WhatisStrategy?

FritzFernandoVargasSierra
Octawati

Buntaran
MariaRinka

Galang
SonnyMinx
Rahul

Kohli
WhatisStrategy?
OperationalEffectivenessisnotStrategy
StrategyRestsonUniqueActivities
ASustainableStrategicPositionRequires
TradeOff
FitDrivesBothCompetitiveAdvantageand
Sustainability
RediscoveringStrategy
OperationalEffectivenessisnot

Strategy
Operationaleffectivenessisnot

Strategy
Flexibility

marketchanges
Benchmark achievebestpractice
Outsource

efficiency
Focusnurture tobedifferent
Acompanycanoutperformrivalsonlyifitcan
establishadifferencethatcanpreserve.
Operationaleffectivenessnecessary

butnotsufficient
Delivergreatervaluetocustomersorcreate

comparablevalueatlowercost.
Operationaleffectivenessand

Strategicpositioning
Overalladvantagesanddisadvantagesresults

fromallcompanysactivities,notonlyafew.
Operationaleffectivenessmeansperforming

severalactivitiesbetterthanrivalsperform

them.
Strategicpositioningmeansperformdifferent

activitiesfromrivalsorperformsimilar

activitiesindifferentway
StrategyRestsonUnique

Activities
StrategyRestsonUniqueActivities
CompetitiveStrategy:deliberatelychoosinga

differentsetofactivitiestodeliveraunique

mixofvalue.
Theessenceofstrategyisintheactivities

choosingtoperformactivitiesdifferentlyorto

performdifferentactivitiesthanrivals.
StrategyRestsonUniqueActivities
SouthwestAirlinesservespriceandconvenience

sensitivetravelers
SouthwestAirlinestailorsitsactivities:doesnt

offermeal,assignedseats,interlinebaggage

checking,orpremiumclassesofservicelower
cost.automatingticketingatthegatebypass
travelagentsavoidcommissions.
StrategyRestsonUniqueActivities
IKEA

targetsyoungfurniturebuyerswhowantstyleat

lowcost.
IKEA

tailoredsetsofactivities:tradeoffservicefor

costhavingcustomersdoitthemselves
Ikeadesignsitsownlowcost,readytoassemblefurniture.
Displaysinroomlikesettings:customerdontneed

decoratortohelpthemimagine.
Customersdotheirownpickupanddelivery
Extraservices
Instorechildcare servesyoungcustomers,notwealthy,

havechildrenwithnonanny
Extendedhours customersworkforliving,shopatodd

hours.
TheOriginsofStrategicPositioning
1.Varietybasedpositioningbasedonthechoiceofproduct

orservicevarietiesratherthancustomerssegments,

produceparticularproductsorserviceusingdistinctivesets

ofactivities.
JiffyLubeInternational,specializesinautomotivelubricants

anddoesntofferothercarrepairormaintenanceservice
lowercost.BuyingoilchangesfromJiffyLubeandgoingto
rivalsforotherservices
TheVanguardgroup,providespredictableandrockbottom

exp.OfC/S,bond,andmoneymarketfundAvoidsmaking

betsoninterestrates,keeptradinglevelslow,discourage

customersfromrapidbuyingandsellinglowercost.
IncludeVanguardfundsintheirportfolio,whilebuying
aggressivelymanagedorspecializedfundsfromcompetitors.
TheOriginsofStrategicPositioning
2.Needsbasedpositioning:abouttargetingasegmentof

customers.
Atailoredsetofactivitiescanservegroupofcustomers

withdifferingneeds.Itwilltranslateintomeaningful

positioningwhenthebestsetsactivitytosatisfythem

alsodiffers.
BessemerTrustCompanytargetsfamilieswithaminimumof$

5mio

ininvestable

assetswhowantacapitalpreservation

combinewithwealthaccumulation.
Loanarerarelyneeded
1accountofficerforevery14families
Meetingsinclientsplace(clientsranchoryacth

