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What is strategy- Michael Porter

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What is strategy- Michael Porter

  1. 1. 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
  2. 2. Strategy Rests on Unique Activities  Competitive strategy is about being different  Essence of strategy is- choosing to perform activities differently or to perform different activities than rivals.  Eg: Southwest Airlines- Short haul point to point Low cost No food Turnaround time Small Airports No agent commission
  3. 3.  Strategic position emerge from 3 sources Variety-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
  4. 4. A sustainable strategic position requires trade-offs  A 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.
  5. 5.  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.
  6. 6.  Trade-offs add a new dimension to the definition of strategy  Strategy 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
  7. 7. Fit drives both competitive advantage and sustainability  The 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)
  8. 8.  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.
  9. 9. Rediscovering to a successful strategy, not Profit is the key to  Profit is the key strategy 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 strategy  Making trade-offs  Forging fit among activities  Building an innovation machine  And strategy may have to change along with major structural changes in an industry -- flexibility is vitally important.
  10. 10. Profitability Frontier

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