Spp Prof Porter London Final
-
Upload
nirmala-last -
Category
Business
-
view
19 -
download
0
description
Transcript of Spp Prof Porter London Final
1 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Professor Michael E. PorterHarvard Business School
Leaders in LondonLondon, UK
November 29, 2007This 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, www.isc.hbs.edu. Version: November 26, 2007, 6pm
Getting Strategy Right
2 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
How Managers Think About Competition
COMPETING TO BE THE COMPETING TO BE THE BESTBEST
COMPETING TO BE THE COMPETING TO BE THE BESTBEST
COMPETING TO BE COMPETING TO BE UNIQUEUNIQUE
COMPETING TO BE COMPETING TO BE UNIQUEUNIQUE
• The worst error in strategy is to compete with rivals on the same dimensions
3 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Flawed Concepts of Strategy
• Strategy as action– “Our strategy is to merge…”
– “… internationalize…”
– “… consolidate the industry…”
– “… outsource…”
• Strategy as aspiration– “Our strategy is to be #1 or #2…”
– “Our strategy is to grow…”
– “Our strategy is to be the world leader…”
• Strategy as vision– “Our strategy is to meet our customers’ needs…”
– “… offer superior products…”
– “…to advance technology for mankind…”
4 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Setting the Right Goals
• The fundamental goal of a company is superior long-term return on investment
• Growth is good only if superiority in ROIC is achieved and sustained– ROIC threshold
• Profitability must be measured realistically, capturing the actual profits on the full investment
• Prevalent accounting adjustments to reported profitability (e.g., writeoffs, restructuring charges) can obscure true economic performance and lead to bad competitive choices
• Profitability metrics besides ROIC (e.g., return on sales; ebitda margin; pro-forma earnings; and cash flow margin) are risky for strategy
• Goodwill must be treated as part of investment
• Setting unrealistic profitability or growth targets can undermine strategy
5 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Economic Performance versus Shareholder Value
Economic Economic PerformancePerformanceEconomic Economic
PerformancePerformance Shareholder ValueShareholder ValueShareholder ValueShareholder Value
• Sustained ROIC
• Sustainable Revenue Growth
• Stock Price
• EPS
• EPS Growth
• Shareholder value is the result of creating real economic value
• Pleasing today’s shareholders is not the goal
6 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Economic Foundations of Competition
IndustryIndustryStructureStructureIndustryIndustryStructureStructure
Relative Position Relative Position Within the Within the
IndustryIndustry
Relative Position Relative Position Within the Within the
IndustryIndustry
- Overall Rules of Competition - Sources of Competitive Advantage
• The fundamental unit of strategic analysis is the industry− Defining the relevant industry is important to strategy
• Company economic performance results from two distinct causes
• Strategy must encompass both
7 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Disaggregating Economic Performance: Industry vs. Position
0%
5%
10%
15%
20%
25%
30%
35%
Reebok International Paccar
Return on Invested Capital
1985-2002
25.4%
30.8%
Note: ‘Invested capital less excess cash’ is the average of the beginning period and the ending period values. Excess cash is calculated by subtracting cash in excess of 10% of annual revenue.
Source: Compustat (2007), author’s analysis
31.4%
Industry Average
9.6%
8 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
AirlinesCatalog, Mail-Order Houses
HotelsKnitting Mills
Soft Drink BottlingOil and Gas MachineryLaboratory Equipment
Book PublishingEngines and Turbines
Bakery ProductsWine and Brandy
Mobile HomesCookies and Crackers
Iron and Steel FoundriesGrocery Stores
Drug StoresHousehold Furniture
Child Day Care ServicesMalt Beverages
Household AppliancesTires
Mens and Boys ClothingSurgical and Medical Instruments
SemiconductorsDistilled Spirits
Advertising AgenciesPerfume,Cosmetic,Toilet Prep
PharmaceuticalsPrepackaged Software
Soft DrinksSecurity Brokers and Dealers
Profitability of Selected U.S. Industries1992 - 2006
Return on invested capital, 1992 – 2006 average
ROIC = Earnings before interest and taxes divided by invested capital less excess
cash
Note: ‘Invested capital less excess cash’ is the average of the beginning period and the ending period values. Excess cash is calculated by subtracting cash in excess of 10% of annual revenue.