notintheoffice)
DifferentiationwithitstargetfamiliesproducesahighestROEofany

bankingcompetitor.
TheOriginsofStrategicPositioning
Citibankprivatebank,servesclientswith

minimumassetsabout$250,000whoincontrast

toBessemersclientswhowantconvenientaccess

toloans(mortgages,dealfinancing,etc)
1lowermanagerfor125clients
Biannualofficemeetingareofferedonlyforthelargest

client.
BothBessemerandCitibankhavetailoredtheir

activitiestomeettheneedsofdifferentgroupof

bankingcustomers.
TheOriginsofStrategicPositioning
3.Accessbasedpositioning:requiresadifferentset

ofactivitiestoreachcustomersinthebestway.
Carmike

Cinemasoperatesmovietheatresexclusively
incitiesandtownswithpopulationunder200,000.
Smalltowncustomerscanbeservedwithstandardized,low

costtheatercomplexesrequiringfewerscreensandless

sophisticatedprojectiontechnology.
Advantagesoperateinsmallcity:lowerrentandpayroll

costs,rockbottomOverhead;abletopracticethehighly

personalformofmarketinginwhichthemanagersknowthe

patrons;beingthedominantofentertainment;better

negotiationtermswithdistributor.
UniqueisStrategy
Positioningisnotonlyaboutcarvingoutthe

niche.
Whateverthebasis:variety,needs,accessor

somecombinationofthree

positioningrequires

atailoredsetsofactivities.
Havingadefinedpositioning,wecanbegin

answerthisquestion,Whatisstrategy?.

Strategyisthecreationofauniqueandvaluable

position,involvingdifferentsetsofactivities.
ASustainableStrategicPosition

RequiresTradeOff
TypesofImitation
Repositioning

torevisethemarketingstrategyfor(aproductora

company)soastoincreasesales
Straddling

tryingtomatchthebenefitsofasuccessfulpositionwhile
maintainingitsexistingposition

addsnewfeatures,servicesortechnologiesontothe

existingactivities
CONTINENTAL
LIGHT
- First class / full service airline - Low-cost airline - Low-cost airline
- meals provided - no meal provided - no meal provided
- long haul - short haul - short haul
- High fares - low fares - low fares
- use Travel agents - automated Ticketing - use Travel agents
- provide baggage transfer - no baggage transfer - no baggage checking transfer
- provide seat assignments - no seat assignments - no seat assignments
- Long turnaround time - fast turnaround time - shorter turnaround time
TRADEOFF
Definition
:

abalancingoffactorsallofwhicharenot

attainableatthesametime
:

agivingupofonethinginreturnforanother
TRADEOFF
occurwhenactivitiesareincompatible
protectthecompanyagainstrepositioners

and

straddles
createtheneedforchoice
purposefullylimitwhatthecompanyoffers
TRADEOFFSARISEFORTHREEREASONS
Inconsistenciesinimageorreputation
Example:NeutrogenaandIvory
Arisefromactivitiesthemselves
Example:Ikea
Arisefromlimitsoninternalcoordinationandcontrol
Example:BessemerTrustCompanyandCitibanksprivatebank
Ingeneral,falsetradeoffsbetweencostandquality

occurprimarilywhenthereisredundantorwasted

effort,poorcontroloraccuracyorweakcoordination.
WhatifthereisnoTradeoff?
Companieswillneverachieveasustainableadvantage.
Therewouldbenoneedforachoiceandthusnoneedfor

strategy.
TradeoffisStrategy
Strategyredefined:
Strategyismakingtradeoffsincompeting.
EssenceofStrategy:
Strategyischoosingwhatnottodo.
FitDrivesBothCompetitive

AdvantageandSustainability
TheImportanceofFit
Businessstrategyisaboutcombining

activities orfittingthemtogetherina

beneficialway
Fitreinforcesactivitiesandleadstocompetitive

advantages
Fitlocksoutimitatorsbycreatingachainthatisas

strongasitsstrongest

link
FitDrivesBothCompetitiveAdvantageandSustainability
TypesofFit
1.

