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Strategy and Managementarticles
Porter. 1996. What is Strategy?
Operational effectiveness is not strategy
Operational effectiveness and strategy are both essential to superior performance. But both work in
very different ways.
A company can outperform rivals only if it can establish a difference that it can preserve. It must
create greater value to customers or create comparable value at a lower price, or both. Cost is
generated by performing activities, cost advantage arises from performing particular activities more
efficiently than competitors. Differentiation arises from both choice of activities and how they are
performed. Thus, activities are the basic units of competitive advantage.
Operational effectiveness (OE) means performing similar activities more efficient than rivals perform
them.
Strategic positioning means performing different activities from rivals’ or performing similar activities
in different ways.
Few companies have successfully performed on the basis of operational effectiveness over an
extended period of time. The most obvious reason for this is the rapid diffusion of best practices and
new technologies. OE shifts the productivity frontier outward, raising the bar for everyone. The
productivity frontier consists of the sum of existing best practices at any given time. Like the
maximum value a company delivering a certain product can create at a given cost, using the best
available technologies, skills, management and inputs.
Strategy rests on unique abilities
Competitive strategy is about being different. It means deliberately choosing a different set of
activities to deliver a unique mix of value.
Strategic positions emerge from 3 distinct sources, these often overlap:
, 1. Variety-based positioning: Positioning based on producing a subset of an industry’s products
or services. Thus target a product segment rather than a customer segment.
2. Needs-based positioning: Serving most or all needs of a particular group of customers. Arises
when there are different groups of customers with different needs, and when tailoring a set
of activities can serve those needs best.
3. Access-based positioning: Segmenting customers who are accessible in different ways.
Although their needs are similar to other customers, the best configuration of activities to
reach them is different.
A sustainable strategic position requires trade-offs
Choosing a unique position, however, is not enough to guarantee a sustainable advantage. A
valuable position will likely attract imitators, who are likely to copy in 1 of 2 ways:
- A competitor can reposition itself to match the superior performer.
- Stradling. The straddler seeks to match the benefits of the successful position while
maintaining its existing position.
Straddling is actually not possible unless trade-offs with other positions occur. Trade-offs create the
need for choice and protect from repositioners and straddlers, because competitors that engage in
those approaches undermine their strategies and degrade the value of their existing activities.
Fit derives both competitive advantage and sustainability
Positioning choices not only determine which activities a company will perform and how it will
configure individual activities but also how activities relate to each other. Operational Effectiveness
is about achieving excellence in individual activities, strategy is about combining those activities.
Competitive advantage comes from the way a firm’s activities fit and reinforce each other.
3 Types of fit:
1. First order fit: Simple consistency between all activities and strategy. Consistency assures
that competitive advantages accumulate and do not erode.
2. Second order fit: When activities are reinforcing.
3. Third order fit: Optimization of effort. Coordination and information exchange across
activities to eliminate redundancy and minimize wasted effort are the most basic types of
effort optimization.
The more a company’s positioning rests on activity systems with second and third order fit, the more
sustainable their competitive advantage will be.
Strategy is creating fit amongst a company’s activities. The success of the strategy depends on doing
many things well – not just some of them – and integrating among them.
Rediscovering strategy
Bad for strategy is when firms:
- Fail to make trade-offs. In many firms there is pressure to beat competition on all aspects.
- Growth trap: When companies start offering more products to more different customers in
order to grow the firm this often has adverse effects on profitability.
- Profitable growth: After times of restructuring and cost cutting , effort for growth leads to
losing uniqueness, reducing fit and ultimately undermine competitive advantage.
- Leadership: strong leader willing to make choices are essential. Leaders role is more
important than orchestrating operational improvement and making deals.
, Rumelt. 2011. The Perils of Bad Strategy
A good strategy does more than urge us forward toward a goal or vision; it honestly acknowledges
the challenges we face and provides an approach to overcoming them. Bad strategy ignores the
power of choice and focus, trying instead to accommodate a multitude of conflicting demands and
interests.
The hallmarks of bad strategy
4 key points:
1. Failure to face the problem: A strategy is a response to a challenge. If the challenge is not
defined, it is impossible to assess the quality of the problem. If you fail to identify and
analyse the obstacles, you don’t have a strategy.
2. Mistaking goals for strategy: Highly set goals can only be achieved when there is a
competitive advantage on which can be build.
3. Bad strategic objectives: One form this problem can take is a scrambled mess of things to
accomplish. A long list of things to do, often mislabelled as strategies or objectives, is not a
strategy. A second type of weak strategic objective is one that is “blue sky”— typically a
simple restatement of the desired state of affairs or of the challenge.
4. Fluff: Fluff is a restatement of the obvious, combined with a generous sprinkling of
buzzwords that masquerade as expertise.
Why so much bad strategy?
2 Main roots for bad strategy:
1. Inability to choose: Choice means setting aside some goals in favour of others. When this
hard work is not done, weak strategy is the result.
2. Template-style strategy: By the early 2000s, the juxtaposition of vision-led leadership and
strategy work had produced a template-style system of strategic planning. The template
looks like this: 1) Vision; 2) Mission; 3) Values; 4) Strategies. This template-style planning has
been enthusiastically adopted by corporations, school boards, university presidents, and
government agencies. Scan through such documents and you will find pious statements of
the obvious presented as if they were decisive insights.
The kernel of good strategy
Good strategies have the following basic underlying structure:
1. Diagnosis: Identify critical aspects of the challenge.
2. Guiding policy: an overall approach chosen to cope with or overcome the obstacles
identified in the diagnosis.
3. Coherent actions: steps that are coordinated with one another to support the
accomplishment of the guiding policy
Hambrick & Fredrickson. 2005. Are you sure you have a
strategy?
The use of specific strategic tools tends to draw the strategist toward narrow, piecemeal
conceptions of strategy that match the narrow scope of the tools themselves. For example,
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