Source: Compustat (2007), author’s analysis
Average industry ROIC in the US:14.9%
9 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Determinants of Industry Profitability
Threat of SubstituteProducts or Services
Threat of New Entrants
Rivalry AmongExisting
Competitors
Bargaining Powerof Suppliers
Bargaining Powerof Buyers
10 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
WorstWorst
Shifting the Basis of Competition
Same Dimension(s)Same Dimension(s)(zero sum)(zero sum)
Different DimensionsDifferent Dimensions
PricePrice Non PriceNon Price
Homogeneity of Homogeneity of CompetitionCompetition
Dimensions of CompetitionDimensions of Competition
11 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Is There A Sixth Force?
• Industry growth rate
• Technology and innovation
• Government
• Complementary products and services
• Effect on profitability depends on how each attribute affects the five forces
12 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Strategic Implications of Industry Structure
• Large suppliers of engines and drive train components
Bargaining Power Bargaining Power of Suppliersof Suppliers
Bargaining Power Bargaining Power of Suppliersof Suppliers
Rivalry AmongExisting
Competitors
Rivalry AmongExisting
Competitors
Bargaining Powerof Buyers
Bargaining Powerof Buyers
Threat of New Threat of New EntrantsEntrants
Threat of New Threat of New EntrantsEntrants
Threat of SubstituteThreat of SubstituteProducts or Products or
ServicesServices
Threat of SubstituteThreat of SubstituteProducts or Products or
ServicesServices
• Many truck producers are assemblers
• Heavy price competition on standardized models
• Large fleets• Leasing companies• Owner operators
• Railroads• Water transportation
1. Positioning to Mute the Five Forces
Heavy Truck Industry
13 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Paccar Competitive Positioning
• Focus on owner-operators
• Design trucks with special features and amenities
• Customization and build-to-order
• Achieve low truck operating costs
• Offer extensive roadside assistance to truckers
14 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Strategic Implications of Industry Structure
Bargaining Power of Bargaining Power of SuppliersSuppliers
Bargaining Power of Bargaining Power of SuppliersSuppliers
Rivalry AmongExisting
Competitors
Rivalry AmongExisting
Competitors
Bargaining PowerBargaining Powerof Buyersof Buyers
Bargaining PowerBargaining Powerof Buyersof Buyers
Threat of New Threat of New EntrantsEntrants
Threat of New Threat of New EntrantsEntrants
Threat of SubstituteThreat of SubstituteProducts or ServicesProducts or ServicesThreat of SubstituteThreat of Substitute
Products or ServicesProducts or Services
• Food processors
• Food cooperatives
• Farmers
• Low barriers to entry
• Distributors–Purchasing–Warehousing–Delivery
• Restaurants
• Schools
• Hospitals
• Cafeterias
• Other food service establishments
• Go direct
• Use retail / warehouse channels
2. Shaping Industry Structure
Foodservice Distribution Industry
15 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Reshaping Industry StructureFoodservice Distribution
• Offering value-added services
• Offering private-label products
• Moving to national procurement contracts
• Increasing the use of sophisticated information technology
16 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Determinants of Relative Performance
Differentiation(Higher Price)
Lower Cost
CompetitiveAdvantage
CompetitiveAdvantage
17 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Economics of Strategic PositioningSouthwest Airlines
0
2
4
6
8
10
12
Southwest Airline Industry Average
Cents per ASM
Note: ASM (Available Seat Miles) defined as total seats available multiplied by miles flownSource: Airline annual reports and author’s calculations
Operating Profit per Available Seat Mile
Operating Cost per Available Seat Mile
Cost Advantage:2.44
Pricing Differential:1.72
Revenue and Cost per Available Seat Mile, Average of 1998 - 2000
18 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
• Competing in a business involves performing a set of discrete activities, in which competitive advantage resides
Foundations of Economic PerformanceThe Value Chain
SupportActivities
Marketing& Sales
(e.g. Sales Force,
Promotion, Advertising,
Proposal Writing, Web
site)
InboundLogistics
(e.g. Incoming Material
Storage, Data Collection,
Service, Customer Access)
Operations
(e.g. Assembly, Component Fabrication,
Branch Operations)
OutboundLogistics
(e.g. Order Processing,
Warehousing, Report
Preparation)
After-Sales Service
(e.g. Installation, Customer Support,
Complaint Resolution,
Repair)
M
a
r
g
i
n
Primary Activities
Firm Infrastructure(e.g. Financing, Planning, Investor Relations)
Procurement(e.g. Components, Machinery, Advertising, Services)
Technology Development(e.g. Product Design, Testing, Process Design, Material Research, Market Research)
Human Resource Management(e.g. Recruiting, Training, Compensation System)
Value
What buyers are willing to pay
19 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
• Creating a unique and sustainable competitive position
• Assimilating, attaining, and extending best practices
OperationalOperationalEffectivenessEffectiveness
StrategicStrategicPositioningPositioning
Run the same race faster Choose to run a different race
Achieving Superior PerformanceOperational Effectiveness is Not Strategy
20 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
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
• 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
21 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Strategic PositioningEnterprise Rent-A-Car
• Home-city replacement cars for drivers whose cars are being repaired or who need an extra vehicle, at low rates (30% below airport rates)
• Numerous, small, inexpensive offices in each metropolitan area, including on-premises offices at major accounts
• 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
Value PropositionValue PropositionValue PropositionValue PropositionDistinctiveDistinctiveActivitiesActivities
DistinctiveDistinctiveActivitiesActivities
22 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Defining the Value Proposition
What Relative What Relative Price?Price?
