WHAT IS STRATEGY Porter 1.

. Operational Effectiveness is NOT Strategy Companies today are more flexible to market changes, aim to achieve best practice, outsource to gain efficiencies and maintain CORE competencies to stay ahead of rivals. Positioning, which was once at the heart of strategy, has been said to be too static for the changing markets, and that any competitive advantage based on position can be easily copied and is not sustainable. This is dangerous thinking! The issue is failing to distinguish between operational efficiencies and strategy. Firms face a quest for productivity, quality and speed. But these investments have not been translated into sustainable profits. These management tools have attempted to take the place of strategy and firms are moving away from having any kind of strategic advantage. Operational Efficiencies are necessary but NOT Sufficient for Strategy A firm has a competitive advantage if it can establish a difference it can preserve high value or low costs. Profits occur when great value allows a higher price, Greater efficiencies and lower average unit costs. Cost advantages occur when a firm performs activities more efficiently than competitors known as OE (operational effectiveness). Differentiation arises from ALL the activities chosen, and how they are performed. NOTE: OE is the efficiency of activities performed while STRATEGY means performing DIFFERENT activities in different ways. OE means removing waste, motivated employees, advanced IT and greater insight to affect cost positions. OE was introduced when Japan was ahead of rivals due to low cost processes and high value products through processes of total quality management and continuous improvement. BUT these best practices are EASILY COPIED. As competitors in the industry adopt these OE practices, the productivity frontier the max value a company can deliver at a given cost , IT, skills and management techniques will shift outward lowering ALL costs and improving ALL value. This means absolute improvement for all, but no relative improvement for any one firm. There is increased outsourcing to perform all activities as efficiently as specialists can.

OE will achieve high profits, but this is not sustainable due to the rapid diffusion of best practices. Competitors can imitate techniques, IT, input improvements and the superior ways of meeting customers needs. The bar is raised for all competitors. The 2nd reason OE is insufficient is competitive convergence- where all companies become indistinguishable from one another the more benchmarking and outsourcing they do (as the activities become generic). The result is high OE leads to less focus on strategy a zero sum game. 2. Strategy Rests on Unique Activities Strategic positioning attempts to achieve a SUSTAINABLE competitive advantage by focusing on distinctive capabilities of the firm (i.e. different activities, or the same activities performed in different ways). Strategy is about being different with unique activities delivering a unique mix of value. For example: Southwest Airlines (in SA, our example would be the start of the low cost carrier Kulula) operating in a different area to all other airline companies (see Blue Ocean Strategy coming in here); or IKEA who have a tailored set of activities very different from competitors. Strategic positions can sometime not be obvious positions, can be a result of a change in the market, or can be new and unique positions altogether targeting a new customer market that was previously untargeted, based on distinctive capabilities of the firm. The origins of strategic positions 1. Variety Based Positioning - Strategic positioning can be based on producing a subset of an industries products differently with distinctive capabilities. This attracts a wide array of customers and satisfies only a subset of their needs. 2. Needs Based Positioning serving most of the needs of a customer group (activities are tailored to best meet the needs of differing customer groups). Meeting these different needs, means using a different set of activities and capabilities. 3. Access Based Positioning - segmenting customers who are accessible in different ways and different activities are needed to reach the different customer groups (who have similar needs). Examples include: small versus large, dense versus sparse and rural versus urban. Strategic positioning always requires a different set of activities or capabilities to meet the needs of customers in a different way to competitors. STRATEGY is thus the creation of a unique and valuable position, involving a different set of activities from rivals. 3. A Sustainable Strategic Position Requires Trade-Offs A valuable position is not sustainable alone as it will attract competitors who are likely to copy it in 2 ways: 1. Reposition itself to match the superior performer and improve on their positioning

2. Straddling seeking to match the benefits of the successful position while maintaining its existing position Example in SA SAA staying a full-service carrier but also offering a low cost alternative like Kulula A strategic position is not sustainable unless there are trade-offs with other positions. This is the need for choice amongst incompatible activities to prevent repositioners and straddlers. Trade offs limit what a company offers. Trade -offs arise for three reasons: 1. Inconsistencies in image or reputation a supplier known for a certain value will confuse customers by re-positioning to a new value. 2. In activities themselves as different positions require many different activities 3. Limits on internal coordination and control managers have made priorities clear in accordance with position and when firms try to do it all, there will be confusion as employees attempt to work with no prioritized framework. With increasing OE, managers believe eliminating trade-offs is a good thing. But without trade-offs there is no sustainable competitive advantage and firms will just need to work harder and harder to keep up with positioning on all levels. NOTE strategy is choosing what NOT to do. 4. Fit Drives Both Competitive Advantage and Sustainability Importantly strategic positioning determines how all of these activities relate and fit together. OE is about best practice in activities individually, while strategy is about all activities combined as a system of activities rather than a collection of parts. FIT locks out competitors by creating a chain of activities that are strong. All activities together enhance value to the customer. Fit is NB as discrete activities affect one another. The most valuable fit is strategy specific as it enhances position and trade-offs. There are three types of fit: 1. Simple consistency this ensures the competitive advantages of all activities accumulate and do not cancel each other out. This improves communication and implementation through singlemindedness in the firm. 2. Fit when activities are reinforcing the combination of activities creates far more profitability that the sum of all the parts. 3. Optimization of effort coordination and information exchanges across activities eliminate redundancies and wasted effort Competitive advantage grows out of t he whole system of activities. Fit reduces cost and increases differentiation. (Note, you can MAP activity systems using a mind map like structure to show the networked process). Fit and Sustainability Fit not only affects the advantage but the sustainability of the competitive advantage as it is harder for a rival to imitate interlocked activities. The more 2nd and 3rd order fits there are in a firm, the more

sustainable their competitive advantage will be. Fit ALSO provides pressures and incentives to improve OE, which makes imitation even harder. Thus, STRATEGY is creating fit amongst activities to create a distinctive sustainable strategy. 5. Rediscovering Strategy The failure to choose Commonly threats to strategy come from outside, in competition and changing markets BUT also from within when firms fail to make strategic choices. Operational efficiencies is seductive, but the profits are not sustainable as there is a need to face trade-offs. Hyper-competition (where firm compete on all grounds) is not sustainable. Some firms mistake customer focus to mean meeting all needs rather than focusing on distinctive capabilities and meeting a few needs well. Failure to choose also comes from fear of disappointment or failure. The growth trap Trade-offs and limits constrain growth and the desire to growth thus adversely affects strategy. Compromises in strategy in the pursuit of growth erode the competitive advantage they once offered customers. Profitable Growth In search of profitability, firms seek growth which blurs uniqueness, creates compromises, reduces fit, and undermines the advantage. But one can grow by DEEPENING the strategic position rather than blurring and widening it. One approach can be to leverage their already existing systems with complementary activities in the positioning strategy. Deeping means making activities more distinct, strengthening fit and communicating the value strategy to customers. Instead of expanding locally, going global will deepen the positioning. The role of Leadership Strategy depends on leadership and making clear trade-offs, communicating the value position, separate OE from strategy and communicate strategy clearly, improving activity fit and providing a guided framework for activities. Leaders also decide which industry changes to respond to as the market changes. Strategic continuity must be put in place where continuous improvements are made to OE, fit and strategies.