Michael Porter
HBR
November/December 1996
The Basics
Strategy: the creation of a unique and
valuable position involving a unique set of
activities; being different
Activities: the basic units of competitive
advantage
Competitive Advantage: grows out of the
entire system of activities; capacity to
outperform rivals by establishing a
difference it can preserve over time
The Basics - 2
Differentiation: created by the choice of
activities and how well performed
Strategic Positioning: means performing
different activities from rivals or
performing similar activities in different
ways
Operational Effectiveness (OE): means
performing similar activities better than
rivals
Superior Profitability
Delivering greater value allows a company
to charge higher average unit prices; greater
efficiency results in lower average unit
costs
Differences in operational effectiveness
(OE) are importance differentiators in
profitability among rivals as OE directly
affects relative cost positions and levels of
differentiation.
Productivity Frontier
Sum of all best practices at a given time
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.
Productivity Frontier - 2
OE Programs
TQM
Time-based
Competition
Benchmarking
Learning Organization
Outsourcing
Empowerment
Continuous
Improvement
Virtual Organization
Forms
Best Practices
SQC
Change Management
Competitive Convergence
The more rivals copy and imitate OE best
practices the more they begin to look the
same.
Leads to imitation (consultants as seed
sowers) and homogeneity.
OE imitation leads to strategy convergence
and competition becomes mutually
destructive leading to wars of attrition (loselose). Leads to M&A activity as end-game.
Competitive Strategy
Being different in the marketplace from
rivals
Deliberately choosing a different set of
activities to deliver a unique mix of value
The essence of strategy is in choosing to
perform activities differently, or to perform
different activities (or both), than rivals.
Strategic Positions
Strategic Positions - 2
Strategic Positions - 3
Access-based: segmenting customers who
are accessible in different ways; access can
be a function of customer scale or
geography - anything that requires a
different set of activities to reach customers
in the best way.
All positioning is a function of differences
on the supply (activity) side but not
necessarily on the demand (customer) side.
Strategic Positions - 4
Sustainability of position requires trade-offs
Trade-offs occur when activities are
incompatible; more of one thing requires
less of another
Trade-offs arise for 3 reasons:
Sustainable Competitive
Advantage
Unique position does not guarantee a
sustainable competitive advantage
Valuable position attracts imitators based
on:
Sustainable Competitive
Advantage - 2
Sustainable Competitive
Advantage - 3
The essence of strategy is choosing what
not to do.
Without trade-offs, a sustainable
competitive advantage cannot be achieved.
Strategy is about combining activities
whereas OE is about excellence in
individual activities or functions.
Strategic Fit
Fit = seeing the company as a system not
just a collection of core competencies,
critical resources, and key success factors.
3 types of strategic fit (the whole matters
more than any individual part):
Role of Leadership
Focus on creating distinctiveness
Make tough decisions on trade-offs
Define the companys position
Manage the entire system to create fit
Focus on the long term
Stewardship of corporate strategy