FirstOrderFit
Simpleconsistencybetweeneachactivity(function)

andtheoverallstrategy
2.

SecondOrderFit
Activitiesarereinforcing:salesreinforcesservice

whichisreinforcedbydesign,manufacturing,etc
3.

ThirdOrderFit
Optimizationofeffort:Allstrengthssupportand

blendwiththeothers.Thecombinationbecomes

tightlyboundandverydifficulttopenetrateor

duplicate.
TheexampleofVanguardhighlightstheconsistencyoftheiractivitiesastheyrelateto

theirlowcoststrategy.Allactivitiesarefocusedonreducingcostandturnover.Any

amountofchurninthisbusinesscarriesacost,soeffortstoreduceareshared.
Vanguardtakes

manystepsto

reducecost.In

thediagram

youcanseethe

reinforcement

ofallactivities.
Thisisan

exampleof
FirstOrderFit
IKEA:Amanufacturingandretailcompanywiththecapabilityto

produceavariety

ofmodelsismorevaluablewhencombinedwithgreatinventorymanagementand

deliverysystems.Addtothatasalesprocessthatisabletoencouragecustomersto

customizetheirchoicesandthewholecompanybenefitsgreatly.
IKEAhasbecomethelargest

furnitureretailerinthe

worlddueinparttotheir

uniquelyeffectiveprocesses.

Noteveryoneisservedby

thismodel,butappealingto

thelargestsegmentofthe

populationcanleadtogreat

success.
ThesuccessofSouthwestAirlineshasledtomanyimitators.However,the

combinationoftheseelementsareuniquelysuccessfulforSouthwest.Onlya

fewcompaniesinthepast20yearshavebeenabletocomeclosetothe

efficiencythatSWhasrealized.
Third
Order
Fit
Duplicationofacompanysstrategyis

notaseasyasitsounds
Companiestryingtorepositionorduplicatemay

notbeabletomakethesamechoicesdueto

marketforcesorbusinesscommitments.
Retailershavecontractualrequirementswith

suppliers
Airlineshaveinterlineagreementsandtravel

agent/brokercontracts
Manufacturershavemanycostsassociatedwith

processesandsuppliers.Changescouldtakedecades.
CreatingSustainableCompetitive

Advantage
Successfulpositioningrequiresactivity

systemswith2
nd

and3
rd

orderfit.
Difficulttodissect
Difficulttoimitate
Integrationofdecisionsandactionsacross

subunitsisuniquetoeverycompany
CreatingSustainableCompetitive

Advantage
Fitwithinacompanysactivitiesimproves

operationaleffectivenessthroughpressure

andincentive
Weaknessesareexposedandcanbetendedto

quickly
Strengthsleadtosuperioritymakingduplication

verydifficultforcompetitors
DevelopmentofaStrategyTakesTime
Whenactivitiescomplementeachother,rivals

areunabletoduplicatetheresultsunlessthey

canmatchthewholesystem
Winnertakeall

competitiontendstoresult
Themostsuccessfulstrategiesresultfroma

combinationoftradeoffsandeffective

systems
Strategicpositionsshouldhaveahorizonofa

decadeormore,notofasingleplanningcycle.
FitisStrategy
Distinctpositioningisbeneficialasitresultsfrom

acombinationoftradeoffs,activities,and

operationalcohesion
Attemptsbycompetitiontoduplicatea

successfulstrategymayneverbepossibleonce

thevariouscompanysactivitieshavebeenfit

together
Whenthereisnofit,andonlymanagementof

theindividualcomponents,thereisnodistinctive

strategyandlittlechanceofsustainability.
RediscoveringStrategy
FailuretoChoose
Although

external

changes

can

pose

a

threat

to

a

companys

strategy,

a

greater

threat

to

strategy

often

comes

from

within

the

company.
"A

sound

strategy

is

undermined

by

a

misguided

view

of

competition,

by

organizational

failures,

and,

especially,

by

the

desiretogrow"(p.75).
Moreover,

the

fundamental

problem

lies

in

the

"bestpractice"

mentality

of

the

managers,

who

believe

in

making

no

tradeoffs,

incessantly

pursuing

operational

effectiveness,

and

imitating

competitors

to

catch

up

in

the

race

for

operational

effectiveness.

