Summary of the following articles:
"What is Strategy?" (Porter, 1996)
"Firm Resources and Sustained Competitive Advantage" (Barney, 1991)
“Strategy and the Business Portfolio” (Hedley, 1977)
“Separation of Ownership and Control” (Fama & Jensen, 1983)
“What is Disruptive Innovation?” (C...
‘What is Strategy?’ (Porter, 1996)
- Key principles that underline strategic positioning
- (1) Strategy is the creation of a unique and valuable position involving a di erent set of activities
- Strategic positioning emerges from three distinct sources
- Serving few needs of many customers
- Serving brand needs of few customers
- Serving broad needs of many customers in narrow market
- Employees need guidance about: how to deepen a strategic position rather than broaden or
compromise it; how to extend the company’s uniqueness while strengthening the t among its
activities
- Deciding which target group of costumers and needs to serve requires discipline, the ability to set
limits, and forthright communication
- Strategy and leadership are linked
- Operational e ectiveness is not strategy
- Operational e ectiveness: performing similar activities better (faster) or with fewer inputs and
defects than rivals, includes but is not limited to rivalry
- Operational e ectiveness is necessary but not su cient
- Operational e ectiveness and strategy both essential to superior performance
- Company can only outperform rivals if it can establish a di erence that it can preserve, must
deliver greater value to customers or create comparable value at a lower cost or both
- Strategy rests on unique activities
- Strategy: creation if a unique and valuable position involving a di erent set of activities
- Essence of strategy is in the activities, choosing to perform activities di erently or to perform
di erent activities than rivals
- Strategic positioning: performing di erent activities from rivals’ or performing similar activities in
di erent ways
- Variety-based positioning: based on producing a subset of an industry’s products or services,
based in the choice of product or service rather than customer segments
- Needs-based positioning: based on serving most or all needs of a particular group of
customers, comes closer to traditional thinking about targeting a segment of customers
- Access-based positioning: based on segmenting customers who are accessible in di erent
ways, needs are similar to other customers but best way to reach them is di erent
- (2) Strategy requires you to make trade-o s in competing — to choose what not to do
- Some competitive activities are incompatible, thus gains in one area can only be achieved at the
expense of another area
- A sustainable strategic position requires trade-o s
- Trade-o : more of one thing necessitates less of another
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, - Choosing unique position not enough to guarantee a sustainable advantage, a valuable position
will attract imitation by incumbents who are likely to copy it
- Competitor can reposition itself to match the superior performer
- But strategic position not sustainable unless there are trade-o s with other positions
- Trade-o s occur when activities are incompatible, create the need for choice and protect
agains repositions and straddlers
- Trade-o s arise for three reasons
- Inconsistencies in image or reputation (company known for delivering one kind of value
may lack credibility and confuse customers if it delivers another kind or value or attempts to
deliver two inconsistent things at the same time)
- From activities themselves (di erent positions with their tailored activities require di erent
product con gurations, di erent equipment, di erent employee behavior, di erent skills,
and di erent management systems)
- Limits on internal coordination and control (by clearly choosing to complete in one way an
not another management makes organizational priorities clear, companies that try to be all
things to all customers risk confusion for employees)
- Positioning trade-o s are pervasive in competition and essential to strategy, create need fro
choice and purposefully limit what a company o ers
- False trade-o s between cost and quality occur primarily when there is redundant or wasted
e ort, poor control or accuracy, or weak coordination
- Essence of strategy is to choose what not to do
- (3) Strategy involves creating ‘ t’ among a company’s activities
- Fit has to do with the ways a company’s activities interact and reinforce one another
- Fit drives both competitive advantage and sustainability: when activities mutually reinforce each
other competitors can’t easily imitate them
- Fit drives both competitive advantage and sustainability
- Fit locks out imitators by creating a chain that is as string as its strongest link
- Fit is important because discrete activities often a ect one another
- First-order t: simple consistency between each activity (function) and the overall strategy
- Consistency ensures that the competitive advantages of activities cumulate and do not erode or
cancel themselves out
- Makes strategy easier to communicate to customers, employees, and shareholders
- Improves implementation through single-mindedness in the corporation
- Second-order t: occurs when activities are reinforcing
- Goes beyond simple consistency, activities are reinforcing the purchase of the good or service
- Third-order t: goes beyond activity reinforcement to optimization of e ort
- Coordination and information exchange across activities eliminate redundancy and minimize
wasted e ort; also e.g. product design choice for optimization
- Competitive advantage grows out of the entire system of activities
- Strategic t among many activities is fundamental for sustainable competitive advantage
- Positions built on systems of activities are more sustainable than those built on individual
activities
, - The more a company’s positioning rests on activity systems with second- and third-order t the
more sustainable its advantage will be
- Achieving t is di cult because it requires the integration of decisions and actions across many
independent subunits
- A competition seeking to match an activity system gains little by imitating only some activities
and not matching the whole
- Fit among a company’s activities creates pressures and incentives to improve operational
e ectiveness which makes imitation harder (poor performance in one activity will degrade the
performance in others; improvements in one activity will pay dividends in others)
- Companies with strong t among their activities are rarely inviting targets
- Rediscovering strategy
- Commonly threats to strategy are seen to emanate from outside a company because of changes in
technology or the behavior of competitors
- Greater threat to strategy often comes from within as a sound strategy is undermined by a
misguided view of competition, by organizational failures, and by the desire to grow
- Necessity to make choices not just imitate competitors, trade-o s are frightening and making no
choice is sometimes preferred to risking blame for a bad choice
- Desire to grow also has an a ect on strategy
- Trade-o s and limits appear to constrain growth and managers are constantly tempted to take
incremental steps that surpass those limits but blur a company’s strategic position
- Growth imperative hazardous to strategy
- Approach to growth that reinforces strategy: concentrate on deepening a strategic position
rather than brooding and compromising it; making company’s activities more distinctive,
strengthening t, and communicating the strategy better to those customers who should value it
- Globalization often allows growth that is consistent with strategy, opening up markets for a
focused strategy, expanding globally is likely to leverage and reinforce a company’s unique
position and identity
- Challenge of developing and reestablishing a clear strategy is often primarily an organizational one
and depends on leadership
- General leadership has strategy at its core
- De ning and communicating the company’s unique position, making trade-o s, forging t
among activities, deciding which industry changes and customer needs the company will
respond to while avoiding organizational distractions and maintaining the company’s
distinctiveness, must clearly distinguish operational e ectiveness from strategy
- Company may have to change its strategy if ether are major structural changes in its industry
Week 2
‘Firm Resources and Sustained Competitive Advantage’ (Barney, 1991)
- Companies obtain sustained competitive advantages by implementing strategies
that exploit their internal strengths through responding to environmental
opportunities while neutralizing external threats and avoiding internal weaknesses
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