What Relative What Relative Price?Price?
What What Customers?Customers?
What What Customers?Customers?
Which Which Needs?Needs?Which Which
Needs?Needs?
• What end users?
• What channels?
• Which products?
• Which features?
• Which services?
• A novel value proposition can also grow the pie/expand the industry
23 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Strategic PositioningIKEA, Sweden
• Young, first time, or price-sensitive buyers who want stylish, space efficient and scalable furniture and accessories at very low price points.
• Modular, ready-to-assemble, easy to package designs
• In-house design of all products
• Wide range of styles 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
• Use Ikea designer names on products to inform coordinated purchases
• Child care provided in the store
• On-site, low-cost, restaurants
• Long hours of operation
• Suburban locations with large parking lots
• Principally self-delivery by customers
Distinctive Distinctive ActivitiesActivities
Distinctive Distinctive ActivitiesActivitiesValue PropositionValue PropositionValue PropositionValue Proposition
24 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Strategic PositioningWhole Foods Markets
• Natural, fresh, organic, and prepared foods and health items with excellent service at premium prices
• Educated, middle class, and affluent customers passionate about food as a part of a healthy lifestyle
• Well-lit, inviting supermarket store formats with appealing displays and extensive prepared foods sections
• Produce section as “theater”
• Café-style seating areas with wireless internet for meetings and meals
• Each store carries local produce and has the authority to contract with the local farmers
• Information and education provided to shoppers along with products
• High touch in-store customer service via knowledgeable, non-unionized, highly motivated personnel
• Egalitarian compensation structure
• Own seafood procurement and processing facilities to control quality (and price) from the boat to the counter
• Donates 5% of profits to non-profits
• Each store has “green projects,” directed by employees to improve environmental performance
Value PropositionValue PropositionValue PropositionValue PropositionDistinctiveDistinctiveActivitiesActivities
DistinctiveDistinctiveActivitiesActivities
25 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
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
26 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Strategic TradeoffsNeutrogena Soap (1990)
• Forgo cleaning, skin softening, and deodorizing features
• Choose higher costs through the configuration of:
– packaging
– manufacturing
– detailing
– medical advertising
– skin research
• Give up the ability to reach customers via:
– promotions
– television
– some distribution channels
27 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Product
• Higher priced, fully assembled products
• Customization of fabrics, colors, finishes, and sizes
• Design driven by image, materials, varieties
Value Chain
• Source some or all lines from outside suppliers
• Medium sized showrooms with limited portion of available models on display
• Limited inventories / order with lead time• Extensive sales assistance
• Traditional retail hours
Strategic TradeoffsIKEA, Sweden
Product
• Low-priced, modular, ready-to-assemble designs
• No custom options
• Furniture design driven by cost, manufacturing simplicity, and style
Value Chain
• Centralized, in-house design of all products
• All styles on display in huge warehouse stores
• Large on-site inventories• Limited sales help, but extensive customer
information• Long hours of operation
IKEAIKEAIKEAIKEA Typical Furniture RetailerTypical Furniture RetailerTypical Furniture RetailerTypical Furniture Retailer
28 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Recent Thinking on the Sources of Competitive Advantage
• “Key” Success Factors
• “Core” Competencies
• “Critical” Resources
• “Key” Success Factors
• “Core” Competencies
• “Critical” Resources
• Competitive advantage is seen as concentrated in a few parts of the value chain
29 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Mutually Reinforcing Activities Zara Apparel
Source: Draws on research by Jorge Lopez Ramon (IESE) at the Institute for Strategy and Competitiveness, HBS
Wide range of
styles
Customers Customers chic but chic but
cost-cost-consciousconscious
• Fit is leveraging what is different to be more different
Tight coordination
with 20 wholly-owned
factories
JIT delivery
Little media advertising
Word-of-Word-of-mouth mouth
marketing marketing and repeat and repeat
buyingbuying
Global team of trend-
spotters
Advanced productio
n machiner
y
Cutting- Cutting- edge fashion edge fashion at moderate at moderate
