Porter Prize India Strategy and CSV Presentation
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The document presents Professor Michael E. Porter's insights on strategic positioning and creating shared value in business, emphasizing the importance of differentiation, competitive advantage, and a unique value proposition. It addresses the role of businesses in society and the necessity for strategic trade-offs, along with the need for companies to focus on both industry health and their competitive stance. The presentation illustrates how successful strategies embody unique value chains and mutually reinforcing choices that sustain competitive advantages.
Porter Prize India Strategy and CSV Presentation
- 1. Strategic Positioning in a Challenging World: Creating Shared Value Professor Michael E. Porter Harvard Business School Porter Prize India Boston, MA / New Delhi, India September 28, 2012 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); and On Competition (Harvard Business Review, 2008). 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.
- 2. Thinking Strategically COMPETING COMPETING TO BE THE BEST TO BE UNIQUE The worst error in strategy is to compete with rivals on the same dimensions 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 2 Copyright 2012 © Professor Michael E. Porter
- 3. What Do We Mean by a Strategy? • Strategy is different than aspirations – “Our strategy is to be #1 or #2…” – “Our strategy is to be the world leader…” – “Our strategy is to grow…” – “Our strategy is to provide superior returns to our shareholders…” • Strategy is more than a particular action – “Our strategy is to merge…” – “… internationalize…” – “… consolidate the industry…” – “… outsource…” – “…double our R&D budget…” • Strategy is not the same as vision / values – “Our strategy is to advance technology for mankind …” – “…to be ethical…” • Strategy defines the company’s distinctive approach to competing and the competitive advantages on which it will be based 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 3 Copyright 2012 © Professor Michael E. Porter
- 4. Economic Foundations of Competition • Company economic performance results from two distinct causes Strategic Industry Positioning Structure Within the Industry - Industry Attractiveness - Sustainable Competitive Advantage • Strategic thinking must encompass both areas • Companies must focus on the health of the industry, not just their own position 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 4 Copyright 2012 © Professor Michael E. Porter
- 5. Determinants of Industry Profitability Industry Structure Threat of Substitute Products or Services Bargaining Power Rivalry Among Bargaining Power of Suppliers Existing of Buyers Competitors Threat of New Entrants • Part of strategy is to drive a positive transformation in industry structure 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 5 Copyright 2012 © Professor Michael E. Porter
- 6. Achieving Superior Performance Differentiation (Higher Price) Competitive Advantage Lower Cost 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 6 Copyright 2012 © Professor Michael E. Porter
- 7. Competitive Advantage and 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, Process Design, Market Research) M Value Procurement a (e.g., Services, Machines, Advertising, Data) r What g buyers are Inbound Operations Outbound Marketing After-Sales i willing to Logistics Logistics & Sales Service pay n (e.g., Customer (e.g., Branch (e.g., Order (e.g., Sales (e.g., Installation, Access, Data Operations, Processing, Force, Customer Collection, Assembly, Warehousing, Promotion, Support, Incoming Component Report Advertising, Complaint Material Fabrication) Preparation) Proposal Resolution, Storage, Writing, Web Repair) Service) site) Primary Activities • The value chain is the set of activities involved in delivering value to customers • All competitive advantage resides in the value chain. Strategy is manifested in choices about how activities in the value chain are configured and linked together 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 7 Copyright 2012 © Professor Michael E. Porter
- 8. Achieving Superior Performance Operational Effectiveness Is Not Strategy Operational Strategic Effectiveness Positioning • Assimilating, attaining, and • Creating a unique value extending best practices proposition Doing things better Doing things differently to deliver superior value Validate and Execute Choice 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 8 Copyright 2012 © Professor Michael E. Porter
- 9. What Creates a Successful Strategy? • A unique value proposition compared to other organizations 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 9 Copyright 2012 © Professor Michael E. Porter
- 10. Defining the Value Proposition What Which Needs? Customers? • What end users? • Which products? • What channels? • Which features? • Which services? What Relative Price? • Premium? Parity? Discount? • A novel value proposition often expands the market 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 10 Copyright 2012 © Professor Michael E. Porter
- 11. What Creates a Successful Strategy? • A unique value proposition compared to other organizations • A distinctive value chain embodying choices about how the organization will operate differently 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 11 Copyright 2012 © Professor Michael E. Porter
