Operational Effectiveness is Not Strategy The main problem is the failure to distinguish between operational effectiveness and strategy. Operational effectiveness- performing similar activities better than rivals. E.g: reducing defects in products Strategic positioning- performing different activities from rivals or performing similar activities in different ways. A company can outperform rivals only if it can establish a difference that it can preserve. Eg: Japanese companies rarely have strategy
Strategy Rests on Unique Activities Competitive strategy is about being different Essence of strategy is- choosing to perform activities differently or to perform different activities than rivals. Eg: Southwest Airlines- Short haul point to point Low cost No food Turnaround time Small Airports No agent commission
Strategic position emerge from 3 sources Variety-based positioning- producing a subset of an industry’s products or services. Eg: Jiffy Lube International specializes in automotive lubricants only Need- based positioning- serving most or all the needs of a particular group of customers. Eg: Ikea furniture meets all the home furnishing needs of its target customers Access- based positioning- Segmenting customers who are accessible in different ways. Access can be customer geography or customer scale. Eg: Amazon.com, accessing customers exclusively through internet
A sustainable strategic position requires trade-offs A strategic position is not sustainable unless there are trade-offs with other positions. Trade-offs occur when activities are incompatible. Trade-offs create the need for choice and protect against repositioners and straddlers.
Trade-offs arise for three reasons:1. Inconsistencies in image or reputation2. Trade-offs arise from activities themselves3. Trade-offs arise from limits on internal coordination and control Tradeoffs are essential to strategy. They create the need for choice and purposefully limit what a company offers.
Trade-offs add a new dimension to the definition of strategy Strategy is making trade-offs in competing. The essence of strategy is choosing what not to do. Without trade-offs, there would be no need for choice and thus no need for strategy
Fit drives both competitive advantage andsustainability The importance of fit among functional policies is one of the oldest ideas in strategy. Fit is important because discrete activities often affect one another. Three types of fit1. First-order fit is simple consistency between each activity (function)2. Second-order fit occurs when activities are reinforcing3. Third- order fit occurs when optimization of effort (reducing redundancy & waste)
Competitive advantage grows out of the entire system of activities. The fit among activities substantially reduces cost or increases differentiation Strategy is creating fit among a company’s activities. The success of strategy depends on doing many things well- not just a few and integrating among them.
Rediscovering to a successful strategy, not Profit is the key to Profit is the key strategy a successful strategy, not growth. Compromises and inconsistencies in the pursuit of growth will erode the competitive advantage a company. Keep an eye on profitable growth. The role of top management in an organization is: Defining an organization’s position and strategy Making trade-offs Forging fit among activities Building an innovation machine And strategy may have to change along with major structural changes in an industry -- flexibility is vitally important.