porter - what is strategy - hbr-1

7/28/2019 Porter - What is Strategy - HBR-1

http://slidepdf.com/reader/full/porter-what-is-strategy-hbr-1 1/21

What is Strategy?

Presented By –

Barsa RaniKumari Shalini

Anjali Sinha



OE Does Not Equal Strategy

Management tools (i.e. benchmarking, best

practices, outsourcing) have taken the place

of strategy.

Operational effectiveness (OE) -

productivity, speed, quality - and strategy

are both necessary for superior performance



The Basics

Strategy: the creation of a unique and

valuable position involving a unique set of

activities; being different

Activities: the basic units of competitive

advantage

Competitive Advantage: grows out of theentire system of activities; capacity to

outperform rivals by establishing a

difference it can preserve over time



The Basics - 2

Differentiation: created by the choice of

activities and how well performed

Strategic Positioning: means performing

different activities from rivals’ or

performing similar activities in different

ways Operational Effectiveness (OE): means

performing similar activities better than

rivals



Superior Profitability

Delivering greater value allows a company

to charge higher average unit prices; greater

efficiency results in lower average unitcosts

Differences in operational effectiveness

(OE) are importance differentiators in profitability among rivals as OE directly

affects relative cost positions and levels of

differentiation.



Productivity Frontier

Sum of all best practices at a given time

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.



Productivity Frontier - 2

OE competition pushes the productivity frontier

outward

OE competition produces absolute improvementin firm performance yet no relative improvement

between surviving competitors. Leads to self-

inflicted wounds i.e. hyper-competition, zero-sum

competition, static or declining prices and lower profitability.



OE Programs

TQM

Time-based

Competition Benchmarking

Learning Organization

Outsourcing Empowerment

Continuous

Improvement

Virtual OrganizationForms

Best Practices

SQC Change Management



Competitive Convergence

The more rivals copy and imitate OE ‘best

practices’ the more they begin to look the

same.

Leads to imitation (consultants as seed

sowers) and homogeneity.

OE imitation leads to strategy convergenceand competition becomes mutually

destructive leading to wars of attrition (lose-

lose). Leads to M&A activity as end-game.



Competitive Strategy

Being different in the marketplace from

rivals

Deliberately choosing a different set of

activities to deliver a unique mix of value

The essence of strategy is in choosing to

perform activities differently, or to performdifferent activities (or both), than rivals.



Strategic Positions

Variety-based: produces a subset of

industry products/services; based on the

choice of product/service varieties rather than customer segments; viable when a firm

can best produce particular

products/services using a distinct set of activities. Serves a wide array of customers

but only a subset of their needs.



Strategic Positions - 2

Needs-based: serves most or all of the

needs of a particular group of customers

with a tailored set of activities; differencesin needs will not translate into meaningful

positions unless the best set of activities to

satisfy them also differs.




Access-based: segmenting customers who

are accessible in different ways; access can

be a function of customer scale or geography - anything that requires a

different set of activities to reach customers

in the best way. All positioning is a function of differences

on the supply (activity) side but not

necessarily on the demand (customer) side.




Sustainability of position requires trade-offs

Trade-offs occur when activities are

incompatible; more of one thing requiresless of another

Trade-offs arise for 3 reasons:

– inconsistencies in image or reputation

– different positions require different activity sets

– Internal focus requires priority setting - can’t be

all things to all customers successfully

S i bl C i i



Sustainable Competitive

Advantage

Unique position does not guarantee a

sustainable competitive advantage

Valuable position attracts imitators basedon:

– matching superior performance factors.

– straddling: match the benefits of a successful position while maintaining existing position;

graft new features, services, or technologies

onto current activity set.

S i bl C i i




Advantage - 2

Positioning trade-offs are essential in

effective strategy:

– creates need to choose and purposefully limitwhat a company offers

– deters straddling or repositioning of rivals as

competitors that engage in these activitiesundermine current strategies, degrade value of

existing activities, and spread resources too thin

(trying to be all things to all customers)

S t i bl C titi




Advantage - 3

The essence of strategy is choosing what

not to do.

Without trade-offs, a sustainablecompetitive advantage cannot be achieved.

Strategy is about combining activities

whereas OE is about excellence inindividual activities or functions.



Strategy & Systems Thinking

Strategy involves a whole system of

activities, not a collection of parts.

Competitive advantage comes from the wayactivities fit and reinforce one another

(think horizontal & process management

here!). Strategic fit among activity sets locks out

rivals; synergy creates competitive

advantage & superior profitability.



Strategic Fit

Fit = seeing the company as a system not

just a collection of core competencies,

critical resources, and key success factors. 3 types of strategic fit (the whole matters

more than any individual part):

– simple consistency between each activity(function) and the overall strategy

– activities are reinforcing

– optimization of effort



Fit & Sustainability

As fit becomes more complex (multiple

interrelationships) within a firm, the more

difficult imitation is. Strategic positioning sets the trade-off rules

that define how individual activities will be

configured and integrated. Organizational structure, systems, and

processes need to be strategy specific.



Role of Leadership

Focus on creating distinctiveness

Make tough decisions on trade-offs

Define the company’s position

Manage the entire system to create fit

Focus on the long term

Stewardship of corporate strategy

porter - what is strategy - hbr-1

Documents