porter - what is strategy - hbr

8/10/2019 Porter - What is Strategy - HBR

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What is Strategy?

Michael Porter

HBR November/December 1996


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OE Does Not Equal Strategy

Management tools (i.e. benchmarking, best practices, outsourcing) have taken the placeof strategy.Operational effectiveness (OE) -

productivity, speed, quality - and strategy

are both necessary for superior performance


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The Basics

Strategy : the creation of a unique andvaluable position involving a unique set ofactivities; being different

Activities : the basic units of competitiveadvantage

Competitive Advantage : grows out of theentire system of activities; capacity tooutperform rivals by establishing a

difference it can preserve over time


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The Basics - 2

Differentiation : created by the choice ofactivities and how well performed

Strategic Positioning : means performingdifferent activities from rivals or

performing similar activities in different

ways Operational Effectiveness (OE): means performing similar activities better than

rivals


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Superior Profitability

Delivering greater value allows a companyto charge higher average unit prices; greaterefficiency results in lower average unitcostsDifferences in operational effectiveness

(OE) are importance differentiators in profitability among rivals as OE directlyaffects relative cost positions and levels of

differentiation.


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Competitive Convergence

The more rivals copy and imitate OE best practices the more they begin to look the

same.Leads to imitation (consultants as seedsowers) and homogeneity.

OE imitation leads to strategy convergenceand competition becomes mutuallydestructive leading to wars of attrition (lose-

lose). Leads to M&A activity as end-game.


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Competitive Strategy

Being different in the marketplace fromrivals

Deliberately choosing a different set ofactivities to deliver a unique mix of valueThe essence of strategy is in choosing to

perform activities differently, or to performdifferent activities (or both), than rivals.


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Strategic Positions - 2

Needs-based : serves most or all of theneeds of a particular group of customers

with a tailored set of activities; differencesin needs will not translate into meaningful

positions unless the best set of activities to

satisfy them also differs.


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Strategic Positions - 3

Access-based : segmenting customers whoare accessible in different ways; access can

be a function of customer scale orgeography - anything that requires adifferent set of activities to reach customers

in the best way.All positioning is a function of differenceson the supply (activity) side but not

necessarily on the demand (customer) side.


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Sustainable CompetitiveAdvantage

Unique position does not guarantee asustainable competitive advantage

Valuable position attracts imitators basedon: matching superior performance factors.

straddling: match the benefits of a successful position while maintaining existing position;graft new features, services, or technologiesonto current activity set.


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Sustainable CompetitiveAdvantage - 3

The essence of strategy is choosing whatnot to do.

Without trade-offs, a sustainablecompetitive advantage cannot be achieved.Strategy is about combining activitieswhereas OE is about excellence inindividual activities or functions.


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Strategic Fit

Fit = seeing the company as a system not just a collection of core competencies,

critical resources, and key success factors.3 types of strategic fit (the whole mattersmore than any individual part):

simple consistency between each activity(function) and the overall strategy

activities are reinforcing

optimization of effort


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Fit & Sustainability

As fit becomes more complex (multipleinterrelationships) within a firm, the more

difficult imitation is.Strategic positioning sets the trade-off rulesthat define how individual activities will be

configured and integrated.Organizational structure, systems, and

processes need to be strategy specific.


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Role of Leadership

Focus on creating distinctivenessMake tough decisions on trade-offsDefine the companys position Manage the entire system to create fitFocus on the long termStewardship of corporate strategy

porter - what is strategy - hbr

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