- 12. Strategic Positioning IKEA, Sweden Value Proposition Distinctive Activities • Young, first time, or price-sensitive buyers with • Modular, ready-to-assemble, easy to ship furniture design sophistication designs • Stylish, space efficient and compatible furniture • In-house design of all products lines and accessories at very low price points • Wide range of styles which are all displayed in huge warehouse stores with large on-site inventories • Self-selection by the customer • Extensive customer information in the form of catalogs, explanatory ticketing, do-it-yourself videos, and assembly instructions • IKEA designer names attached to related products to inform coordinated purchases • Suburban locations with large parking lots • Long hours of operation • On-site, low-cost, restaurants • Child care provided in the store • Self-delivery by most customers 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 12 Copyright 2012 © Professor Michael E. Porter
- 13. What Creates a Successful Strategy? • A unique value proposition compared to other organizations • A distinctive value chain embodying choices about how the organization will operate differently • Making clear tradeoffs, and choosing what not to do 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 13 Copyright 2012 © Professor Michael E. Porter
- 14. Making Strategic Tradeoffs IKEA, Sweden IKEA Typical Furniture Retailer Product Product • Low-priced, modular, ready-to-assemble designs • Higher priced, fully assembled products • No custom options • Customization of fabrics, colors, finishes, and • Furniture design driven by cost, manufacturing sizes simplicity, and style • Design driven by image, materials, varieties 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 • Large on-site inventories available models on display • Limited sales help, but extensive customer • Limited inventories / order with lead time information • Extensive sales assistance • Long hours of operation • Traditional retail hours • Tradeoffs create the need for choice • Tradeoffs make a strategy sustainable against imitation by established rivals • An essential part of strategy is choosing what not to do 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 14 Copyright 2012 © Professor Michael E. Porter
- 15. What Creates a Successful Strategy? • A unique value proposition compared to other organizations • A distinctive value chain embodying choices about how the organization will operate differently • Making clear tradeoffs, and choosing what not to do • Choices of activities across the value chain that fit together and reinforce each other 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 15 Copyright 2012 © Professor Michael E. Porter
- 16. Mutually Reinforcing Activity Choices Suburban IKEA locations with Very low High traffic ample prices store layout parking Very large stores Explanatory catalogs, Instructions Informative and support displays and for customer Labels Customer self All items on assembly Self-selection delivery and display and in-stock by customer Assembly Complete line Ease of Designer of furniture and identification transport and of compatible accessories to assembly furnish home lines Year-round stocking to even out production In-house design focused Modular, on cost of Low scalable manufacturing manufacturing furniture and logistical designs costs High variety, 100 percent “Knock-down” but ease of sourcing from kit packaging manufacturing Long-term suppliers • Fit is leveraging what is different to be more different 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 16 Copyright 2012 © Professor Michael E. Porter
- 17. What Creates a Successful Strategy? • A unique value proposition compared to other organizations • A distinctive value chain embodying choices about how the organization will operate differently • Making clear tradeoffs, and choosing what not to do • Choices of activities across the value chain that fit together and reinforce each other • Continuity of strategic direction 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 17 Copyright 2012 © Professor Michael E. Porter
- 18. Competing on Strategy Zero Sum Positive Sum Competition Competition • Compete head to head • Compete on strategy • One company’s gain • More than one company requires another company’s can be successful loss • Competition expands the • Competition often customers served, the undermines industry needs that are met, and the structure and profitability overall value pool 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 18 Copyright 2012 © Professor Michael E. Porter
- 19. The Role of Business in Society • Only business can create prosperity • Healthy businesses need a healthy community • There is an ever growing awareness of major societal challenges • Government and NGO’s lack sufficient resources and capabilities to fully meet these challenges • More of the public sees business as prospering at the expense of the society • Despite growing corporate citizenship activities, the legitimacy of business has fallen 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 19 Copyright 2012 © Professor Michael E. Porter
- 20. The Role of a Company in Its Communities Evolving Approaches Philanthropy • Donations to worthy social causes • Volunteering 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 20 Copyright 2012 © Professor Michael E. Porter
- 21. The Role of a Company in Its Communities Evolving Approaches Corporate Social Philanthropy Responsibility (CSR) • Donations to worthy • Compliance with social causes community standards • Volunteering • Good corporate citizenship • “Sustainability” 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 21 Copyright 2012 © Professor Michael E. Porter
- 22. The Role of a Company in Its Communities Evolving Approaches Corporate Social Creating Shared Philanthropy Responsibility Value (CSR) (CSV) • Donations to worthy • Compliance with • Integrating societal social causes community standards improvement into • Volunteering • Good corporate economic value citizenship creation itself • “Sustainability” 20120928—Porter Prize India Strategy and CSV Presentation—FINAL 22 Copyright 2012 © Professor Michael E. Porter