More on this book
Community
Kindle Notes & Highlights
The root of the problem is the failure to distinguish between operational effectiveness and strategy.
Operational effectiveness (OE) means performing similar activities better than rivals perform them. Operational effectiveness includes but is not limited to efficiency. It refers to any number of practices that allow a company to better utilize its inputs by, for example, reducing defects in products or developing better products faster. In contrast, strategic positioning means performing different activities from rivals’ or performing similar activities in different ways.
Clearly, strategy and leadership are inextricably linked.
Few companies have competed successfully on the basis of operational effectiveness over an extended period, and staying ahead of rivals gets harder every day.
Competition based on operational effectiveness alone is mutually destructive, leading to wars of attrition that can be arrested only by limiting competition.
Strategy, on the other hand, requires hard choices.
Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.
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.
Ikea, the global furniture retailer based in Sweden, also has a clear strategic positioning. Ikea targets young furniture buyers who want style at low cost.
Finding New Positions: The Entrepreneurial Edge
Strategic positionings are often not obvious, and finding them requires creativity and insight. New entrants often discover unique positions that have been available but simply overlooked
Ikea offers a number of extra services that its competitors do not. In-store child care is one. Extended hours are another. Those services are uniquely aligned with the needs of its customers, who are young, not wealthy, likely to have children (but no nanny), and, because they work for a living, have a need to shop at odd hours.
The origins of strategic positions
First, positioning can be based on producing a subset of an industry’s products or services.
The people who use Vanguard or Jiffy Lube are responding to a superior value chain for a particular type of service.
A variety-based positioning can serve a wide array of customers, but for most it will meet only a subset of their needs.
A second basis for positioning is that of serving most or all the needs of a particular group of customers. I call this needs-based positioning, which comes closer to traditional...
This highlight has been truncated due to consecutive passage length restrictions.
generic strategies—cost leadership, differentiation, and focus—to
It is intuitive for most managers to conceive of their business in terms of the customers’ needs they are meeting. But a critical element of needs-based positioning is not at all intuitive and is often overlooked.
Differences in needs will not translate into meaningful positions unless the best set of activities to satisfy them also differs. If that were not the case, every competitor could meet those same needs, and there would be nothing unique or valuable about the positioning.
In private banking, for examp...
This highlight has been truncated due to consecutive passage length restrictions.
I call this 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.
Having defined positioning, we can now begin to answer the question, “What is strategy?” Strategy is the creation of a unique and valuable position, involving a different set of activities.
Trade-offs create the need for choice and protect against repositioners and straddlers.
In general, value is destroyed if an activity is overdesigned or underdesigned for its use.
Continental tried to compete in two ways at once. In trying to be low cost on some routes and full service on others, Continental paid an enormous straddling penalty.
In general, false trade-offs between cost and quality occur primarily when there is redundant or wasted effort, poor control or accuracy, or weak coordination.
if there are no trade-offs companies will never achieve a sustainable advantage.
As we return to the question, What is strategy? we see that trade-offs add a new dimension to the answer. 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. Any good idea could and would be quickly imitated. Again, performance would once again depend wholly on operational effectiveness.
Southwest’s strategy involves a whole system of activities, not a collection of parts.
First-order fit is simple consistency between each activity (function) and the overall strategy.
Second-order fit occurs when activities are reinforcing.
Activity-system maps can be useful for examining and strengthening strategic fit.
Coordination and information exchange across activities to eliminate redundancy and minimize wasted effort are the most basic types of effort optimization.
Some managers mistake “customer focus” to mean they must serve all customer needs or respond to every request from distribution channels. Others cite the desire to preserve flexibility.
A number of approaches can help a company reconnect with strategy. The first is a careful look at what it already does. Within most well-established companies is a core of uniqueness.
It is identified by answering questions such as the following: • Which of our product or service varieties are the most distinctive? • Which of our product or service varieties are the most profitable? • Which of our customers are the most satisfied?
Which customers, channels, or purchase occasions are the most profitable?
Which of the activities in our value chain are the most different and effective?
A company’s history can also be instructive. What was the vision of the founder? What were the products and customers that made the company? Looking backward, one can reexamine the original strategy to see if it is still valid.
Compromises and inconsistencies in the pursuit of growth will erode the competitive advantage a company had with its original varieties or target customers.
we have entered a new era of competition in which none of the old rules are valid.
Companies seeking growth through broadening within their industry can best contain the risks to strategy by creating stand-alone units, each with its own brand name and tailored activities.
strong leaders willing to make choices are essential. In many companies, leadership has degenerated into orchestrating operational improvements and making deals.
Thus strategy requires constant discipline and clear communication.
Improving operational effectiveness is a necessary part of management, but it is not strategy. In confusing the two, managers have unintentionally backed into a way of thinking about competition that is driving many industries toward competitive convergence, which is in no one’s best interest and is not inevitable.
The operational agenda involves continual improvement everywhere there are no trade-offs. Failure to do this creates vulnerability even for companies with a good strategy.
IN ESSENCE, THE JOB of the strategist is to understand and cope with competition.
