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middle” and successfully pursuing combination strategies merits discussion.
Although Porter describes the dangers of not being successful in either cost control or
differentiation, some firms have been able to succeed using combination strategies.
Research suggests that, in some cases, it is possible to be a cost leader while

maintaining a differentiated product. Southwest Airlines has combined cost-cutting
measures with differentiation. The company has been able to reduce costs by not
assigning seating and by eliminating meals on its planes. It has also been able to
promote in its advertising that its fares are so low that checked bags fly free, in
contrast to the fees that competitors such as American and United charge for checked
luggage. Southwest’s consistent low-fare strategy has attracted a significant number
of passengers, allowing the airline to succeed.
Another firm that has pursued an effective combination strategy is Nike. You
may think that Nike has always been highly successful, but it has actually weathered
some pretty aggressive competitive assaults. For instance, when customer preferences
moved to wide-legged jeans and cargo pants, Nike’s market share slipped.
Competitors such as Adidas offered less expensive shoes and undercut Nike’s price.
Nike’s stock price dropped in 1998 to half its 1997 high. However, Nike achieved a
turnaround by cutting costs and developing new, distinctive products. Nike reduced
costs by cutting some of its endorsements. Company research suggested the
endorsement by the Italian soccer team, for example, was not achieving the desired
results. Michael Jordan and a few other “big name” endorsers were retained while
others, such as the Italian soccer team, were eliminated, resulting in savings estimated
at over $100 million. Laying off 7% of its 22,000 employees allowed the company to
lower costs by another $200 million, and inventory was reduced to save additional
money. As a result of these moves, Nike reported a 70% increase in earnings for the
first quarter of 1999 and saw a significant rebound in its stock price. While cutting
costs, the firm also introduced new products designed to differentiate Nike’s products
from the competition.
Some industry environments may actually call for combination strategies.
Trends suggest that executives operating in highly complex environments, such as
health care, do not have the luxury of choosing exclusively one strategy over another.
The hospital industry may represent such an environment, as hospitals must compete
on a variety of fronts. Combination (i.e., more complicated) strategies are both
feasible and necessary to compete successfully. For instance, reimbursement to
diagnosis-related groups, and the continual lowering of reimbursement ceilings have
forced hospitals to compete on the basis of cost. At the same time, many of them
jockey for position with differentiation based on such features as technology and
birthing rooms. Thus, many hospitals may need to adopt some form of hybrid
[3]
strategy to compete successfully.
Strategy as Discipline
While Michael Porter’s generic strategies were introduced in the 1980s and
still dominate much of the dialogue about strategy and strategizing, a complementary
approach was offered more recently by CSC Index consultants Michael Treacy and
Fred Wiersema. Their value disciplines model is quite similar to the three generic
strategies from Porter (cost leadership, differentiation, focus). However, there is at

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