What Is Strategy By Michael Porter

Operational Effectiveness is not Strategy

Operational effectiveness means to perform the company’s activities (create produce, sell and distribute; basic units of competitive advantage) better than rivals perform them in order to deliver greater value to customers or create comparable value at a lower cost, or do both. Cost advantages arise from performing these activities more efficiently than competitors using available technologies, skills, management techniques and purchased inputs; reaching this way the maximum value a company can deliver (Productivity frontier).

However, due to the rapid diffusion of the best practices & technologies, everyone’s PPF is shifted leading to relative improvement for no company; customers and suppliers keep gains. In addition to that, benchmarking carries to homogeneity; the more that rivals imitate other’s improvements (quality, cycle times, outsourcing from effective third parties), the more the strategies converge. As result, OE is not sufficient to achieve superior probabilities; competition based on OE alone is destructive. OE must not supplant Strategy

Principles of strategic positioning

1.Strategy Rest on Unique Activities (Creating unique and valuable position)

Competitive strategy is about being different; choosing a different set of activities or performing activities differently. There are 3 different strategic positions/sources: variety based position (choosing a product to serve a wide array of customers, but meeting only one of their needs), needs based positioning (targeting a customer segment and serving them differently) and access-based positioning (segmenting customers who are accessible in different ways due to its geography or scale ). Whatever the basis, positioning requires tailoring activities. Strategy is the creation of a unique and valuable position involving different activities.

2.A sustainable strategic position requires trade-offs (Chose what no to do; gains in one area can be achieved at the expense of another area)

Choosing a unique position is not enough there must be trade-offs. A common mistake is trying to imitate another company valuable position without leaving its own position (straddle), which will lead to inconsistence in image and reputation and destroying value by overdesigned or under designed activities for its use; different positions require different product configuration (activities). Trade offs create the need for choice and limit what a company offers; increasing this way it productivity. Strategy essence is choosing what no to do.

3.Fit drives both, competitive advantage ad sustainability (How the activities interact and reinforce one another)

OE means excellence in one activity, strategy means creating competitive advantage from a complete system of activities, its about combining activities. Fit is important because as discreet as

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