Competitive Positioning: The New Learning MASTER COPY (LONG LOOP)


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Competitive Positioning: The New Learning MASTER COPY (LONG LOOP)

  1. 1. Strategy: Creating Competitive Advantage for Growing Businesses Professor Michael E. Porter Harvard Business School National Small Business Week 2008 25, April, 2008 This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive Advantage (The Free Press, 1985); ―What is Strategy?‖ (Harvard Business Review, Nov/Dec 1996); ―Strategy and the Internet‖ (Harvard Business Review, March 2001); and a forthcoming book. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Michael E. Porter. Additional information may be found at the website of the Institute for Strategy and Competitiveness, Version: April 25, 2008, 12pm 20080425 – SBA - final.ppt 1 Copyright 2008 © Professor Michael E. Porter
  2. 2. How Managers Think About Competition COMPETING TO BE THE COMPETING TO BE UNIQUE BEST • The worst error in strategy is to compete with rivals on the same dimensions 20080425 – SBA - final.ppt 2 Copyright 2008 © Professor Michael E. Porter
  3. 3. Principles of Strategic Postitioning Differentiation (Higher Price) Competitive Advantage Lower Cost 20080425 – SBA - final.ppt 3 Copyright 2008 © Professor Michael E. Porter
  4. 4. Sources of Competitive Advantage The Value Chain Firm Infrastructure (e.g. Financing, Planning, Investor Relations) Human Resource Management Support (e.g. Recruiting, Training, Compensation System) Activities Technology Development (e.g. Product Design, Testing, Process Design, Material Research, Market Research) M Value Procurement a (e.g. Components, Machinery, Advertising, Services) r What g buyers are Inbound Operations Outbound Marketing After-Sales i willing to Logistics Logistics & Sales Service pay n (e.g. Incoming (e.g. Assembly, (e.g. Order (e.g. Sales (e.g. Installation, Material Component Processing, Force, Customer Storage, Data Fabrication, Warehousing, Promotion, Support, Collection, Branch Report Advertising, Complaint Service, Operations) Preparation) Proposal Resolution, Customer Writing, Web Repair) Access) site) Primary Activities • Competing in a business involves performing a set of discrete activities, in which competitive advantage resides 20080425 – SBA - final.ppt 4 Copyright 2008 © Professor Michael E. Porter
  5. 5. Achieving Superior Performance Operational Effectiveness is Not Strategy Operational Strategic Effectiveness Positioning • Assimilating, attaining, and • Creating a unique and extending best practices sustainable competitive position Run the same race faster Choose to run a different race 20080425 – SBA - final.ppt 5 Copyright 2008 © Professor Michael E. Porter
  6. 6. Five Tests of a Good Strategy • A unique value proposition compared to other organizations • A different, tailored value chain • Clear tradeoffs, and choosing what not to do • Activities that fit together and reinforce each other • Strategic continuity with continual improvement in realizing the strategy 20080425 – SBA - final.ppt 6 Copyright 2008 © Professor Michael E. Porter
  7. 7. Strategic Positioning Enterprise Rent-A-Car Distinctive Value Proposition Activities • Home-city replacement cars for drivers • Numerous, small, inexpensive offices in each whose cars are being repaired or who need metropolitan area, including on-premises offices at major accounts an extra vehicle, at low rates (30% below airport rates) • Open during daylight hours • Deliver cars to customers’ homes or rental sites, or deliver customers to cars • Acquire new and older cars, favoring soon-to-be discontinued older models • Keep cars six months longer than other major rental companies • In-house reservations • Grassroots marketing with limited television • Cultivate strong relationships with auto dealerships, body shops, and insurance adjusters • Hire extroverted college graduates to encourage community interaction and customer service • Employ a highly sophisticated computer network to track the fleet 20080425 – SBA - final.ppt 7 Copyright 2008 © Professor Michael E. Porter
  8. 8. Defining the Value Proposition What Which Customers? Needs? • What end users? • Which products? • What channels? • Which features? • Which services? What Relative Price? • A novel value proposition can grow the pie/expand the industry 20080425 – SBA - final.ppt 8 Copyright 2008 © Professor Michael E. Porter
