what is strategy by Michel Porter... Fit , leverage COMPETITIVE ADVANTAGE...Competitiveness ...strategic positionong..growth trap, strategic positioning and role of leadership...

1. Presented by
Mudasir ali

3. Operational Effectiveness is Not Strategy
Positioning should have been at the heart of strategy.
Hyper competition resulted from the inability to distinguish
between operational effectiveness and strategy, this leads to
increasing dependence on management tools, instead of
strategy
various management tools like total quality management,
benchmarking, time-based competition, outsourcing, partnering,
reengineering, that are used today, do enhance and
dramatically improve the operational effectiveness of a
company but fail to provide the company with sustainable
profitability

4. •Activities are the basic units of
competitive advantage
•Differentiation in all activities the company
is engage in are the key of competitive
advantage.

5. Methods of achieving competitive advantage:
 What activities are performed > Do different things > Strategy
 What sub-activities or variation of activities can be done > Do things differently > border line
between Strategy and Operational Effectiveness > since Activities need to pose tradeoffs and
make great fit with one another to be a sustainable differentiator/ to be called Strategy
 How activities are performed > Do things better > Operational Effectiveness > rat race of
productivity frontier
 Do things more efficiently (less time, less labor input, less material input, less energy input, less
capital input, less defect, less waste) > achieve cost advantage
 Do things more productively (faster product development, faster go to market, better customer
response time, better product delivery, faster fulfillment, better technology, stronger
leadership)

6. Operational Effectiveness: Necessary but Not
Sufficient
 Although both operational effectiveness and strategy are necessary for the superior
performance of an organization, they operate in different ways.
 Operational Effectiveness: Performing similar activities better than rivals perform them.
Operational effectiveness includes but is not limited to efficiency. It refers to many practices
that allow a company to better utilize its inputs.
 Strategy: Performing different activities from rivals’ or performing similar activities in
different ways.

7.  Porter states that a company can outperform rivals only if it can establish a difference it can preserve.
 It must deliver greater value to customers or create comparable value at a lower cost, or do both
 However, Porter argues that most companies today compete on the basis of operational effectiveness.
 This concept of competition based on operational effectiveness is illustrated via the productivity frontier
 The productivity frontier is the sum of all existing best practices at any given time or the maximum value
that a company can create at a given cost, using the best available technologies, skills, management
techniques, and purchased inputs.(PPF' A curve depicting all maximum output possibilities for two or more
goods given a set of inputs (resources, labor, etc.). The PPF assumes that all inputs are used efficiently.)
 , when a company improves its operational effectiveness, it moves toward the frontier.
 Competition based on operational effectiveness alone is mutually destructive, leading to wars of attrition
that can be arrested only limiting competition
 EXAMPLE:-Japanese companies, which started the global revolution in operational effectiveness in the
1970s and 1980s.

9. • Strategy is about being different,
choosing different activities.
Porter’s example (Soutwest Airlines
and Ikea) shows that these
companies are doing different things
from their competitors AND doing
things differently.
it’s not that Southwest doesn’t have
activities that are similar to their
competitor, it’s just that they are also
doing things differently, and the jewel
is that they are doing different things.
From this we can conclude that all
companies are engaged, or have to
be engaged in 3 kinds of activities:
1. Activities that are similar to their competitor
Strategy rests on unique
activities

10. Strategy Implemented by Southwest and Ikea
Key Differentiators
Southwest Ikea
Strategy Focus on low cost, convenient service on its routes Target young furniture buyer who wants style at low cost, trade
service for cost
No’s  Not a full service airline
 No First or Business class
 No meals
 No assigned seats
 Interline baggage checking
 No sales associate
 No exclusive dependence on suppliers
 No bulk/ whole size furniture
 Minimal customizations and revisits
 No delivery
Do’s  Fast gate turnaround time > provide more
departure with fewer airplanes
 Automated ticketing > bypass agents’
commission
 Standardized fleet of 737s > achieve scale at
maintenance
 Room like setting > customers visualize end product
 Design own products
 Products are modular and ready to assemble
 On the spot shopping and self delivery
 In store child care > customer don’t have nannies
 Extended hours > customers work during normal shopping
time

11. The Origins of Strategic
Positions
1. Variety-based positioning
2. Needs-based positioning
3. Access-based positioning
Porter explores the 3 sources of strategic position by giving examples of
these companies

