I made a short summary (with some additions of my own) of a great article in the Harvard Business Review from 1996 that provides an intelectual framework for how to think about strategy. Link to full HBR article found in the presentation.

1. What is Strategy?
Summary (with my additions) from the
Harvard Business Review
November - December 1996
http://www.ipocongress.ru/download/guide/article/what_is_strategy.pdf

2. 1. Operational Effectiveness
Is Not Strategy

3. 1. Operational Effectiveness
Is Not Strategy
• Examples of operational effectiveness (OE) in Software/SaaS:
Lean, Agile, Cloud, etc.

4. 1. Operational Effectiveness
Is Not Strategy
• Examples of operational effectiveness (OE) in Software/SaaS:
Lean, Agile, Cloud, etc.
• OE creates only temporary relative benefit since best
practices is quickly adopted by competitors.

5. 1. Operational Effectiveness
Is Not Strategy
• Examples of operational effectiveness (OE) in Software/SaaS:
Lean, Agile, Cloud, etc.
• OE creates only temporary relative benefit since best
practices is quickly adopted by competitors.
• As the industry advances in OE, competition is based mainly
on price and creating a rat race that don’t benefit the
companies, only it’s customers.

6. 1. Operational Effectiveness
Is Not Strategy
• Examples of operational effectiveness (OE) in Software/SaaS:
Lean, Agile, Cloud, etc.
• OE creates only temporary relative benefit since best
practices is quickly adopted by competitors.
• As the industry advances in OE, competition is based mainly
on price and creating a rat race that don’t benefit the
companies, only it’s customers.
• Hence, OE is important/necessary but not enough to sustain a
competitive advantage

7. 1. Operational Effectiveness
Is Not Strategy
• Examples of operational effectiveness (OE) in Software/SaaS:
Lean, Agile, Cloud, etc.
• OE creates only temporary relative benefit since best
practices is quickly adopted by competitors.
• As the industry advances in OE, competition is based mainly
on price and creating a rat race that don’t benefit the
companies, only it’s customers.
• Hence, OE is important/necessary but not enough to sustain a
competitive advantage
• A company can outperform it’s rivals in the long run only if it
can establish a difference that it can preserve.

8. 2. Strategy Rests on
Unique Activities

9. 2. Strategy Rests on
Unique Activities
• The essence of strategy is choosing to perform
activities differently than rivals do.

10. 2. Strategy Rests on
Unique Activities
• The essence of strategy is choosing to perform
activities differently than rivals do.
• Note: OE is about performing an activity more
efficient, not differently.

11. 2. Strategy Rests on
Unique Activities
• The essence of strategy is choosing to perform
activities differently than rivals do.
• Note: OE is about performing an activity more
efficient, not differently.
• Strategic positions can be based on customers
needs, customers accessibility or the variety of a
company’s products or services.

12. 2. Strategy Rests on
Unique Activities
• The essence of strategy is choosing to perform
activities differently than rivals do.
• Note: OE is about performing an activity more
efficient, not differently.
• Strategic positions can be based on customers
needs, customers accessibility or the variety of a
company’s products or services.
• Example: Southwest Airlines vs. any full service
Airline

13. 3. A Sustainable Strategic
Position Requires Tradeoffs

14. 3. A Sustainable Strategic
Position Requires Tradeoffs
• Tradeoffs are essential to strategy. They create the need
for choice and purposefully limit what a company offers.

15. 3. A Sustainable Strategic
Position Requires Tradeoffs
• Tradeoffs are essential to strategy. They create the need
for choice and purposefully limit what a company offers.
• If your strategy does not require tradeoffs it can too
easily be imitate/copy.

16. 3. A Sustainable Strategic
Position Requires Tradeoffs
• Tradeoffs are essential to strategy. They create the need
for choice and purposefully limit what a company offers.
• If your strategy does not require tradeoffs it can too
easily be imitate/copy.
• E.g:

17. 3. A Sustainable Strategic
Position Requires Tradeoffs
• Tradeoffs are essential to strategy. They create the need
for choice and purposefully limit what a company offers.
• If your strategy does not require tradeoffs it can too
easily be imitate/copy.
• E.g:
• Low prices, versus high service

18. 3. A Sustainable Strategic
Position Requires Tradeoffs
• Tradeoffs are essential to strategy. They create the need
for choice and purposefully limit what a company offers.
• If your strategy does not require tradeoffs it can too
easily be imitate/copy.
• E.g:
• Low prices, versus high service
• Small specific customer group, versus mass market

19. 3. A Sustainable Strategic
Position Requires Tradeoffs
• Tradeoffs are essential to strategy. They create the need
for choice and purposefully limit what a company offers.
• If your strategy does not require tradeoffs it can too
easily be imitate/copy.
• E.g:
• Low prices, versus high service
• Small specific customer group, versus mass market
• Sold in small exclusive stores versus everywhere

20. 3. A Sustainable Strategic
Position Requires Tradeoffs
• Tradeoffs are essential to strategy. They create the need
for choice and purposefully limit what a company offers.
• If your strategy does not require tradeoffs it can too
easily be imitate/copy.
• E.g:
• Low prices, versus high service
• Small specific customer group, versus mass market
• Sold in small exclusive stores versus everywhere
• Note: If you can have both it’s not a tradeoff!

21. 4. Fit Drives Both Competitive
Advantage and Sustainability

22. 4. Fit Drives Both Competitive
Advantage and Sustainability
• Fit: The activities in a system reinforce and complement one another.

23. 4. Fit Drives Both Competitive
Advantage and Sustainability
• Fit: The activities in a system reinforce and complement one another.
• Types of fit (three types):

24. 4. Fit Drives Both Competitive
Advantage and Sustainability
• Fit: The activities in a system reinforce and complement one another.
• Types of fit (three types):
• First order: Simple consistency. I.e.The advantage of activities
cumulate rather than erode.

