Presentation on what is strategy
- 1. What is Strategy by Michael E. Porter Presented by: Nisbat Anwar Date: 26th September’14
- 2. About the Author •Michael Eugene Porter is the Bishop William Lawrence University Professor at The Institute for Strategy and Competitiveness, based at the Harvard Business School. Wikipedia •A leading authority on company strategy and the competitiveness of nations and regions, his work is widely recognized in governments, corporations, non-profits, and academic circles across the globe.(Linkedin) •Born: May 23, 1947 United States •Education: Princeton University, Harvard Business School, Harvard University •Publication: Michael is the author of 18 books and numerous articles including Competitive Strategy, Competitive Advantage, Competitive Advantage of Nations, and On Competition. A six-time winner of the McKinsey Award for the best Harvard Business Review article of the year • Porter's core field is competition and company strategy
- 4. Summary The essence of strategy is in the activities— choosing to perform activities differently or to perform different activities than rivals.
- 5. What is Strategy? Operational Effectiveness is not strategy Strategy rests on unique Activities A sustainable Strategic Position Requires Trade- offs Fit Drives Both Competitive Advantage and sustainability Rediscovering Strategy
- 6. 1 Operational Effectiveness is not strategy Operational effectiveness (OE) means performing similar activities better than rivals perform them. In contrast, strategic positioning means performing different activities from rivals’ or performing similar activities in different ways Productivity Frontier (the maximum value that a company delivering a particular product or service can create at a given cost, using the best available technologies, skills, management techniques, and purchased inputs.) When a company improves its operational effectiveness, it moves toward the frontier.
- 7. 2. Strategy rests on unique Activities Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value. (eg: soutwest airlines) The essence of strategy is in the activities—choosing to perform activities differently or to perform different activities than rivals. Otherwise, a strategy is nothing more than a marketing slogan that will not withstand competition (eg Ikea vs typical furniture store, Otobi or concept in BD) A company can outperform rivals only if it can establish a difference that it can preserve.
- 8. The origin of Strategic Positioning Variety Based positioning • It is based on the choice of product or service varieties rather than customer segments • It makes economic sense when a company can best produce particular products or services using distinctive sets of activities. • e.g Jiffy Lube International (specialized in automotive lubricants) Needs Based positioning • Serving most or all the needs of a particular group of customers • It is more like traditional thinking about targeting a segment of customers. • A variant of needs-based positioning arises when the same customer has different needs on different occasions or for different types of transactions. • Eg. ;Ikea for meeting all home furnishing need target customer or Bessemer • Trust Company targets families with minimum of $5 million Access-based positioning • Access can be a function of customer geography or customer scale—or of anything that requires a different set of activities to reach customers in the best way. • Segmenting by access is less common and less well understood than the other two bases • Eg:: Carmike cinemas, operates movie theaters exclusively in cities and towns with populations under 200,000
- 9. 3. A sustainable Strategic position requires Trade-offs Choosing a unique position is not enough to guarantee a sustainable advantage. Because competitors can copy it in two ways. 1) a competitor can reposition itself to match the superior performer. 2) It’s far more common type of imitation is straddling. The straddler seeks to match the benefits of a successful position while maintaining its existing position. A strategic position is not sustainable unless there are trade- offs with other positions. Trade-offs occur when activities are incompatible. It means that more of one thing necessitates less of another. Eg: airline Trade-offs create the need for choice and protect against repositioners and straddlers. Eg: Neutrogena soap The essence of strategy is choosing what not to do. Without tradeoffs, there would be no need for choice and thus no need for strategy Eg: Toyota, Honda
- 10. Trade-off arises for three reasons Inconsistencies in image or reputation Trade-offs arise from activities themselves Trade-offs arise from limits on internal coordination and control.
- 11. 4. Fit Drives Both Competitive advantages and sustainability While operational effectiveness is about achieving excellence in individual activities, or functions, strategy is about combining activities. Eg: southwest airlines Fit locks out imitators by creating a chain that is as strong as its strongest link The fit among activities substantially reduces cost or increases differentiation. Achieving fit is difficult because it requires the integration of decisions and actions across many independent subunits. Strategy is creating fit among a company’s activities. ,
- 12. Types of Fit simple consistency between each activity (function)and the overall strategy activities are reinforcing Optimization of effort
- 13. 5. Rediscovering Strategy The Failure to Choose Internal threat-Managers have become confused about the necessity of making choice External threat -changes in technology or the behavior of competitors The Growth Tap The desire to grow has perhaps the most perverse effect on strategy Trade-offs and limits appear to constrain growth Profitable Growth After decade of restructuring and cost cutting, are turning their attention to growth.
- 14. The Role of Leadership One of the leader’s jobs is to teach others in the organization about strategy—and to say no. Setting limits is another function of leadership. Strategy requires constant discipline and clear communication Distinguish operational effectiveness from strategy A leader may have to change its strategy if there are major structural changes in its industry.
- 15. THANK YOU