Operational Effectiveness (OE) is not Strategy ?

OE and Strategy are both essential to obtain superior

performance, but a company can outperform rivals only if it can
establish a difference that it can preserve.

Managers have been preoccupied with improving operational
effectiveness through programs such as:
TQM
Time based competition
Benchmarking
Results in the short run:
costs + prices = profitability
OE is necessary but not sufficient: Weaknesses
1. Competitors can quickly imitate management techniques,
technologies, input improvements and superior ways to meet
customers needs.
Eg: Japanese companies (1970-1990) enjoyed substantial cost &
quality advantages (productivity frontier). Now they need to learn
strategy.

2. Competitive Convergence: The more the rivals outsource
activities, the more generic those activities.
Rivals can quickly copy any market position.
Competitive advantage is temporary.
Rivals imitate the improvements in quality, cycle times or supplier
partnerships.
OE is necessary but not sufficient: Weaknesses
Gradually, managers have let OE supplant
strategy. The results are:


Zero-sum competition
Static or declining prices
Pressure on cost that compromise companys ability to
invest in the business for the long-term




Strategic Positions
The essence of strategy is choosing to perform activities different
from rivals.

Strategic positions are often not obvious and finding them requires
creativity and insight.

New entrants often discover unique positions that have been
available but overlooked by established competitors.
E.g.: IKEA, ,Southwest Airlines
The Origins of Strategic Positions
Companies can obtain strategic position in
three ways (not mutually exclusive):

1. Variety-based positioning
2. Needs-based positioning
3. Access-based positioning

1. Variety-Based Positioning
Based on the choice of product or service varieties rather than
customer segments.




This position can serve a wide array of customers but it will
primarily will meet only a subset of their needs.
E.g.: The Vanguard Group
2. Needs- Based Positioning
Based on targeting a segment of customers.





This position is not that obvious if companies consider the
difference in needs and the range of activities that should differ
between the segments.
E.g.: Edward Jones
3. Access- Based Positioning
Based on the importance of accessing the product/service.






Access can be a function of customer geography or anything that
requires a different set of activities to reach customers in the best
way
E.g.: Amazon.com
Positioning & Strategy
Positioning : requires a tailored set of activities
(based on variety, needs, access or a combination of
them) because it is always a function of
DIFFERENCE.

Strategy : is the creation of a unique and valuable
position involving a different set of activities.
The essence is to choose activities that are different from
rivals.
Important Concepts
Positioning trade-offs are pervasive in competition and essential to
strategy.

Trade-offs create the need for choice and purposefully limit what a
company offers.

Positioning determines also how activities relate to one another.

Strategy is combining activities.

Competitive advantage comes from the way activities fit and reinforce one
another.

Strategic fit = competitive advantage + superior profitability

Type of Fits
1. Create consistency between each activity or function and the
overall strategy.

2. Create activities that are reinforcing.

3. Optimize efforts with coordination and information exchange to
eliminate redundancy and minimize wasted efforts.

Competitive advantage grows out of the entire system of activities.

The fit among activities substantially reduces cost or increase
differentiation.
Strategic Position (SP): Fit and Sustainability
Strategic fit among many activities is essential to the sustainability of
the competitive advantage.

Positions built on systems of activities are more sustainable than
those built in individual activities (OE).





When activities complement one another, rivals will get little benefit
from imitation unless they successfully match the whole system.

Strategic Position (SP): Fit and Sustainability
SP sets the trade-off rules that defines how individual
activities will be integrated.

SP should have a long-term horizon of a decade or more,
not a single planning cycle.

The success of strategy is doing many things well and
integrating them among them.

Why many companies do not have a strategy?
Leaders have the idea that making trade-offs is a sign of
weakness and do not understand the need of it.

Pursuing OE is easier to attain because is concrete and
actionable.

Companies imitate one another assuming that rivals have
something they do not.

Trade-offs and limits appear to constrain growth. However,
compromise and inconsistencies in the pursue of growth may
erode a competitive advantage.
What should companies and leaders do ?
They should reevaluate their strategies and challenge themselves to
start over.

They should refocus on the unique core and realign the companies
activities with it.

Evaluate the vision of the founder and reexamine the original
strategy.

Leaders should be in charge of defining and communicating the
companys unique position, making trade-offs and forging it among
activities.