  9. 9. Strategic Positioning IKEA, Sweden Distinctive Value Proposition Activities • Young, first time, or price-sensitive buyers who • Modular, ready-to-assemble, easy to package want stylish, space efficient and scalable designs furniture and accessories at very low price • In-house design of all products points. • Wide range of styles displayed in huge warehouse stores with large on-site inventories • Self-selection • Extensive customer information in the form of catalogs, explanatory ticketing, do-it-yourself videos, and assembly instructions • Ikea designer names attached to products to inform coordinated purchases • Long hours of operation • Suburban locations with large parking lots • On-site, low-cost, restaurants • Child care provided in the store • Self-delivery by most customers 20080425 – SBA - final.ppt 9 Copyright 2008 © Professor Michael E. Porter
  10. 10. Making Strategic Tradeoffs • Tradeoffs occur when strategic positions are incompatible – The need for a choice Sources of Tradeoffs – Incompatible product / service features or attributes – Differences in the best configuration of activities in the value chain to deliver the chosen value proposition – Inconsistencies in image or reputation across positions – Limits on internal coordination, measurement, motivation, and control • Tradeoffs make a strategy sustainable against imitation by established rivals • An essential part of strategy is choosing what not to do 20080425 – SBA - final.ppt 10 Copyright 2008 © Professor Michael E. Porter
  11. 11. Strategic Tradeoffs IKEA, Sweden IKEA Typical Furniture Retailer Product Product • Low-priced, modular, ready-to-assemble • Higher priced, fully assembled products designs • No custom options • Customization of fabrics, colors, finishes, and sizes • Furniture design driven by cost, • Design driven by image, materials, varieties manufacturing simplicity, and style Value Chain Value Chain • Centralized, in-house design of all products • Source some or all lines from outside suppliers • All styles on display in huge warehouse stores • Medium sized showrooms with limited portion of available models on display • Large on-site inventories • Limited inventories / order with lead time • Limited sales help, but extensive customer • Extensive sales assistance information • Long hours of operation • Traditional retail hours 20080425 – SBA - final.ppt 11 Copyright 2008 © Professor Michael E. Porter
  12. 12. Leveraging the Activity System Zara Apparel Word-of- Cutting- mouth Customers edge fashion marketing chic but at moderate and repeat cost- price and buying conscious quality Wide range of Global styles team of trend- spotters Very Majority Advanced of productio Little media frequent productio n advertising product machiner n in changes y Europe Extensive use of store Prime store sales locations in data high traffic Very areas Tight flexible coordination JIT delivery with 20 productio wholly-owned n system factories • Fit is leveraging what is different to be more different Source: Draws on research by Jorge Lopez Ramon (IESE) at the Institute for Strategy and Competitiveness, HBS 20080425 – SBA - final.ppt 12 Copyright 2008 © Professor Michael E. Porter
  13. 13. Strategic Continuity • Continuity of strategy is fundamental to sustainable competitive advantage – e.g., allows the organization to understand the strategy – building truly unique skills and assets related to the strategy – establishing a clear identity with customers, channels, and other outside entities – strengthening the fit across the value chain • Reinvention and frequent shifts in direction are costly and confuse the customer, the industry, and the organization • Maintain continuity in the value proposition • Successful companies continuously improve in how they realize their value proposition – Strategic continuity and continuous change should occur simultaneously. They are not inconsistent • Continuity of strategy allows learning and change to be faster and more effective 20080425 – SBA - final.ppt 13 Copyright 2008 © Professor Michael E. Porter
  14. 14. The Role of Leaders in Strategy • Lead the process of choosing the company’s unique position – The CEO is the chief strategist – The choice of strategy cannot be entirely democratic • Clearly distinguish operational effectiveness improvement and strategy • Communicate the strategy relentlessly to all constituencies – Harness the moral purpose of strategy • Maintain discipline around the strategy, in the face of many distractions. • Decide which industry changes, technologies, and customer needs to respond to, and how the response can be tailored to the company’s strategy • Measure progress against the strategy using tailored metrics that capture the implications of the strategy for serving customers and performing particular activities • Sell the strategy and how to evaluate progress to the financial markets • Commitment to strategy is tested every day 20080425 – SBA - final.ppt 14 Copyright 2008 © Professor Michael E. Porter