‘What is Strategy?’ – Michael E. Porter
I Operational Effectiveness is not strategy
Root of problem = failure to distinguish between operational effectiveness & strategy
- Both are essential to superior performance superior performance = primary goal of any
enterprise
- Both work in different ways: a company can outperform rivals only if It can establish a
difference that it can preserve
Operational effectiveness OE
= performing similar activities better than rivals perform them
- It includes but is not limited to efficiency
- It refers to any number of practices that allow a company to better utilize its inputs
Strategic positioning
= performing different activities from rivals’ or performing similar activities in different ways
Productivity frontier constitutes the sum of all existing
best practices at any given time.
When a company improves its operational effectiveness,
it moves towards the frontier
This frontier is constantly shifting outwards as new
technologies & management approaches are developed
and as new inputs become available
Constant improvement in EO is necessary to achieve superior profitability, but not usually sufficient:
- OE competition shifts the productivity frontier outward, effectively raising the bar for
everyone. Although such competition produces absolute improvement in OE, it leads to
relative improvement for no one.
- Competitive convergence is more subtle and insidious= the more benchmarking companies
do, the more they look alike.
II Strategy Rests on Unique Activities
Competitive strategy is about being different, is about choosing a different set of activities to deliver
a unique mix of value.
Essence of strategy is in activities – choosing to perform activities differently or different activities
than rivals do.
Strategic positions emerge from 3 distinct sources:
1. Variety-based positioning
o based on producing a subset of an industry’s products or services
o based on the choice of product or service varieties rather than customer segments
2. Needs-based positioning
o Serving most or all the needs of a particular group of customers
o Comes close to traditional thinking about targeting a segment of customers
3. Access-based positioning
, o Segmenting customers who are accessible in different ways
o Although their needs are similar to those of other customers, the best configuration
of activities to reach them is different
Strategy = the creation of a unique and valuable position, involving a different set of activities
Essence of strategic positioning is to choose activities that are different from rivals’.
III A sustainable Strategic Position Requires Trade-offs
Choosing a unique position, is not enough to guarantee a sustainable advantage a valuable
position with attract imitation in different ways:
- Competitor can repose itself to match the superior performer
- Straddling: A straddler seeks to match the benefits of a successful position while maintaining
its existing position
A strategic position is not sustainable unless there are trade-offs with other positions
- Trade-offs occur when activities are incompatible
- Trade-offs means that more of one thing necessitates less of another
- Trade-offs arise for 3 reasons
o Inconsistencies in image or reputation
o Activities themselves
o Limits on internal coordination and control
Strategy is making trade-offs in competing.
Essence of strategy is choosing what not to do. Without trade-offs, there would be no need
for choice and thus no need for strategy. Any good idea could and would be quickly imitated.
Again, performance would once again depend wholly on operational effectiveness
IV Fit Drives Both Competitive Advantage and Sustainability
While OE is about achieving excellence in individual activities, strategy is about combining activities.
Fit locks out imitators by creating a chain that is as strong as its strongest link.
Fit is a more central component of competitive advantage than most realize.
Fit is important because discrete activities often affect one another.
3 types of fit:
1. Simple Consistency: between each activity and overall strategy
2. Activities are reinforcing
3. Optimization of effort: goes beyond activity reinforcement
In the 3 types, the whole matters more than any individual part. Competitive advantage grows out of
the entire system of activities. The fit among activities substantially reduces cost or increases
differentiation. Beyond that, the competitive value of individual activities –or the associated skills,
competencies, or resources –cannot be decoupled from the system or the strategy.
Strategy is creating fit among a company’s activities.
Success of strategy depends on doing many things well and integrating among them.
V Rediscovering Strategy
A company may have to change its strategy if there are major structural changes in its industry.
In fact, new strategic positions often arise because of industry changes.
I Operational Effectiveness is not strategy
Root of problem = failure to distinguish between operational effectiveness & strategy
- Both are essential to superior performance superior performance = primary goal of any
enterprise
- Both work in different ways: a company can outperform rivals only if It can establish a
difference that it can preserve
Operational effectiveness OE
= performing similar activities better than rivals perform them
- It includes but is not limited to efficiency
- It refers to any number of practices that allow a company to better utilize its inputs
Strategic positioning
= performing different activities from rivals’ or performing similar activities in different ways
Productivity frontier constitutes the sum of all existing
best practices at any given time.
When a company improves its operational effectiveness,
it moves towards the frontier
This frontier is constantly shifting outwards as new
technologies & management approaches are developed
and as new inputs become available
Constant improvement in EO is necessary to achieve superior profitability, but not usually sufficient:
- OE competition shifts the productivity frontier outward, effectively raising the bar for
everyone. Although such competition produces absolute improvement in OE, it leads to
relative improvement for no one.
- Competitive convergence is more subtle and insidious= the more benchmarking companies
do, the more they look alike.
II Strategy Rests on Unique Activities
Competitive strategy is about being different, is about choosing a different set of activities to deliver
a unique mix of value.
Essence of strategy is in activities – choosing to perform activities differently or different activities
than rivals do.
Strategic positions emerge from 3 distinct sources:
1. Variety-based positioning
o based on producing a subset of an industry’s products or services
o based on the choice of product or service varieties rather than customer segments
2. Needs-based positioning
o Serving most or all the needs of a particular group of customers
o Comes close to traditional thinking about targeting a segment of customers
3. Access-based positioning
, o Segmenting customers who are accessible in different ways
o Although their needs are similar to those of other customers, the best configuration
of activities to reach them is different
Strategy = the creation of a unique and valuable position, involving a different set of activities
Essence of strategic positioning is to choose activities that are different from rivals’.
III A sustainable Strategic Position Requires Trade-offs
Choosing a unique position, is not enough to guarantee a sustainable advantage a valuable
position with attract imitation in different ways:
- Competitor can repose itself to match the superior performer
- Straddling: A straddler seeks to match the benefits of a successful position while maintaining
its existing position
A strategic position is not sustainable unless there are trade-offs with other positions
- Trade-offs occur when activities are incompatible
- Trade-offs means that more of one thing necessitates less of another
- Trade-offs arise for 3 reasons
o Inconsistencies in image or reputation
o Activities themselves
o Limits on internal coordination and control
Strategy is making trade-offs in competing.
Essence of strategy is choosing what not to do. Without trade-offs, there would be no need
for choice and thus no need for strategy. Any good idea could and would be quickly imitated.
Again, performance would once again depend wholly on operational effectiveness
IV Fit Drives Both Competitive Advantage and Sustainability
While OE is about achieving excellence in individual activities, strategy is about combining activities.
Fit locks out imitators by creating a chain that is as strong as its strongest link.
Fit is a more central component of competitive advantage than most realize.
Fit is important because discrete activities often affect one another.
3 types of fit:
1. Simple Consistency: between each activity and overall strategy
2. Activities are reinforcing
3. Optimization of effort: goes beyond activity reinforcement
In the 3 types, the whole matters more than any individual part. Competitive advantage grows out of
the entire system of activities. The fit among activities substantially reduces cost or increases
differentiation. Beyond that, the competitive value of individual activities –or the associated skills,
competencies, or resources –cannot be decoupled from the system or the strategy.
Strategy is creating fit among a company’s activities.
Success of strategy depends on doing many things well and integrating among them.
V Rediscovering Strategy
A company may have to change its strategy if there are major structural changes in its industry.
In fact, new strategic positions often arise because of industry changes.
