysing Industries and Competitors, which shared his work on techniques that businesses can use to achieve and maintain dominance in their respective markets. According to Porter, an engineer who later became an economist, differentiation, cost leadership, and market segmentation are the foremost generic strategies for dominating the market. Strategic scope and strategic strength are two additional variables to the equation and help define the terms under which the three previous conditions are to be analyzed. Porter contends that scope is considered a "demand-side" variable that illustrates the size and makeup of the desired market. On the other hand, strategic strength is deemed a "supply-tide" factor as it addresses the competency of the company itself. To help others visualize his theory, Porter created a diagram that depicts the overlapping of these specifications.
In the concluding summary of his research, Porter points out that, surprisingly, companies with both high and low market share we both profitable; the companies that suffer most in that respect are those that fail in the middle. Porter explains that the companies with high market share are those that have utilized cost leadership while the companies with low market share have taken advantage of market segmentation to hone in on a small but financially rewarding niche. Companies in the middle range, however, inevitably are those that lack a generic strategy and, therefore, are not as profitable.
According to the passage, what is the distinction between the variables of strategic strength and strategic scope?
Strategic strength is a demand side variable as it concerns the strength of interest for a good or service in the market while strategic scope is a supply side variable as it concerns the size and complexity of the companies that respond to market demands.
Strategic strength is a supply-side variable that focuses upon the aspects of the companies themselves that meet demand while strategic scope is a demand-side variable that addresses the make-up of the consumers of the goods and services supplied.
Strategic strength is a more important variable for companies to consider than strategic scope as the former is internal to the company and thus controllable while the latter is external and thus more difficult for a company to control.
Strategic scope is a more important variable for companies to consider than strategic strength as the characteristics of the company focused on by the latter are irrelevant if the company does not first consider the characteristics of the market within the former.
Since it is a supply side variable, strategic strength helps to define the terms under which differentiation, cost leadership, and market segmentation are to be analyzed while strategic scope, as a demand side variable, does not.
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B. Atlaliust
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Mahasiswa/Alumni Universitas Negeri Medan
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