price and price and qualityquality
Prime store Prime store locations in locations in high traffic high traffic
areasareas
Extensive use of store sales data
Majority of
production in
Europe
Very Very flexible flexible
production production systemsystem
Very Very frequent frequent product product changeschanges
30 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
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
31 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Barriers to Strategy
Flawed Concepts
• Misunderstanding of strategy itself
• Poor industry definition
Industry Pressures
• Industry conventional wisdom leads all companies to follow common practices
• Labor agreements limit ways of configuring activities
• Regulation constrains price, product, service or process alternatives
• Customers ask for incompatible features or request new products or services that do not fit the strategy
32 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Overcoming Barriers to Strategy
Internal Practices
• Inappropriate goals and performance metrics bias strategy choices
– Short time horizon
• Rapid turnover of leadership undermines strategic direction to achieve short-term performance benefits
• A desire for consensus blurs strategic tradeoffs
• Inappropriate cost allocation leads to too many products, services, or customers
• Outsourcing makes activities homogenous and less distinctive
33 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Internal Barriers to StrategyNeutrogena Soap (2005)
• Prior to the 1990’s Neutrogena was the number one brand recommended by dermatologists
• Neutrogena had a relatively narrow target market but deep penetration and high customer loyalty
• Beginning in the early- to mid-1990’s, new growth-oriented management shifted Neutrogena from a dermatologist-focused marketing concept to mass market television advertisements and celebrity endorsements
• Neutrogena lost market share while Gallderma’s Cetaphil captured the loyalty of dermatologists, and prospered
Source: Draws on research conducted at the Institute for Strategy and Competitiveness and interviews conducted with a former Neutrogena executive.
34 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Overcoming Barriers to Strategy Capital Market Biases
• Strong pressure for short-term “surprises” in earnings or revenue
• Strong pressure to grow faster than the industry
• Industry-wide analyst metrics are misaligned with true value and drive strategic convergence
• Strong pressures to emulate currently “successful” peers
• A strong bias for “doing deals” (M&A)
• Over-weighting of equity-based management compensation amplifies such unhealthy pressures
35 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Integrating Strategy and Corporate Social Responsibility
• There is a long-term synergy between economic and social objectives
• Company competitiveness and social conditions can both improve
• Business cannot solve all of society’s problems, nor bear the cost of doing so
• Business must approach its social agenda strategically
• Where is a company able to have the greatest social impact?
36 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Strategic PositioningWhole Foods Markets
• Natural, fresh, organic, and prepared foods and health items with excellent service at premium prices
• Educated, middle class, and affluent customers passionate about food as a part of a healthy lifestyle
• Well-lit, inviting supermarket store formats with appealing displays and extensive prepared foods sections
• Produce section as “theater”
• Café-style seating areas with wireless internet for meetings and meals
• Each store carries local produce and has the authority to contract with the local farmers
• Information and education provided to shoppers along with products
• High touch in-store customer service via knowledgeable, non-unionized, highly motivated personnel
• Egalitarian compensation structure
• Own seafood procurement and processing facilities to control quality (and price) from the boat to the counter
• Donates 5% of profits to non-profits
• Each store has “green projects,” directed by employees to improve environmental performance
Value PropositionValue PropositionValue PropositionValue PropositionDistinctiveDistinctiveActivitiesActivities
DistinctiveDistinctiveActivitiesActivities
• Excellent strategies often include a social dimension of the value proposition
37 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Strategic CSRChoicePoint
• ChoicePoint’s core business is providing personal identification, screening, and credit verification
– e.g., access to ChoicePoint databases, employment background screening, credit verification, DNA identification and authentication, drug testing, etc.
