HBR’s Must-Reads on Strategy
Michael E. Porter
What is strategy
Operitional effectivines is not strategy
Leaders have been around for almost two decades learned to play with the new rules. Companies need to be flexible in responding quickly to market changes. They must constantly compare other companies for best practices. They must outsource aggressively to achieve efficiency. And they need to nurture a few core abilities to stay ahead of the competition. At the heart of the problem is the inability to distinguish between operational efficiency and strategy. (Porter, 1996, 4).
If all companies would be the same customers and the same functions. To be specific if there was only one ideal position there would be no need for a strategy, but mere operational efficiency would make the difference. Operational effectiveness means performing similar activities better than rivals perform them. (Porter, 1996, 5).
Differences in operational efficiency across companies are pervasive. Some companies are able, to get more out of their efficiency than others by eliminating wasted work, using more advanced technology, motivating employees better or have a better understanding control of specific activities or groups of activities. Such differences in operational efficiency are an important source of disparity between competitors because they directly affect costs and bring business benefits. (Porter, 1996, 5).
Strategy Rests on Unique Activities
In his article (1996, 10-11), Porter defines the concept of strategy as follows. The strategy is to create a unique and valuable position. To be exact the essence of strategy is choosing to perform activities differently than rivals do and maintain that advantage. In addition, Porter emphasizes that also defining what a company does not do is very important. This creates trade-offs and with these the company needs to be careful. If there were no alternatives, there would be no choice to make and no need for a strategy.
Porter defines (1996, 6) that competitive strategy means diversity. It means deliberately choosing different activities to create a unique mix of value.
For example, the Southwest Airlines Company, offers short distance, low cost, point to point flights between medium-sized cities and smaller airports in large cities. The company avoids major airports and don’t fly long distances. It is targeted at business travelers, families and students. Frequent departures and flights low prices attract price-sensitive customers who otherwise would travel by bus or car, and comfort-oriented passengers who choose a full-service airline on other routes. (Porter, 1996, 6-7.)
Ikea also has a clear strategy. Ikea focuses its selection on young people who want to stylish furniture at a great price. Ikea has also clearly defined its strategy for how it will stand out from its competitors. Imagine for a moment a typical furniture store. Exhibition rooms display samples of goods. One area can contain 25 sofas and the other five dining tables. But these products represent only a fraction of the options available customers. Dozens of books with fabric color schemes or wood samples or alternative styles to offer our customers thousands of product types where to choose. Salespeople often get customers through the store by answering questions and help them navigate this maze of choices. Once the customer has made a choice, place an order transmitted to a third-party manufacturer. With good luck, the furniture will be delivered to the customer’s home within six to eight weeks. this is a value chain that maximizes customization and service, but they will pay high cost for that. (Porter, 1996, 7.)
Ikea, in turn, serves customers who will be happy to switch to a lower price. Instead of having a sales rep follow customers around Ikea will have self-service model their stores. Ikea designs instead of third parties Ikeas own low-cost, self-assembling furniture collection. In their huge stores, every product sold by Ikea looks like a home layout, so customers don’t need a decorator to help them imagine what a room might look like. Next to the furnished showrooms is the warehouse where the products are in the boxes on a shelf. Customers are expected to do pick-up and delivery, and Ikea even sells the roof structure for your car so you can take your goods home and return your purchases if necessary. (Porter, 1996, 8.)
In his article Porter firmly states that companies that try to be everything for every customer cause confusion when employees try to make daily decisions without a clear framework.
A Sustainable Strategic Position Requires Trade-offs
However, choosing a unique position is not enough to secure a lasting benefit. A valuable position attracts competitors who are likely to copy it in two ways. First, the competitor may reassess their position to respond to you. J.C. Penney, for example, has shifted back from clone goods to more expensive, fashion-oriented soft goods retailing. Another and the much more common type of imitation is straddling. The straddle seeks in a successful position while retaining current location. For example, it transfers new technology to its already existing services. (Porter, 1996, 10-11.)
Fit Drives Both Competitive Advantage and Sustainability
The choice of position is influenced not only by what the company does and how it is carried out. Not only how it defines individual actions, but also how actions are related. While operational efficiency means achieving excellence in individual activities or activities, the strategy is to combine operations. (Porter, 1996, 12.)
In the final paragraph of the article Porter go through (1996, 17) the next riddle. Why do so many companies have no strategy? Why do leaders avoid making strategic choices? Or are have done strategy in the past but often let the strategy degenerate and blur? Usually, strategy threats are seen outside the company as technology and competitor behavior change. While external changes can be a problem, the greater the threat to strategy often comes from inside. Well done strategy is weakened because the competitive situation of the market is not updated. Organizational failures are not encountered and especially company have lost desire to grow.