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October 6 - October 14, 2018
The root of the problem is the failure to distinguish between operational effectiveness and strategy.
Although the resulting operational improvements have often been dramatic, many companies have been frustrated by their inability to translate those gains into sustainable profitability.
A company can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at a lower cost, or do both.
delivering greater value allows a company to charge higher average unit prices; greater efficiency results in lower average unit costs.
Strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company. It means performing different activities from rivals, or performing similar activities in different ways.
Strategy is the creation of a unique and valuable position, involving a different set of activities.
serving few needs of many customers (Jiffy Lube provides only auto lubricants) • serving broad needs of few customers (Bessemer Trust targets only very high-wealth clients) • serving broad needs of many customers in a narrow market
Strategy requires you to make trade-offs in competing—to choose what not to do.
Strategy involves creating “fit” among a company’s activities. Fit has to do with the ways a company’s activities interact and reinforce one another.
Employees need guidance about how to deepen a strategic position rather than broaden or compromise it.
Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.
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,
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.
The third basis for positioning is that of segmenting customers who are accessible in different ways. Although their needs are similar to those of other customers, the best configuration of activities to reach them is different. 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.
Strategy is the creation of a unique and valuable position, involving a different set of activities. If there were only one ideal position, there would be no need for strategy.
Choosing a unique position, however, is not enough to guarantee a sustainable advantage. A valuable position will attract imitation by incumbents, who are likely to copy it in one of two ways.
But a strategic position is not sustainable unless there are trade-offs with other positions. Trade-offs occur when activities are incompatible.
Companies that try to be all things to all customers, in contrast, risk confusion in the trenches as employees attempt to make day-to-day operating decisions without a clear framework.
Positioning trade-offs are pervasive in competition and essential to strategy.
Yet competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products.
Truly great companies understand the difference between what should never change and what should be open for change, between what is genuinely sacred and what is not.
well-conceived vision consists of two major components: core ideology and envisioned future.
“As far as the company is concerned, the greatest thing he left behind him was a code of ethics known as the HP Way.” HP’s core ideology, which has guided the company since its inception more than 50 years ago, includes a deep respect for the individual, a dedication to affordable quality and reliability, a commitment to community responsibility
Enduring companies have clear plans for how they will advance into an uncertain future.
Core ideology defines a company’s timeless character. It’s the glue that holds the enterprise together even when everything else is up for grabs. Core ideology is something you discover—by looking inside. It’s not something you can invent, much less fake.
Instead of changing its core values, a great company will change its markets—seek out different customers—in order to remain true to its core values.
Core purpose is an organization’s most fundamental reason for being. It should not be confused with the company’s current product lines or customer segments. Rather, it reflects people’s idealistic motivations for doing the company’s work.
1. Big, Hairy, Audacious Goals (BHAGs) are ambitious plans that rev up the entire organization. They typically require 10 to 30 years’ work to complete. 2. Vivid descriptions paint a picture of what it will be like to achieve the BHAGs. They make the goals vibrant, engaging—and tangible.
BHAG is a clearly articulated goal that is reachable within 10 to 30 years. But your core purpose can never be completed. Core values Core values are the essential and enduring tenets of an organization.
To identify the core values of your own organization, push with relentless honesty to define what values are truly central.
the values must stand the test of time.
“We always want to do leading-edge innovation. That’s who we are. It’s really important to us and always will be. No matter what. And if our current markets don’t value it, we will find markets that do.”
An effective purpose reflects people’s idealistic motivations for doing the company’s work.
clear and well-articulated ideology attracts to the company people whose personal values are compatible with the company’s core values;
How do we get people to share our core ideology? You don’t. You can’t. Instead, find people who are predisposed to share your core values
consists of two parts: a 10-to-30-year audacious goal plus vivid descriptions of what it will be like to achieve the goal.
vivid description—that is, a vibrant, engaging, and specific description of what it will be like to achieve the BHAG.
Building a visionary company requires 1% vision and 99% alignment.
Economist Intelligence Unit reported that over 50% of executives believe business model innovation will become even more important for success than product or service innovation.
Customer value proposition. The model helps customers perform a specific “job” that alternative offerings don’t address.
Profit formula. The model generates value for your company through factors such as revenue model, cost structure, margins, and inventory turnover.
Key resources and processes. Your company has the people, technology, products, facilities, equipment, and brand required to deliver the value proposition to your targeted customers.
Revenue model: price x volume • Cost structure: direct costs, indirect costs, economies of scale. Cost structure will be predominantly driven by the cost of the key resources required by the business model. • Margin model: given the expected volume and cost structure, the contribution needed from each transaction to achieve desired profits. • Resource velocity: how fast we need to turn over inventory, fixed assets, and other assets—and,
Answering “yes” to all four greatly increases the odds of successful execution: • Can you nail the job with a focused, compelling customer value proposition? • Can you devise a model in which all the elements—the customer value proposition, the profit formula, the key resources, and the key processes—work together to get the job done in the most efficient way possible? • Can you create a new business development process unfettered by the often negative influences of your core business? • Will the new business model disrupt competitors?
This time, put the clock forward 20 years. Ask yourself: How many industries that are unknown today will exist then?
Blue ocean strategy, by contrast, is about doing business where there is no competitor. It is about creating new land, not dividing up existing land.
actions having to do with decision rights and information are far more important—about twice as effective—as improvements made to the other two building blocks.
A strategic principle, as the distillation of a company’s strategy, should guide a company’s allocation of scarce resources—capital, time, management’s attention, labor, and brand—in order to build a sustainable competitive advantage. It should tell a company what to do and, just as important, what not to
It forces trade-offs between competing resource demands; • It tests the strategic soundness of a particular action; • It sets clear boundaries within which employees must operate while granting them freedom to experiment within those constraints.
