porter - what is strategy - hbr
TRANSCRIPT
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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