What is

Strategy?
By Michael E. Porter

2016 Ibat College | Strategy Management

What is Strategy? By Michael E. Porter

1. Keys Ideas

Strategy is the creation of a unique and valuable position, involving a different

set of activities

Strategy makes you think if trade-offs are in competing or not

Strategy is creating fit among a companys activities

2016 Ibat College | Strategy Management

What is Strategy? By Michael E. Porter

2. Operational Effectiveness (OE)

Operational Effectiveness (OE)

Doing things better and better.
According to Porter, operational effectiveness means performing similar activities better than rivals perform
them. Its is not limited to efficiency. Its refers to any number of practices that allow a company to better utilize its
inputs.
The quest for productivity, quality, and speed has spawned a remarkable number of management tools and
techniques listed below:
Partnering
Total quality management
Reengineering
Benchmarking
Change management
Time-based competition
Negative side
Outsourcing

Rapid diffusion of best practices

Imitation and homogeneity
Management tools have taken the place of strategy
Inability to translate the resulting operational improvement
gains into sustainable profitability

Positive side
Leaner and nimble process
Lower costs
Superior quality

2016 Ibat College | Strategy Management

What is Strategy? By Michael E. Porter

2. Operational Effectiveness (OE)

Operational Effectiveness (OE) - Necessary but not Sufficient

Porter states that a company can outperform rivals only if it can establish a difference it can preserve.
How can we outperform rivals in a competitive market?

Delivering greater value to customers, it allows a company to charge higher prices

Create comparable value at a lower cost, it results in lower average unit cost.

How can we delivering greater value or create comparable value at a lower cost?
Process improvement (create, produce, sell and delivering products and services)
Cost reduction (performing activities more efficiently than competitors)
Management tools and techniques ( best practice improvement)
Strategy management
Strategy position (performing similar activities in different ways or performing similar activities
in different ways)
Issues
According to Porter most companies today compete on the basis of operational effectiveness and they forget
to develop strategies
2016 Ibat College | Strategy Management

What is Strategy? By Michael E. Porter

3. Strategy

Strategy
Doing things differently to deliver value compared to rivals. Doing different activities from rivals or performing
similar activities in different ways.
The essence of strategy is choosing to perform activities differently than rivals do. (Michael E. Porter)
Strategy position
Strategy position can be based on different aspects:
customers needs
customers accessibility
variety of a companys products or services

Variety-based positioning

It is based on the choice of product or service varieties rather than

customers segments.

Needs-based positioning

It arises when there are a group of customers with different needs, and
when a tailored set of activities can serve those needs

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.
2016 Ibat College | Strategy Management

What is Strategy? By Michael E. Porter

3. Strategy

Trade-offs is required for a sustainable Strategy Position

Trade-off means that more one thing necessitates less of another.
The importance of trade-offs
Unique position is not enough to guarantee a sustainable advantage
Protect the companies against repositioners and straddlers

3 reasons for arising trade-offs

Image or reputation of the company

Different strategy position

Deliver another kind of value may reduce credibility of companies and confuse customers.
Requires different management, people and systems

Limits on internal coordination and control

Managers must makes organizational priorities clear

2016 Ibat College | Strategy Management

What is Strategy? By Michael E. Porter

4. Competitive advantage and Sustainability

Competitive advantage and Sustainability

Combining activities with complement one another in ways that create real economic value
For example: Production line when combined with an inventory and order processing system.
While operational effectiveness focuses on individual activities, strategy concentrates on combining activities
Types of Fit

First-order
fit
Secondorder fit
Third-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 singlemindedness in the corporation.
Ex: Vanguard

Occurs when activities are reinforcing.

Ex: Neutrogena

Goes beyond activity reinforcement to what Porter refers to as optimization of effort. Coordination and information
exchange across activities to eliminate redundancy and minimize wasted effort are the most basic types of effort
optimization
Ex: GAP

In all three types of fit, the whole matters more than any individual part Competitive advantage systems from the
activities of the entire system
2016 Ibat College | Strategy Management

What is Strategy? By Michael E. Porter

4. Competitive advantage and Sustainability

Strategic fit among many activities is more sustainable for some reasons:
It is harder for rival to imitate or replicate the activities;
The rivals will be forced to reconfigure their activities to imitate, thus they will spend money;
Companies with strong fit among their activities are rarely inviting targets

Alternate Views of Strategy

The Implicit Strategy Model
Sustainable Competitive Advantage
of the Past Decade
One ideal competitive position in the industry
Unique competitive position for the company
Benchmarking of all activities and achieving best
Activities tailored to strategy
practice
Aggressive outsourcing and partnering to gain
Clear trade-offs and choices vis-a-vs competitors
efficiencies
Advantages rest on a few key success factors, critical Competitive advantage arises from fit across
resources, and core competencies
activities
Flexibility and rapid responses to all competitive market Sustainability comes from the activity system, not the
changes
parts
Operational effectiveness a given
2016 Ibat College | Strategy Management

What is Strategy? By Michael E. Porter

5. Rediscovering Strategy.

The role of leadership.

Defining and communicating the companys unique position.
Making trade-offs.
Forging fit among activities.
Thus strategy requires constant discipline and clear communications.
Guide employees in making choices.
Improving operational effectiveness is a necessary part of management, but it is not strategy.
Operational agenda: continual improvement every where there are not trade offs, constant change,
flexibility, and relentless efforts to achieve best practice.
Strategic agenda: defining a unique position, making clear trade-offs and tightening fit.

2016 Ibat College | Strategy Management

What is Strategy? By Michael E. Porter

6. What can I do?
1.

Who are my competitors?

2.

What and how are they offering products or services?

3.

How are my products or services different?

4.

How is my speed of answer?

5.

What are customers expecting really?

6.

Is the company satisfying their needs?

7.

What is my relation between cost, production and profit?

8.

..?

9.

..?

Exploring

Figuring Out

? ?

Implementation

Checking

2016 Ibat College | Strategy Management

What is Strategy? By Michael E. Porter

Reference: http://www.slideshare.net/hitnrun10/what-is-strategy-30278968 - visited on 21/02/2016

2016 Ibat College | Strategy Management