âWhat is strategyâ Porter
What is strategy Michael Porter Harvard Business Review Nov-Dec 1996
Operational effectiveness is not strategy. Both are necessary but not sufficient alone. OE is doing similar activities better (than competitors) but is limited by the productivity frontier and susceptible to imitation i.e. does not produce a lasting benefit relative to competitors. Strategy is doing different activities or similar activities in different ways (than competitors). Japanese companies in the 80s did OE better than the world but rarely did strategy. They now struggle with the frontier and competitors that have caught up.
Competitive convergence is a subtle but more insidious consequence of a sole focus on OE. If companies constantly benchmark and imitate (impliedly believing there is one best strategy) they all end up in the same place i.e. mutually assured destruction.
Strategy rests on (a set of) unique activities e.g. Southwest Airlines, Ikea. Sets of unique activities can originate from one or more of: variety-based positioning (product specialisation), needs-based positioning (customer specialisation) or access-based positioning (channel specialisation e.g. Carmike Cinemas only in small towns).
Tradeoffs are essential to sustainable strategic advantage. They create problems for competitors who try to straddle rather than imitate wholesale (e.g. Continental airlines with Continental Lite in response to Southwest). Tradeoffs avoid brand/image inconsistency, inefficiencies/inflexibilities in the activities themselves, under/over serving parts of the customer base (destroying value and/or productivity) or a need for greater internal coordination/control. Focused strategies make more tradeoffs, broader strategies make fewer.
Strategy is making tradeoffs in competing. The essence of strategy is choosing what NOT to do.
Fit between activities ideally means they are mutually reinforcing. Fit drives competitive advantage and sustainability, by the benefits of the fit itself, plus the compounding probability of competitors not imitating all activities. Fit can be simple consistency (first order), reinforcing (second order e.g. Neutrogena medical market + hotels lowers marketing costs, or Bic POS + heavy advertising + packaging changes drives greater impulse buying) or optimisation of effort (third order e.g. The Gap, optimising its restocking vs store inventory to match its strategy of basic items on a short model cycle).
Fit can support sustainability of competitive advantage and therefore permit better OE as well.
Activity system maps look like a useful tool to play with (see Ikea, Vanguard, Southwest examples in paper).
Failures to choose (i.e. make tradeoffs) undermine strategy and can result from misguided views of competition, organisational failures and the drive for growth. OE is seductive because it is concrete and actionable. Failure to choose may be sold as âcustomer focusâ or âmaintaining flexibilityâ. Growth can blur strategy if it broadens (e.g. Maytag) rather than deepens it. Look for extensions to strategy that leverage existing activity systems, in ways competitors could not match on a standalone basis. Look to make activities more distinctive, with stronger fit, and better communicated to customers that should value it. Global expansion more likely to allow uniqueness and focus to remain than domestic expansion.
Link made to leadership, through importance of disciplined choices, communication of strategy, differentiation between OE (continuous improvement of individual activities) and strategy (uniqueness, tradeoffs and tight fit within the system of activities).
Sometimes external changes (structural changes in an industry) will require a change in strategy. A new strategy requires new positioning, new tradeoffs and a new system of complementary activities.
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