WHAT IS STRATEGY

MICHAEL PORTER
Presented By:

Syed Munawar Abbas-005

Arslan Rehman-008
Rai Bilawal-11
Muniba Tahreem-021
Bushia Tabassum

Presented To

Respected Professor Adam Mohydeen

11/8/15

CONTENT
I.

Operational Effectiveness Is Not Strategy

II.

Operational Efficiency
Competitive Strategy

Strategy Rests on Unique Activities

Origin of Strategic Position (3 Sources)

Variety /Need /Access-Based Positioning

III.

A Sustainable Strategic Position Requires Trade-offs

IV.

Fit Drives Both Competitive Advantage and Sustainability

V.

Rediscovering Strategy

External Challenges to Strategy

Traps for Shaping Strategy

SUMMARY
1.

Strategy is the creation of a unique and

valuable position, involving a different set
of activities.

2.

Strategy requires you to make trade-offs in

competingto choose what Not to do.

3.

Strategy involves creating fit among a

companys activities.

1- OE DOES NOT EQUAL STRATEGY

The main problem is the failure to distinguish between operational

effectiveness and strategy.

Operational effectiveness (OE) - productivity, speed, quality - and

strategy are both necessary for superior performance

Operational effectiveness- performing similar activities better than

rivals.
Example:

Reducing defects in products

Strategic positioning- performing different activities from rivals or

performing similar activities in different ways.

A company can outperform rivals only if it can establish a difference

that it can preserve.
Example:

Japanese companies rarely have strategy

PRODUCTIVITY FRONTIER

The maximum value that a firm can provide at a given cost using
best practices
As

OE improves within a firm, it moves closer to the productivity

frontier.

OE is necessary for superior profitability but not solely sufficient.

Rapid

diffusion of best practices reduces long-term impact of OE on

profitability.

OE competition pushes the productivity frontier outward

OE competition produces absolute improvement in firm

performance yet no relative improvement between surviving
competitors. Leads to self-inflicted wounds
Hyper-competition,

lower profitability.

zero-sum competition, static or declining prices and

MICHAEL PORTER'S "EFFICIENT

FRONTIER"
Low

A
Cost

Best Practice
on the Efficient
Frontier

Less Than
Best Practice
High
Low

Quality

High

Source: Adapted from Michael Porter, "What is Strategy? Harvard Business Review, November-December 1996

THE TWO NECESSARY ELEMENTS

FOR SUPERIOR PERFORMANCE

The primary Goal Superior Performance

Two

necessary element for superior performance

Operations Effectiveness [OE]

Benchmark competition, incorporate best
practices, improve productivity, build
efficiency

Competitive Strategy
About being different

OPERATIONS EFFICIENCY

Performing similar activities better than rivals

Promotes constant change: to achieve OE, need flexibility

Productivity Frontier (Best in class)

As

every one improves their OE, the frontier expands

OE keeps moving outward its a dynamic, ever- changing target

OE is important but it is not sufficient

There

is rapid imitation of Best Practices

Drives Competitive Convergence

Raises the bar for everyone (no advantage)
Homogeneity competitors start looking the same

2- Competitive
Strategy
is about
being
different

2- STRATEGY RESTS ON UNIQUE

ACTIVITIES
2- Competitive Strategy (is about being
different)
Deliberately

choosing a different set of activities

to deliver a unique mix of value

The

Essence of Strategy:

Choosing to perform activities differently than rivals

Example Southwest Airlines

Offers low-cost fares

for price-sensitive customers.

ORIGIN OF STRATEGIC
POSITIONS (3 SOURCES)
1.

Variety-Based Positioning
Subset

2.

of products (subset of members needs)

Example PSCU, vanguard

Need-Based Positioning
All

needs of activities of a specific group (segment) of

customers
The best set of activities to satisfy them differs

3.

Example Bessemer trust (@14 families > $5mm)

Citibank 1:125; $250k

Access- Based Positioning

Accessing

(geography) (small vs. large)

1.) Variety-based
1.) Variety-based Positioning
Positioning

2.) Needs-based positioning

2.) Needs-based positioning

3.) Access-based Positioning

Strategy is
The essence of strategic positioning is to choose activities
that are

different

from your rivals

BUILDING STRATEGY, YOU NEED TO

1.

Make the Trade Offs The more of one

thing means less of another

2.

Tighten the Fit Strategy is about

combining activities into a System

A sustainable strategic position

requires

TRADE-OFF

STRATEGY IS

The creation of unique and valuable positions,

involving a different set of activities
Different

than rivals (if there were only one position,

there would be no need for strategy)

BUT choosing a unique proposition is not enough!

Competition

can shift to match

Competition can straddle

Match the benefits of a successful position, while maintaining

its existing position

Repositioning =

Straddling =

BUILDING STRATEGY, YOU NEED TO

1- Make the Trade Offs The more of one
thing means less of another
Trade

offs arises for three reason

Inconsistence on image or reputation

Different positions require different machinery,
people, systems
Limits on internal coordination and control

Without

trade Offs there is a lot of Wasted

Effort Confusing Messages

Made trade-offs to its benefit!

STRATEGY IS

Making trade-offs in competing.

THE ESSENCE STRATEGY is choosing what not

to do
Without

trade offs, easy to copy (there is no

strategy)

4- Strategic FIT
Creating fit between a companys activities
doing many things well in an integrated way!

THREE TYPES OF FIT

1.

Simple Consistency
(cumulative power of integrated
system vs. erosion

2.

Reinforcing Activities
(supporting)

3.

Optimization of Effort
(coordination)

BUILDING STRATEGY, YOU NEED TO

2- Tighten the Fit
Strategy

is about combining activities into a

System
Southwest

= a whole collection of integrated

activities (not a collection of parts)

Quick gate turnaround, use same aircraft type, more

time in air
No seat assignments, no first class, no travel agents
No meals (expected peanuts!)
[For this to work, need all elements]

BUILDING STRATEGY, YOU NEED TO

Interlocked fit is hard to copy

If

a competitor wanted to copy your strategy, they

would have to change many activities

The more companys positioning rests on activity

system (with second and third order degree of
fit), the more sustainable the advantage

Organization structure, systems and processes

need to be strategy-specific

A 10 year horizon (vs. costly, frequent shifts)

5- Rediscovering Strategy:
Strategy Problems;
The Failure to Choose
The Growth Trap

EXTERNAL CHALLENGES

Although external changes be the problem,

the greater threat to strategy comes from
within!
Imitating

everything (not a choice)

Strategy Solutions:
Profitable
Growth
The Role of
Leadership

SOME TRAPS

Growth through compromise and

inconsistences - erodes the competitive
advantage
Should

concentrate on deepening your

competitive position

Making the companys activities more distinctive

Strengthening the fit
Better meet needs

LEADERSHIP IS

Defining and communicating

The

companys unique position

Making trade-offs and forging the fit among
activities.

Leaders must provide discipline (to say NO to

ideas and initiatives that do not fit your
strategy)!

MAIN IDEA

Thank you!
Questions???