Notes on What is Strategy? By Michael E. Porter I.

Operational Effectiveness is Not Strategy

Problem Failure to distinguish between OE and Strategy. Both OE and Strategy are essential to superior performance. OE means performing similar activities better than rivals perform them. e.g. efficiency. Strategic Positioning means performing different activities from rivals or similar activities in different ways. Productivity Frontier = sum of all existing best practices at any given time. e.g Max Value Competitors quickly imitate techniques and everyone gets to the same level and looks the same.

II. Strategy Rests on Unique Activities

Competitive Strategy is about being different. Essence of strategy is the activities choosing to perform activities differently or to perform different activities than rivals. Variety Based Positioning Needs Based Positioning Producing a subset of an Serving all or most of the industrys product or needs of a particular group services of customers Access Based Positioning Segmenting customers who are accessible in different ways (geography, scale, or other differentiator that requires customizing of activities to reach this group of customers) When companies can When there are groups of When the best way to produce a particular customers with different configure activities to meet product or service using needs and constraints similar needs of distinct distinctive set of activities When the same customers groups of customers differs has different needs on different occasions or for different types of transactions Responding to superior Configuring set of Configure activities to value chain for a particular activities to specifically fulfil to similar needs of a type of product/ service respond to target segment group of customers needs Customize the value chain to profitably respond to the need of a specific group

Definition

Best used by

Key factor

Strategy is the creation of a unique and valuable position, involving a different set of activities. If there were only one ideal position, there would be no need for strategy. The essence of strategic positioning is to choose activities that are different from rivals.

III. A Sustainable Strategic Position Requires Trade-offs

Unique position is not enough to guarantee a sustained advantage as it attracts imitation. Two types of ways rivals may imitate. Repositioning Straddling Repositioning oneself to be an even better Match the benefit of a successful position while version of the original maintaining the original position Strategic position unsustainable without trade-offs with other positions. ie Service for cost Trade-offs create the need for choice and protect against repositioners and straddlers. 3 reasons trade-offs emerge: Inconsistencies in image or From activities themselves Limits on internal coordination reputation and control Trade-offs create the need for choice and purposefully limit what a company offers. They deter straddling or repositioning, because competitors that engage in those approaches under-mine their strategies and degrade the value of their existing activities. Strategy is making trade-offs in competing. The essence of strategy is choosing what not to do. Without trade-offs, there would be no need for choice and thus no need for strategy. Any good idea could and would be quickly imitated.

IV. Fit Drives Both Competitive Advantage and Sustainability

Strategy is about combining activities. Fit locks out imitators by creating a chain that is as strong as its strongest link. One activities cost for example is lowered because of the way another is performed. Fit is important because often discrete activities often affect one another. 3 types of fit Degree of fit Description Example Simple Aligning all activity with the Vanguard: align all activities with low cost consistency overall strategy strategy. Low portfolio turnover, lower number of investment manager, direct distribution, limit advertising. Reinforcing Symbiosis between two or more Placement of Neutrogena soap in upscale activities hotels. Enhance customer awareness for one and exclusive image for the other one Optimization of Entire chain of activities support Gap. Strong product availability > daily effort and reinforces each other or restocking > minimize in-store inventory. eliminating entrenched functions. Product design that support customer self service. Fit also promotes sustainability of advantage. Since competitors are facing an entire ecosystem, with elements that allow and strengthen each other existence, they need to be very persistent, capitalize, or creative to be able to replicate or break your strategy. This allows your advantage to be sustainable. Sustainable Advantage Strategy is creating fit among a company's activities. The success of a strategy depends on doing many things well- not just a few- and integrating among them. If there is no fit among activities, there is no distinctive strategy and little sustainability.

V. Rediscovering Strategy V.1. Failure to choose

Focusing on the efficiency frontier could lead one to think that companies should be able to beat its rivals simultaneously on all dimensions. Yet this kind of machismo could be unnecessary. Some external and internal factors might lead managers to believe that they dont need to choose.

V.2. Growth Trap

Blind pursuit of growth has a diluting effect on a companys strategy. Trade-offs place limits on growth by not allowing access to certain segment, lines of products, or distribution channel. When company faces pressure to grow, the managers could respond with incremental steps that blur their strategy. Yet these steps often require compromises and inconsistencies with the original strategy. Once these compromises are taken, a companys uniqueness become less clear, and company find itself in a new field. This new field has less overall uniqueness and companies are forced to compete on operational effectiveness, further encouraging compromises and inconsistencies. Managers can achieve growth without spoiling its strategy by deepening a strategic position. This can be achieved in several ways: Look for extension of the strategy that leverage existing activity system Better penetrate needs and varieties where the company can offer distinctiveness Entering international markets

V.3. The Role of Leadership

Leader bears the intellectual and enforcement responsibility of maintaining a strategy. Leader should not degenerate into exclusively orchestrating operational improvements and making deals. They should be aware of their role in defining the companys unique position. Leaders must teach others about strategy and the discipline to which changes the company will respond to while avoiding dilution to its strategy. Leaders need to set what not to do, as well as what we want to do. Leaders also need to communicate the strategy to employee at various layers and geography. We can summarize the leaders role as DTEC: Define, Teach, Enforce, Communicate This Define part of the job is not static at all. Operational effectiveness activities are alluring due to the visibility of issue and immediacy of both the effort and results. Yet a company always face change, industry trends, new entrants, all chasing and threatening not only the operational effectiveness of a company but also its unique position. Identifying threats to a companys unique position is a much harder job because its often slower to emerge or from corners unseen. Yet as the changes are identified, leaders need to re-define their strategic position while staying true to the principles of understanding trade-offs needed to build a new or revised ecosystem.

Challenge Porter says it isnt just about outside-inside and you do have to look at the resource based information of the company. Its a bit of both. Paper starts strong and then weakens. The point he wants to make is the conclusion where it is an integrated view.