25. 4. Fit Drives Both Competitive
Advantage and Sustainability
• Fit: The activities in a system reinforce and complement one another.
• Types of fit (three types):
• First order: Simple consistency. I.e.The advantage of activities
cumulate rather than erode.
• Second order: Activities are reinforcing each other. E.g. position or
branding lowers marketing cost.

26. 4. Fit Drives Both Competitive
Advantage and Sustainability
• Fit: The activities in a system reinforce and complement one another.
• Types of fit (three types):
• First order: Simple consistency. I.e.The advantage of activities
cumulate rather than erode.
• Second order: Activities are reinforcing each other. E.g. position or
branding lowers marketing cost.
• Third order: Optimization of effort.

27. 4. Fit Drives Both Competitive
Advantage and Sustainability
• Fit: The activities in a system reinforce and complement one another.
• Types of fit (three types):
• First order: Simple consistency. I.e.The advantage of activities
cumulate rather than erode.
• Second order: Activities are reinforcing each other. E.g. position or
branding lowers marketing cost.
• Third order: Optimization of effort.
• Fit in strategy is generally considered more important than focus on
“core competences”, “critical resources”, “key success factors” etc.

28. 4. Fit Drives Both Competitive
Advantage and Sustainability
• Fit: The activities in a system reinforce and complement one another.
• Types of fit (three types):
• First order: Simple consistency. I.e.The advantage of activities
cumulate rather than erode.
• Second order: Activities are reinforcing each other. E.g. position or
branding lowers marketing cost.
• Third order: Optimization of effort.
• Fit in strategy is generally considered more important than focus on
“core competences”, “critical resources”, “key success factors” etc.
• Fit locks out imitators by creating a chain that is as strong as its
strongest link.

29. 5. Rediscovering
Strategy

30. 5. Rediscovering
Strategy
• A common reason for lack of strategy: The failure to choose

31. 5. Rediscovering
Strategy
• A common reason for lack of strategy: The failure to choose
• Major threat comes from inside: Managers not willing to make
(or keep) tradeoffs.

32. 5. Rediscovering
Strategy
• A common reason for lack of strategy: The failure to choose
• Major threat comes from inside: Managers not willing to make
(or keep) tradeoffs.
• The growth trap: The desire to grow often lead to dilution of the
strategy. E.g. broadening of market or product line (less tradeoffs)

33. 5. Rediscovering
Strategy
• A common reason for lack of strategy: The failure to choose
• Major threat comes from inside: Managers not willing to make
(or keep) tradeoffs.
• The growth trap: The desire to grow often lead to dilution of the
strategy. E.g. broadening of market or product line (less tradeoffs)
• Abandoning a strategy to benefit growth can lead to higher
revenue but commonly only short term profit growth.

34. 5. Rediscovering
Strategy
• A common reason for lack of strategy: The failure to choose
• Major threat comes from inside: Managers not willing to make
(or keep) tradeoffs.
• The growth trap: The desire to grow often lead to dilution of the
strategy. E.g. broadening of market or product line (less tradeoffs)
• Abandoning a strategy to benefit growth can lead to higher
revenue but commonly only short term profit growth.
• Profitable growth: Deepen a strategic position rather than
broadening and compromising it. Find more activities or
extensions that fit current activities and does not fit competitor
activities.

35. Summary and notes

36. Summary and notes
• Operational effectiveness is necessary but not sufficient for sustainable
competitive advantage.

37. Summary and notes
• Operational effectiveness is necessary but not sufficient for sustainable
competitive advantage.
• Strategy is the creation of a unique and valuable position, involving a
different set of activities.

38. Summary and notes
• Operational effectiveness is necessary but not sufficient for sustainable
competitive advantage.
• Strategy is the creation of a unique and valuable position, involving a
different set of activities.
• If there were only one ideal position, there would be no need for strategy.

39. Summary and notes
• Operational effectiveness is necessary but not sufficient for sustainable
competitive advantage.
• Strategy is the creation of a unique and valuable position, involving a
different set of activities.
• If there were only one ideal position, there would be no need for strategy.
• An important element of strategy is making tradeoffs in how to compete.
Equally important as choosing what to do is choosing what not to do.

40. Summary and notes
• Operational effectiveness is necessary but not sufficient for sustainable
competitive advantage.
• Strategy is the creation of a unique and valuable position, involving a
different set of activities.
• If there were only one ideal position, there would be no need for strategy.
• An important element of strategy is making tradeoffs in how to compete.
Equally important as choosing what to do is choosing what not to do.
• Fit among activities further reinforces the strategy and makes it much
harder to copy.

41. Summary and notes
• Operational effectiveness is necessary but not sufficient for sustainable
competitive advantage.
• Strategy is the creation of a unique and valuable position, involving a
different set of activities.
• If there were only one ideal position, there would be no need for strategy.
• An important element of strategy is making tradeoffs in how to compete.
Equally important as choosing what to do is choosing what not to do.
• Fit among activities further reinforces the strategy and makes it much
harder to copy.
• The success of strategy depends (contrary to popular belief) on doing
many things well - not just a few - and integrating among them.

42. IKEA Activity Map
with high level of fit
(Simplifed)
High-traffic
Self- Suburban store layout
transport by locations with
customer amble parking
More
impulse
Explanatory buying
catalogues, Limited Self-selection by
informative
displays and customer service customers
labels
Limited sales
staffing
Ease of Ample
Self-assembly Most items in
transport and inventory on
by customers inventory
assembly site
Low
Modular
“Knock- manufacturing
furniture design
down” kit cost
packaging In-house
design focused
on cost of
manufacturing