Class 2: What is Strategy - Porter

Question 1

What is Operational Effectiveness?

Answer 1

Myriad activities to create, produce, sell, and deliver a product/service. To perform these better, faster, and with fewer inputs and defects - than rivals.

This is NOT strategy

Question 2

What is the problem with Operational Effectiveness?

Answer 2

These can be easily copied

Question 3

What is the “productivity frontier”?

Answer 3

As competitors in an industry adopt the best practices,, productivity frontier is the maximum value a company can deliver at a given cost, given the best tech, skills, and management techniques.

It creates absolute improvement in operational effectiveness, but relative improvement for no one.

Question 4

What is “competitive convergence”?

Answer 4

As companies benchmark each other and improve, the become more indistinguishable from each other.

Question 5

What is the goal of strategic positioning?

Answer 5

To preserve what is DISTINCT about the company.

Competitive strategy is about being different [Southwest Airlines and Neutrogena examples]

Question 6

What are the 3 key principles behind strategic positioning?

Answer 6

1. Strategy is the creation of a unique and valuable position, involving a different set of activities
2. Startegy requires to make trade-ofs - to chose what NOT to do
3. Strategy involves creating “fit” among company activities.

Question 7

“Operational Effectiveness: Necessary But Not Sufficient” - In what ways is this true?

Answer 7

A company can outperform rivals only if it can establish a difference that it can PRESERVE. BY creating higher value or same value but at a lower cost

Question 8

Contracts O. Effectiveness and S. Positioning

Answer 8

OE means performing SIMILAR activities BETTER than rivals.

SP means performing DIFFERENT activities from rivals or performing similar activities in DIFFERENT ways.

Question 9

Why should strategic positioning be describes in terms of activities and not customers?

Answer 9

BC otherwise is it nothing more than a marketing slogan. A description in terms of activities give the business direction.

Question 10

What are the three sources of strategic positioning?

Answer 10

1. Variety-based positioning: Produce a subset of the industry product or services: ie. Jiffy Lube and Vanguard
2. Needs-based positioning: Serve most or all need of a PARTICULAR GROUP. Most close to traditionign thinking about targettting a segment of customers [ie. IKEA]
3. Access-based positioning: May be a function of geography or customer scale - or anything that requires a different set of activities to reach customers in the best way. [i.e Carnike Cinemeas in rural areas]

Whatever the basis, - variety, needs, access - or some COMBINATION of the three - positioning requires a tailored set of activities because it is always a function of the supply side, that is, the differences in activities.

Question 11

Where does a Focused Competitor (what I want to be) thrive?

Answer 11

A focused competitor thrives on groups of customer who are OVERSERVES (and hence overpriced) or are UNDERSERVED (and hence underpriced).

Question 12

Why is strategic positioning and “entrepreneurial edge”?

Answer 12

Strategic positionings are non-obvious and finding them requires creativity and insight. New entrants discover unique positions that have been available but simply overlooked by established competitors. AND/OR new entrants can occupy a position that was once held by a competitor but has ceded through years of imitation and stradling.

Question 13

Why strateguc positioning requires trade-offs?

Answer 13

First off, a valuable position will attract imitators. The “straddled” seeks to match benefits of successful positioning while maintenig its existing position.

Trade-offs occur when activities are incompatible - it cannor do both without bearing major inefficiencies.

Question 14

What are the 3 reasons for which trede-off arise?

Answer 14

1. Inconsistensies in image and repuation
2. Trade-off in the activities themselves, at a most bacis level is inefficiency
3. Limits on internal coordination and control

Positioing trade-offs are pervasive in competition and essential to strategy. They deter straddling or repositioing, because competitors that engage in those approaches undermine their strategies and degrade value of their existing activities.

Question 15

What does it mean that “fit drives both competitive advantage and sustainability”?

Answer 15

While Operational Efffectiveness is about achiecing excellence in INDIVIDUAL ACTIVITIES, Strategy is about COMBINING activities.

Fit locks out competitors, they can see the congruence under the hood of the various activities working together

Manegers have turned to KPIs, core competnecies, etc, these are single view items. And have missed the congruence of fit.

For sustainability, because harder for competitor to match the whole ie, each activity (.9 x .9 x.9 x.9 etc = .66 chance of getting it right)

Question 16

What are the three types of fit?

Answer 16

1st order: Simple consistency between each activity

2nd. Activites are re-inforcing [i.e. Neutrogena keeping their branding when provided at hotels; Bic pens multiple re-relases to trigger impulse purchase]
3rd. Optimization of Effort: It goes beyond the activity itself. Coordination and information exchange across activities to eliminate redundancy and minimize wasted effort are the most basic types. Higher levels are into product design choices

2nd and 3rd order fits are key to sustainability

In all three, competitive advantage grows out of the ENTIRE SYSTEM.

Question 17

What are some other points are strategy?

Answer 17

• Often times, finding a new strategic position is preferable to being the second or third imitator to a occupied position
• Strategic positions should have an horizon of a decade or more, not a single planning cycle.
• Frequent shifts in positioning are costly.

Question 18

Why companies fail at strategy?

Answer 18

1. Failure to choose - Althoguh external changes can be the problem, the greater threat to strategy often comes from within. A sound strategy is undermined by a misguided view of competition, by organizational failures, and especially the DESIRE TO GROW |
2. Pursuit of operational effectiveness is seductive because it is concrete and actionable
3. When companies OPERATE FAR FROM THE PRODUCTIVITY FRONTIER, it can seem that a well-run company should be able to beat its ineffective rivals on all dimensions simultaneously, assuming no need for TRADE-OFFS
4. Caught in the mindset of operational effectiveness, managers do not understand the need for strategy
5. “The Growth Trap” Trade-offs appear to constrain growth! Serving one group of customers and excluding others places a real or imagines limit on revenue growth. Broadly targetted strategies emphasizing low price result in lost sales or services with customers SENSITIVE TO FEATURES OR SERCIES. Differentiators lose sales to price-sensitive customers.

Question 19

What are good question to reconnect to your strategy?

Answer 19

• Which of our product or service variety are the most distinctive?
• Which of our product or service varieties are the most profitable?
• Which of our customers are most satisfied?
• Which customers, channels, or purchase occasions are the most profitable?
• Which of the activities in our value chain are the most different and effective?

Question 20

What approaches to growth preserve and reinforce strategy?

Answer 20

Those concentrated in deepening a startegic position rather than broadening and compromising it.

Look at extensions of the strategy that leverage the existing activity system.

A company can often grow after and - and far more profitably - by better penetrating needs and varieties where it is distinctive than by slugging it out in potentially higher growth arenas IN WHICH THE COMPANY LACKS UNIQUENESS.

Question 21

World trends tha reinforce the focused startegy approach?

Answer 21

• Globalization often allows grwoth that is consistent with strategy, opening large markets for a focused strategy
• Strong leaders must be willing to make decisions, trade-offs
• Managers at lower levels lack the perspective and the confidence to maintain the strategy
• Strtegy, what to do is AS important as what NOT to do. Leadership must set limits,
• Strategic continuity does not imply a static view of competition. A company must continually improve its operational effectiveness and actively try to shift the PRODUCTIITY FRONTIER, At the same time, there needs to be ongoing effort to extend its UNIQUENESS while strengthening the FIT AMONG ACTIVITIES.