What is Strategy

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 ActivitiesCompetitive strategy is about being differentEssence of strategy is- choosing to perform activities

differently or to perform different activities than rivals.Eg: Southwest Airlines-

Short haul point to pointLow costNo foodTurnaround timeSmall AirportsNo agent commission

Strategic position emerge from 3 sourcesVariety-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-offsA 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 reputation

2. Trade-offs arise from activities themselves

3. 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 strategyStrategy 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 and sustainabilityThe 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 fit

1. First-order fit is simple consistency between each activity (function)

2. Second-order fit occurs when activities are reinforcing

3. 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 strategyProfit is the key to a successful strategy, not Profit is the key to 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 strategyMaking trade-offsForging fit among activitiesBuilding an innovation machine

And strategy may have to change along with major structural changes in an industry -- flexibility is vitally important.

Profitability Frontier

Thank You!!!!