• The company’s CSR program focuses on providing services and advice to social organizations:
– e.g., Background checks of volunteers working with children such as Boys & Girls Club volunteers
– Identity verification for Katrina victims– Assisting NGOs to find missing children and prevent identity theft
• ChoicePoint leverages its skills, data, technological knowledge, and staff to maximize social impact
• Its CSR approach is aligned with ChoicePoint’s founding principle: creating a safer and more secure society through responsible use of information
• CSR activities improve the company’s capabilities around identity issues– Working with social organizations helps develop new methodologies and capabilities
38 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Strategic CSRNestlé in India
• Nestlé’s entered the poor Moga region of India in 1962
• Local milk supply was hampered by small parcels of land, poor soil, periodic droughts, animal disease, and lack of a commercial market
• Nestlé established local milk purchasing organizations in each town
• Nestlé invested in improving competitive context– Collection infrastructure such as refrigerated dairies was accompanied by
veterinarians, nutritionists, agronomists, and quality assurance experts to assist small farmers
– Medicines and nutritional supplements were provided to improve animal health– Monthly training sessions were held for local farmers– Wells to secure water supply for animals were dug with financing and technical
assistance from Nestlé
• Nestlé has built a productive milk cluster in Moga, buying milk from more than 75,000 farmers through 650 local dairies
• Moga has dramatically improved social conditions
• Nestlé has developed a long-term competitive advantage in the milk cluster
39 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Strategy
What Is a Strategy? What is Not a Strategy?
• Best practice improvement
• Execution
• Aspirations
• A vision
• Learning
• Agility
• Flexibility
• Innovation
• The Internet (or any technology)
• Downsizing
• Restructuring
• Mergers / Consolidation
• Alliances / Partnering
• Outsourcing
• Internationalizing
• Best practice improvement
• Execution
• Aspirations
• A vision
• Learning
• Agility
• Flexibility
• Innovation
• The Internet (or any technology)
• Downsizing
• Restructuring
• Mergers / Consolidation
• Alliances / Partnering
• Outsourcing
• Internationalizing
• A unique value proposition versus competitors
• A different, tailored value chain
• Clear tradeoffs, and choosing what not to do
• Activities that fit together and reinforce each other
• Continuity of strategy with continual improvement in realizing the strategy
• A unique value proposition versus competitors
• A different, tailored value chain
• Clear tradeoffs, and choosing what not to do
• Activities that fit together and reinforce each other
• Continuity of strategy with continual improvement in realizing the strategy
40 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
Communicating a Strategy
• Strategy involves everyone in an organization, not just top management
• The benefits of strategy are greatest when it is communicated widely in the organization
• Communicating strategy requires a simple and vivid way of describing the essence of the company’s unique position
– Symbols of the strategy are invaluable tools– Repetition
• The basic strategy and value proposition must also be communicated to customers, channels, suppliers, and financial markets
– What about confidentiality?
• Leaders should not assume that subordinates understand the strategy, or that they agree with it
– Help each organizational unit translate the strategy into implications for its own mandate
• Individuals who do not ultimately accept the strategy cannot have an ongoing role in the company
41 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
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
42 Copyright 2007 © Professor Michael E. Porter200071129 – London – Final.ppt
The Moral Purpose of Business
• The most important thing a corporation can do for society is to contribute to a prosperous economy
• Only business can create wealth; other institutions in society are principally involved in redistributing wealth or investing it to meet human needs
• Corporations are not responsible for all the world’s problems, nor do they have the resources to solve them all
– Business has no need to be defensive about its role in society
• Business has the tools, capabilities, and resources to make a far greater positive impact on social issues than most other institutions
• Business is more transparent and more accountable than most foundations and NGOs
• Each company can and should identify the particular set of societal problems that it is best equipped to help resolve, and from which it can gain the greatest competitive benefit
• Addressing social issues through shared value strategies will lead to self-sustaining solutions
• Using these principles, businesses can have a greater impact on social good than any other institution or philanthropic organization