Thus,

managers

simply

do

not

understand

the

need

to

have

a

strategy.
TheGrowthTrap
Amongallotherinfluences,thedesiretogrowhasperhapsthe

mostperverseeffectonstrategy"(p.75).Companiesoftengrowby

extendingtheirproductlines,addingnewfeatures,imitating

competitors

popularservices,matchingprocesses,andmaking

acquisitions.
However,mostcompaniesstartwithauniquestrategicposition

involvingcleartradeoffs.Nevertheless,withthepassageoftime

andthepressuresofgrowth,companiesareledtomake.

Compromisesandinconsistenciesinthepursuitofgrowth

eventuallyerodethecompetitiveadvantageofacompanyand

theiruniqueness.Rivalscontinuetomatcheachotheruntil

desperationbreaksthisviciouscycle,andresultsinamergeror

downsizingtotheoriginalpositioning.
Effortstogrowbluruniqueness,createcompromises,reducefit,

andultimatelyunderminecompetitiveadvantage.
ProfitableGrowth
Oneapproachtoperseveringgrowthandreinforcingstrategyisto

concentrateondeepeningastrategicpositionratherthan

broadeningandcompromisingit.
Acompanycandosobyleveragingtheexistingactivitysystemby

offeringfeaturesorservicesthatrivalswouldfindimpossibleor

costlytomatchonastandalonebasis.
Thus,deepeningapositionmeansmakingthecompanysactivities

moredistinctive,strengtheningfit,andcommunicatingstrategy

bettertothosecustomerswhovalueit.
Globalizationoftenallowsgrowththatisconsistentwitha

companysstrategy,asitopenslargermarketsforafocused

strategy.Thus,expandinggloballyismorelikelytoreinforcea

companysuniquepositionthanbroadeningdomestically.
TheRoleofLeadership
Thechallengeofdevelopingorreestablishingaclearstrategyisoften

primarilyanorganizationaloneanddependsonleadership"(p.77).

Moreover,strongleaders,whoarewillingtomakechoices,areessential.

Further,theleadershoulddecidewhichchangesintheindustryand

customerdemands,isthecompanygoingtorespondto.Theleader

shouldbeabletoteachothersintheorganizationaboutstrategyandto

sayno.
Strategyisaboutchoosingwhattodoaswellaswhat

not

todo.Deciding

whichtargetgroupofcustomers,varieties,andneedsthecompany

shouldserveisfundamentaltodevelopingastrategy.Thus,strategy

requirescontinuousdisciplineandclearcommunication.
Moreover,managersneedtounderstandthatoperationaleffectiveness,

althoughanecessarypartofmanagementis

not

strategy.Managers

shouldbeabletoclearlydistinguishbetweenthetwo.
Conclusion
Strategiccontinuitydoesnotimplyastaticviewof

competition.Acompanymustcontinuallyimproveits

operationaleffectivenessandactivelytrytoshiftthe

productivityfrontier;atthesametime,thereneedstobe

ongoingefforttoextenditsuniquenesswhile

strengtheningthefitamongitsactivities"(p.78).
However,acompanymayhavetochangeitsstrategic

positionduetoamajorstructuralchangeintheindustry.A

companyshouldchooseitsnewpositiondependingonits

abilitytofindnewtradeoffsandleverageanewsystemof

complementaryactivitiesintoasustainableadvantage.