What is strategy ? by M. Porter
-
Upload
faizan-anjum -
Category
Business
-
view
2.121 -
download
21
Transcript of What is strategy ? by M. Porter
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???