1. What is Strategy
by Michael E. Porter
Presented by:
Nisbat Anwar
Date: 26th September’14
2. About the Author
•Michael Eugene Porter is the Bishop William Lawrence University
Professor at The Institute for Strategy and Competitiveness, based
at the Harvard Business School. Wikipedia
•A leading authority on company strategy and the competitiveness of
nations and regions, his work is widely recognized in governments,
corporations, non-profits, and academic circles across the
globe.(Linkedin)
•Born: May 23, 1947 United States
•Education: Princeton University, Harvard Business School, Harvard
University
•Publication: Michael is the author of 18 books and numerous
articles including Competitive Strategy, Competitive Advantage,
Competitive Advantage of Nations, and On Competition. A six-time
winner of the McKinsey Award for the best Harvard Business
Review article of the year
• Porter's core field is competition and company strategy
3.
4. Summary
The essence of strategy is in the activities—
choosing to perform activities differently or to
perform different activities than rivals.
5. What is Strategy?
Operational
Effectiveness is
not strategy
Strategy rests on
unique Activities
A sustainable
Strategic Position
Requires Trade-
offs
Fit Drives Both
Competitive
Advantage and
sustainability
Rediscovering
Strategy
6. 1 Operational Effectiveness is not strategy
Operational effectiveness (OE) means performing
similar activities better than rivals perform them.
In contrast, strategic positioning means performing
different activities from rivals’ or performing similar
activities in different ways
Productivity Frontier (the maximum value that a company delivering a
particular product or service can create at a given cost, using the best available
technologies, skills, management techniques, and purchased inputs.) When
a company improves its operational effectiveness, it
moves toward the frontier.
7. 2. Strategy rests on unique Activities
Competitive strategy is about being different. It
means deliberately choosing a different set of
activities to deliver a unique mix of value. (eg: soutwest
airlines)
The essence of strategy is in the activities—choosing to
perform activities differently or to perform different
activities than rivals. Otherwise, a strategy is nothing
more than a marketing slogan that will not withstand
competition (eg Ikea vs typical furniture store, Otobi or concept in BD)
A company can outperform rivals only if it can establish a
difference that it can preserve.
8. The origin of Strategic Positioning
Variety Based positioning
• It is based on the choice of product
or service varieties rather than
customer segments
• It makes economic sense when a
company can best produce
particular products or services
using distinctive sets of activities.
• e.g Jiffy Lube International
(specialized in automotive
lubricants)
Needs Based positioning
• Serving most or all the needs of a
particular group of customers
• It is more like traditional thinking
about targeting a segment of
customers.
• A variant of needs-based
positioning arises when the same
customer has different needs on
different occasions or for different
types of transactions.
• Eg. ;Ikea for meeting all home
furnishing need target customer or
Bessemer
• Trust Company targets families with
minimum of $5 million
Access-based positioning
• Access can be a function of
customer geography or customer
scale—or of anything that requires
a different set of activities to reach
customers in the best way.
• Segmenting by access is less
common and less well understood
than the other two bases
• Eg:: Carmike cinemas, operates
movie theaters exclusively in cities
and towns with populations under
200,000
9. 3. A sustainable Strategic position requires
Trade-offs
Choosing a unique position is not enough to guarantee a
sustainable advantage. Because competitors can copy it in
two ways. 1) a competitor can reposition itself to match the
superior performer. 2) It’s far more common type of imitation
is straddling. The straddler seeks to match the benefits of a
successful position while maintaining its existing position.
A strategic position is not sustainable unless there are trade-
offs with other positions.
Trade-offs occur when activities are incompatible. It means
that more of one thing necessitates less of another. Eg: airline
Trade-offs create the need for choice and protect against
repositioners and straddlers. Eg: Neutrogena soap
The essence of strategy is choosing what not to do. Without
tradeoffs, there would be no need for choice and thus no need
for strategy
Eg: Toyota, Honda
10. Trade-off arises for three reasons
Inconsistencies in image or reputation
Trade-offs arise from activities
themselves
Trade-offs arise from limits on internal
coordination and control.
11. 4. Fit Drives Both Competitive advantages
and sustainability
While operational effectiveness is about achieving
excellence in individual activities, or functions,
strategy is about combining activities. Eg: southwest
airlines
Fit locks out imitators by creating a chain that is as
strong as its strongest link
The fit among activities substantially reduces cost or
increases differentiation.
Achieving fit is difficult because it requires the
integration of decisions and actions across many
independent subunits.
Strategy is creating fit among a company’s activities.
,
12. Types of Fit
simple consistency
between each activity
(function)and the
overall strategy
activities are
reinforcing
Optimization of
effort
13. 5. Rediscovering Strategy
The Failure to Choose
Internal threat-Managers have become confused about
the necessity of making choice
External threat -changes in technology or the behavior of
competitors
The Growth Tap
The desire to grow has perhaps the most perverse effect
on strategy
Trade-offs and limits appear to constrain growth
Profitable Growth
After decade of restructuring and cost cutting, are turning
their attention to growth.
14. The Role of Leadership
One of the leader’s jobs is to teach others in the
organization about strategy—and to say no.
Setting limits is another function of leadership.
Strategy requires constant discipline and clear
communication
Distinguish operational effectiveness from strategy
A leader may have to change its strategy if there are
major structural changes in its industry.