13. Variety Based Positioning Needs Based Positioning Access Based Positioning
Definition Producing a subset of an industry’s product or services Serving all or most of the needs of a particular group of
customers
Segmenting customers who are accessible in different ways (geography,
scale, or other differentiator that requires customizing of activities to reach
this group of customers)
Best used by - When companies can produce a particular product or
service using distinctive set of activities
- When there are groups of customers with different
needs and constraints- When the same customers has
different needs on different occasions or for different
types of transactions
- When the best way to configure activities to meet similar needs of
distinct groups of customers differs
Key factor - Responding to superior value chain for a particular type
of product/ service
- Configuring set of activities to specifically respond to
target segment needs- Customize the value chain to
profitably respond to the need of a specific group
- Configure activities to fulfill to similar needs of a group of customers
Sample Jiffy Lube International:
 Focus on automotive lubricants
 No other car repair or maintenance service
 Resulting in faster service at lower cost, persuading
customer to get oil changes at this focused company
Ikea:
 Focus on fulfilling the need of young adult customers
Citibank Private Banking:
 Client with minimum assets of US$ 250,000
 1 officer for 125 individuals
 Limited on client site meeting
 Convenient access to loans
 RM refers client to product specialist
Carmike Cinemas:
 Operate in cities and towns with populations under 200,000
 Standardized low cost theater complexes
 Fewer screen and less sophisticated projection technology
 Requires only a single theater manager
 Lower rent and payroll costs
 Personal marketing (small communities)
 Are often the only theater in small towns, better position with distributors
Vanguard Group:
 Portfolio diversification and rock bottom expenses
 Trade off extraordinary performance for good, yet
stable, performance
 Minimize bets on interest rates and narrow stock
group
 Discourage customer from incurring transaction costs
 Become a staple of customer portfolio, its
pronounced position allow it to be must-have
Bessemer Trust:
 Families with more than US$ 5 million in investable
assets
 1 officer for 14 families
 Meeting on client site
 Services aimed to fulfill need at this segment
(investment oversight and mgmt., estate
administration, non-traditional asset accounting)
 Minimal request for loans
Rural vs Urban:
 Small customers vs Large customers
 Densely situated customers vs sparsely situated customers

14. A Sustainable Strategic Position Requires Trade-offs
• According to Porter, a sustainable advantage cannot be guaranteed by simply choosing a unique position,
as competitors will imitate a valuable position in one of the two following ways:
1. A competitor can choose to reposition itself to match the superior performer.
2. A competitor can seek to match the benefits of a successful position while maintaining its existing
position (known as straddling).
Thus, in order for a strategic position to be sustainable there must be trade-offs with other positions. "A
trade-off means that more of one thing necessitates less of another
Moreover, trade-offs create the need for choice and protect against repositioners and straddlers. Thus,
strategy can also be defined as making trade-offs in competing. The essence of strategy is choosing what
not to do.

15. • Moreover, trade-offs create the need for choice and protect
against repositioners and straddlers. Thus, strategy can also be
defined as making trade-offs in competing. The essence of
strategy is choosing what not to do.
• Some sample of trade offs erected by Neutrogena
Soap, which positioning is somewhat of dermatologist
soap:
• Advertise on medical journals (instead of general magazine) – the italic part is my
own assumptions to highlight the trade offs
• Send direct mail to doctors (instead of end users)
• Attend medical conferences (instead of participating in consumer trade shows)
• Focuses distribution on drugstores (instead of supermarkets, sacrifice volume)

16. 3 reasons why trade offs emerge:
Reason Inconsistencies in image or reputation From activities themselves Limits on internal coordination and control
In what ways it
become a barrier (or a
constraint)
 A company known for delivering one
kind of value may lack the credibility to
to deliver another kind of value
 Reshaping an image is expensive
 The more company has configured its
its machinery, people, and systems to
efficiently execute a set of activities, the
the more it cannot fulfill services
requiring another set of activities
 Preventing an overdesign or under
design of an activity respective to its use
use
 Increasing productivity by limiting
activity variations
 Quality are not free
 On the flip side, low cost practices need
need adjustments in all parts of value
chain in order to not be ‘cheap’
 Make organization priorities clear
 Trying to be a jack of all trade risk
confusion at the front end level as
employee try to make day to day
decision without clear framework
Sample A soap known as basic inexpensive everyday
everyday soap would find it very tough to
match Neutrogena’s positioning as a
premium ‘medical’ soap
Ikea achieve its position by asking customers
customers to do their own delivery and
assembly, this forbid Nokia from satisfying
satisfying customers requiring higher level
level of service

17. • Porter says that Operational Effectiveness had lead to
the discovery of false trade offs.
• The unfortunate side effects is that managers learn to
have the wrong belief that trade offs can be eliminated,
it is unnecessary, it is ‘bad’.
• But without trade offs, there will be no lasting advantage,
what will be is a arms race to excel at everything.
• Trade offs add an essential dimension to strategy,
without trade offs, there’s no need to choose activities,
no need for strategy. So, trade off is both the

18. Fit Drives Both Competitive Advantage and Sustainability
• "Fit locks out imitators by creating a chain that is as strong as its
strongest link“
• Fit, as per Porter, is the central component of competitive advantage
because discrete activities often affect one another
• There are three types of fit, which are not mutually exclusive:-
1. First-order fit: 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. Further, consistency makes it easier to communicate
the strategy to customers, employees, and shareholders, and improves
implementation through single-mindedness in the corporation.
2. Second-order fit: Occurs when activities are reinforcing.

