What is Strategy? Porter, M. E. (1996). Harvard Business Review, 74: 61-78.

StrategyStrategy

The creation of a unique and valuable position by combining sets of activities, where fit among a company’s activities, the ability to do the activities well, and extent to which all activities are integrated determines the success of the strategy.

Demands discipline and continuity; its enemies are distraction and compromise.

The essence of strategy ◦ To perform activities differently than rivals do. ◦ Determining what not to do and deciding what to do.

Operational Effectiveness (OE)Operational Effectiveness (OE)

To perform similar activities better than rivals do.

OE is necessary, but not sufficient, for sustainable superior profitability because of rapid diffusion of best practices.

The Productivity Frontier The sum of all existing best practices at any given time characterized by both relative cost position and non-price buyer value delivered.

Strategic PositioningStrategic Positioning

◦ perform different activities than one’s rivals or performing similar activities in different ways.

Sources of Strategic Positions (not mutually exclusive)◦ Variety-based

based on the choice of product or service variety in the offering

◦ Needs-based serving most or all the needs of a particular customer

segment◦ Access-based

serving customers in terms of ways to reach them

Trade-OffsTrade-offs create the need for choice

and purposefully limit what a company offers.

Reasons Trade-offs are needed◦To maintain consistencies in image or

reputation◦Different positions require a different mix

of activities◦Limits on internal coordination and control

(clear priorities must be set)

Fit Types of Fit (in order of increasing magnitude)

◦ Simple consistency – advantages of activities cumulate (not erode or cancel out)

◦ Reinforcing – activities reinforce one another (i.e. complementary marketing)

◦ Optimization of effort – individual activities cannot be separated from the whole

Positions built upon systems of activities are harder for rivals to duplicate.

The greatest threats to strategy come from within. The pursuit of OE is seductive because it is concrete and actionable.

The role of leadership is strategy: defining a company’s position, making trade-offs and forging fit among activities.