Illustrators: M.Rehman Shabbir-005

M.Salman Shahid-021

Faizan Anjum-101

Farhan Abbas-081

Sunday, 13 April 2014

I. Operational Effectiveness Is Not Strategy Operational Efficiency

Competitive Strategy

II. Strategy Rests on Unique Activities Origin of Strategic Position (3 Sources)

Variety /Need /Access-Based Positioning

III. A Sustainable Strategic Position Requires Trade-offs

IV. Fit Drives Both Competitive Advantage and Sustainability

V. Rediscovering Strategy External Challenges to Strategy

Traps for Shaping Strategy

1. Strategy is the creation of a unique and

valuable position, involving a different set

of activities.

2. Strategy requires you to make trade-offs in

competing—to choose what Not to do.

3. Strategy involves creating “fit” among a

company’s activities.

The main problem is the failure to distinguish between operational effectiveness and strategy.

Operational effectiveness (OE) - productivity, speed, quality -and strategy are both necessary for superior performance

Operational effectiveness- performing similar activities better than rivals. Example: Reducing defects in products

Strategic positioning- performing different activities from rivals or performing similar activities in different ways.

A company can outperform rivals only if it can establish a difference that it can preserve. Example: Japanese companies rarely have strategy

The maximum value that a firm can provide at a given cost using best practices As OE improves within a firm, it moves closer to the

productivity frontier.

OE is necessary for superior profitability but not solely sufficient. Rapid diffusion of best practices reduces long-term impact of

OE on profitability.

OE competition pushes the productivity frontier outward

OE competition produces absolute improvement in firm performance yet no relative improvement between surviving competitors. Leads to self-inflicted wounds Hyper-competition, zero-sum competition, static or declining

prices and lower profitability.

Cost

Best Practice

on the Efficient

Frontier

Quality Low

High

Low

B

Less Than

Best Practice

High

Source: Adapted from Michael Porter, "What is Strategy?” Harvard Business Review, November-December 1996

A

The primary Goal – Superior Performance

Two necessary element for superior performance

Operations Effectiveness [OE]

Benchmark competition, incorporate best

practices, improve productivity, build

efficiency

Competitive Strategy

About being different

Performing similar activities better than rivals

Promotes constant change: to achieve OE, need flexibility

Productivity Frontier (Best in class) As every one improves their OE, the frontier expands

OE keeps moving outward – it’s a dynamic, ever- changing target

OE is important but it is not sufficient There is rapid imitation of Best Practices

Drives Competitive Convergence

Raises the bar for everyone (no advantage)

Homogeneity – competitors start looking the same

2- Competitive

Strategy

is about

being

different

2- Competitive Strategy – (is about being

different)

Deliberately choosing a different set of activities

to deliver a unique mix of value

The Essence of Strategy:

Choosing to perform activities differently than rivals

Example – Southwest Airlines

Offers low-cost fares

for price-sensitive customers.

1. Variety-Based Positioning Subset of products (subset of members needs)

Example – PSCU, vanguard

2. Need-Based Positioning All needs of activities of a specific group

(segment) of customers

The best set of activities to satisfy them differs Example – Bessemer trust (@14 families > $5mm)

Citibank 1:125; $250k

3. Access- Based Positioning Accessing (geography) (small vs. large)

1.) Variety-based

Positioning1.) Variety-based Positioning

2.) Needs-based positioning

2.) Needs-based positioning

3.) Access-based Positioning

The essence of strategic positioning is to choose activities

that are different from your rivals…

Strategy is…

1. Make the Trade Offs – The more of one

thing means less of another

2. Tighten the Fit – Strategy is about

combining activities into a System

A sustainable strategic position

requires …

TRADE-OFF

The creation of unique and valuable positions, involving a different set of activities

Different than rivals (if there were only one position, there would be no need for strategy)

BUT – choosing a unique proposition is not enough!

Competition can ‘shift to match’

Competition can ‘straddle’

Match the benefits of a successful position, while maintaining its existing position

Repositioning =

Straddling =

1- Make the Trade Offs – The more of one

thing means less of another

Trade offs arises for three reason

Inconsistence on image or reputation

Different positions require different machinery,

people, systems

Limits on internal coordination and control

Without ‘trade Offs’ there is a lot of Wasted

Effort – Confusing Messages

Made trade-offs to its benefit!

Making trade-offs in competing.

THE ESSENCE STRATEGY is choosing what not

to do

Without trade offs, easy to copy (there is no

strategy)

4- Strategic FITCreating fit between a company’s activities

doing many things well in an integrated way!

1. Simple Consistency (cumulative power of integrated

system vs. erosion

2. Reinforcing Activities (supporting)

3. Optimization of Effort (coordination)

Simple Consistency

Reinforcing Activities

Optimization of Efforts

2- Tighten the Fit

Strategy is about combining activities into a

System

Southwest = a whole collection of integrated

activities (not a collection of parts)

Quick gate turnaround, use same aircraft type, more

time in air

No seat assignments, no first class, no travel agents

No meals (expected peanuts!)

[For this to work, need all elements]

Interlocked fit is hard to copy

If a competitor wanted to copy your strategy, they would have to change many activities

The more company’s positioning rests on activity system (with second and third order degree of fit), the more sustainable the advantage

Organization structure, systems and processes need to be strategy-specific

A 10 year horizon (vs. costly, frequent shifts)

5- Rediscovering Strategy:

Strategy Problems;

•The Failure to Choose

•The Growth Trap

Although external changes be the problem,

the greater threat to strategy comes from

within!

Imitating everything (not a “choice”)

Strategy Solutions:

•Profitable

Growth

•The Role of

Leadership

Growth through compromise and

inconsistences - erodes the competitive

advantage

Should concentrate on deepening your

competitive position

Making the company’s activities more distinctive

Strengthening the ‘fit’

Better meet needs

Defining and communicating

The company’s unique position

Making trade-offs and forging the fit among

activities.

Leaders must provide discipline (to say NO to

ideas and initiatives that do not fit your

strategy)!

Competitive advantage

Grows out of the entire system of activities; Capacity to outperform rivals by establishing

a difference it can preserve over time

Activities

The basic units of competitive advantage

Strategy

The creation of a unique and valuable position involving a unique set of activities; being different

Thank you!

Questions???