19. • Porter showed this beautifully with his activity system map for IKEA.
• A large theme, say “limited customer service” links with “self selection by
customer”. But “limited customer service” builds upon “self transport by
customer”, “ease of transport and assembly”, and “self assembly by
customer”, all of these link to each other.
• To compete with IKEA, you either copy the entire ecosystem altogether,
circumvent them, or induce trends that make their ecosystem irrelevant.
• 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.

22. Fit and Sustainability
• Strategic fit is fundamental not only to competitive advantage
but also to the sustainability of that advantage
• because it is harder for a competitor to match an array of
interlocked
activities than it is merely to replicate an individual activity.
• Thus, "positions built on systems of activities are far more
sustainable than those built on individual activities“
• The more a company’s positioning rests on activity systems
with second- and third-order fit, the more sustainable its

23. • Such systems are difficult to untangle and imitate even if the
competitors are able to identify the interconnections
• Further, a competitor benefits very little by imitating only a
few activities within the whole system.
• fit across activities, allowing an organization to build unique
capabilities and skills custom-fitted to its strategy. Continuity
also reinforces a company’s identity
• Thus, strategy can also be defined as creating fit among a
company’s activities as the success of a strategy depends
on doing many things well - not just a few - and integrating
among them.

24. Rediscovering Strategy
•The 2 main reasons companies often go stray
from finding strategy (the failure to choose and
the pursuit of growth), how growth can be
achieve without jeopardizing strategy and the
role of leaders in directing and finding this
strategy.

25. . Failure to choose
• Managers have been confused about the necessity of making
choices.
• 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 don’t need to choose. Sample of these factors are:-
1. Nobody remind managers on the need to make tradeoffs
2. Pursuing technology for its own sake
3. Pursuing operational effectiveness is seductive because it’s concrete and
actionable
4. Best practice mentality, reinforce by information provided by business
publications and consultants
5. Conventional wisdom within an industry
6. Organizational realities like fear to making trade offs and choose the wrong one

26. Growth Trap
Blind pursuit of growth has a diluting effect on a company’s strategy.
Trade off 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.

27. • Once these compromises are taken, a company’s 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 achieve in several ways:
1. Look for extension of the strategy that leverage existing
activity system
2. Better penetrate needs and varieties where the company can

28. Profitable Growth
• One approach to persevering growth and reinforcing strategy
is to concentrate on deepening a strategic position rather than
broadening and compromising it.
• A company can do so by leveraging the existing activity
system by offering features or services that rivals would find
impossible or costly to match on a stand-alone basis.
• Thus, deepening a position means making the company’s
activities
distinctive strengthening fit, and communicating strategy better
to
those customers who value it.

29. • Globalization often allows growth that is consistent with a
company’s strategy, as it opens larger markets for a focused
strategy
• Thus, expanding globally is more likely to reinforce a company’s
unique position than broadening domestically.
EXAMPLE:-carmike now the largest theater in United States
Owes its rapid growth to its disciplined concentration on small
markets.

30. The Role of Leadership
"The challenge of developing or reestablishing a clear strategy is often
primarily an organizational one and depends on leadership"
. Moreover, strong leaders, who are willing to make choices, are
essential. General management should do more than just stewardship of
individual functions. They should define and communicate the core
company’s unique position, make trade-offs, and forge fit among the
various activities of the company.
 Further, the leader should decide which changes in the industry and
customer demands, is the company going to respond to.
 The leader should be able to teach others in the organization about

31. • Strategy is about choosing what to
do as well as what not to do.
• Deciding which target group of
customers, varieties, and needs
the company should serve is
fundamental to developing a
strategy.
• Strategy is also however, in
deciding not to serve other
customers or needs and not to
offer certain features or services.
Thus, strategy requires continuous
discipline and clear
communication.
• Strategy should guide employees
in making choices that arise
because of trade-offs in their
individual activities and in day-to-
day decisions.

32. Conclusion
• Strategic continuity does not imply a static view of
competition.
• A company must continually improve its operational
effectiveness and actively try to shift the productivity frontier;
at the same time, there needs to be ongoing effort to
extend its uniqueness while strengthening the fit among its
activities"
• . However, a company may have to change its strategic
position due to a major structural change in the industry
• . A company should choose its new position depending on