What is strategy ? by M. Porter

Illustrators: M.Rehman Shabbir-005
M.Salman Shahid-021
Faizan Anjum-101
Farhan Abbas-081
Sunday, 13 April 2014

I. Operational Effectiveness Is Not Strategy
 Operational Efficiency
 Competitive Strategy
II. Strategy Rests on Unique Activities
 Origin of Strategic Position (3 Sources)
 Variety /Need /Access-Based Positioning
III. A Sustainable Strategic Position Requires Trade-offs
IV. Fit Drives Both Competitive Advantage and Sustainability
V. Rediscovering Strategy
 External Challenges to Strategy
 Traps for Shaping Strategy

1. Strategy is the creation of a unique and
valuable position, involving a different set
of activities.
2. Strategy requires you to make trade-offs in
competing—to choose what Not to do.
3. Strategy involves creating “fit” among a
company’s activities.

 The main problem is the failure to distinguish between
operational effectiveness and strategy.
 Operational effectiveness (OE) - productivity, speed, quality -
and strategy are both necessary for superior performance
 Operational effectiveness- performing similar activities better
than rivals.
 Example: Reducing defects in products
 Strategic positioning- performing different activities from rivals
or performing similar activities in different ways.
 A company can outperform rivals only if it can establish a
difference that it can preserve.
 Example: Japanese companies rarely have strategy

 The maximum value that a firm can provide at a given cost
using best practices
 As OE improves within a firm, it moves closer to the
productivity frontier.
 OE is necessary for superior profitability but not solely
sufficient.
 Rapid diffusion of best practices reduces long-term impact of
OE on profitability.
 OE competition pushes the productivity frontier outward
 OE competition produces absolute improvement in firm
performance yet no relative improvement between
surviving competitors. Leads to self-inflicted wounds
 Hyper-competition, zero-sum competition, static or declining
prices and lower profitability.

Cost
Best Practice
on the Efficient
Frontier
QualityLow
High
Low
B
Less Than
Best Practice
High
Source: Adapted from Michael Porter, "What is Strategy?” Harvard Business Review, November-December 1996
A

 The primary Goal – Superior Performance
 Two necessary element for superior performance
 Operations Effectiveness [OE]
 Benchmark competition, incorporate best
practices, improve productivity, build
efficiency
 Competitive Strategy
 About being different

 Performing similar activities better than rivals
 Promotes constant change: to achieve OE, need flexibility
 Productivity Frontier (Best in class)
 As every one improves their OE, the frontier expands
 OE keeps moving outward – it’s a dynamic, ever- changing
target
 OE is important but it is not sufficient
 There is rapid imitation of Best Practices
 Drives Competitive Convergence
 Raises the bar for everyone (no advantage)
 Homogeneity – competitors start looking the same

2- Competitive
Strategy
is about
being
different

2- Competitive Strategy – (is about being
different)
 Deliberately choosing a different set of activities
to deliver a unique mix of value
 The Essence of Strategy:
 Choosing to perform activities differently than rivals
 Example – Southwest Airlines

Offers low-cost fares
for price-sensitive customers.

1. Variety-Based Positioning
 Subset of products (subset of members needs)
 Example – PSCU, vanguard
2. Need-Based Positioning
 All needs of activities of a specific group
(segment) of customers
 The best set of activities to satisfy them differs
 Example – Bessemer trust (@14 families > $5mm)
 Citibank 1:125; $250k
3. Access- Based Positioning
 Accessing (geography) (small vs. large)

1.) Variety-based
Positioning
1.) Variety-based Positioning

The essence of strategic positioning is to choose activities
that are different from your rivals…
Strategy is…

1. Make the Trade Offs – The more of one
thing means less of another
2. Tighten the Fit – Strategy is about
combining activities into a System

A sustainable strategic position
requires …
TRADE-OFF

 The creation of unique and valuable positions,
involving a different set of activities
 Different than rivals (if there were only one position,
there would be no need for strategy)
 BUT – choosing a unique proposition is not
enough!
 Competition can ‘shift to match’
 Competition can ‘straddle’
 Match the benefits of a successful position, while
maintaining its existing position

1- Make the Trade Offs – The more of one
thing means less of another
 Trade offs arises for three reason
 Inconsistence on image or reputation
 Different positions require different machinery,
people, systems
 Limits on internal coordination and control
 Without ‘trade Offs’ there is a lot of Wasted
Effort – Confusing Messages

Made trade-offs to its benefit!

 Making trade-offs in competing.
 THE ESSENCE STRATEGY is choosing what not
to do
 Without trade offs, easy to copy (there is no
strategy)

4- Strategic FIT
Creating fit between a company’s activities
doing many things well in an integrated way!

1. Simple Consistency
(cumulative power of integrated
system vs. erosion
2. Reinforcing Activities
(supporting)
3. Optimization of Effort
(coordination)
Simple
Consistency
Reinforcing
Activities
Optimization
of Efforts

2- Tighten the Fit
 Strategy is about combining activities into a
System
 Southwest = a whole collection of integrated
activities (not a collection of parts)
 Quick gate turnaround, use same aircraft type, more
time in air
 No seat assignments, no first class, no travel agents
 No meals (expected peanuts!)
 [For this to work, need all elements]

 Interlocked fit is hard to copy
 If a competitor wanted to copy your strategy, they
would have to change many activities
 The more company’s positioning rests on activity
system (with second and third order degree of
fit), the more sustainable the advantage
 Organization structure, systems and processes
need to be strategy-specific
 A 10 year horizon (vs. costly, frequent shifts)

5- Rediscovering Strategy:
Strategy Problems;
•The Failure to Choose
•The Growth Trap

 Although external changes be the problem,
the greater threat to strategy comes from
within!
 Imitating everything (not a “choice”)

Strategy Solutions:
•Profitable
Growth
•The Role of
Leadership

 Growth through compromise and
inconsistences - erodes the competitive
advantage
 Should concentrate on deepening your
competitive position
 Making the company’s activities more distinctive
 Strengthening the ‘fit’
 Better meet needs

 Defining and communicating
 The company’s unique position
 Making trade-offs and forging the fit among
activities.
 Leaders must provide discipline (to say NO to
ideas and initiatives that do not fit your
strategy)!

Competitive advantage
Grows out of the entire system of activities;
Capacity to outperform rivals by establishing
a difference it can preserve over time
Activities
The basic units of competitive advantage
Strategy
The creation of a unique and valuable position involving a unique set of activities; being
different

What is strategy ? by M. Porter

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