More on this book
Community
Kindle Notes & Highlights
Read between
February 11 - March 13, 2023
A company can be better at performing the same configuration of activities, or it can choose a different ...
This highlight has been truncated due to consecutive passage length restrictions.
Porter uses the phrase operational effectiveness (OE) to refer to a company’s ability to perform similar activities better than rivals.
The important thing is not to confuse OE with strategy.
The inevitable diffusion of best practices means that everyone has to run faster just to stay in place.
Strategy is the antidote to competitive rivalry.
The goal of strategy is to earn superior returns on the resources you deploy, and that is best measured by return on invested capital.
For nonprofits, competitive advantage means you will produce more value for society for every dollar spent
To recap quickly, competitive advantage means you have created value for customers and you are able to capture value for yourself because the positioning you have chosen in your industry effectively shelters you from the profit-eroding impact of the five forces. I
More simply put, you have found a way to perform better by being different.
His focus is on content, not process. His focus is on where you want to be, not on the decision-making process by which you got there—not how, or even whether, you do formal strategic planning, nor whether your strategy can be captured in fifty words or less.
The value proposition is the element of strategy that looks outward at customers, at the demand side of the business. The value chain focuses internally on operations. Strategy is fundamentally integrative, bringing the demand and supply sides together.
Walmart’s “key strategy,” in Walton’s own words, “was to put good-sized stores into little one-horse towns which everybody else was ignoring.”
As often happens, each of these value propositions targeted a customer group overlooked or avoided by the industry.
finding a unique way to serve your chosen segment profitably.
Typically, value propositions based on needs appeal to a mix of customers who might defy traditional segmentation. Instead of belonging to a clear demographic category, the company’s customers will be defined by the common need or set of needs they share at a given time.
Enterprise crafted a unique value proposition to meet these needs: reasonably priced, convenient, home-city rentals.
In value propositions like B&O’s, the unmet need is typically the dominant leg of the triangle, while the higher relative price supports the extra costs the company has to incur to meet it.
That, in a nutshell, is Southwest Airlines’ value proposition: very low prices coupled with very convenient service.
It is only “best” at meeting a particular kind of need at a particular relative price.
The first test of a strategy is whether your value proposition is different from your rivals. If you are trying to serve the same customers and meet the same needs and sell at the same relative price, then by Porter’s definition, you don’t have a strategy.
Insight into customers’ needs is important, but it’s not enough. The essence of strategy and competitive advantage lies in the activities,
Choices in the value proposition that limit what a company will do are essential to strategy because they create the opportunity to tailor activities in a way that best delivers that kind of value.
Choices in the value proposition that limit what a company will do are essential to strategy because they create the opportunity to tailor activities in a way that best delivers that kind of value.
Only a value proposition that requires a tailored value chain to deliver it can serve as the basis for a robust strategy. This is the first line of defense against rivals.
To establish a competitive advantage, a company must deliver its distinctive value through a distinctive value chain. It must perform different activities than rivals or perform similar activities in different ways.
Discovering new positions is a creative act.
The first misconception is about trade-offs themselves. Managers tend to believe that “more is always better.” More customers, more products, more services mean more sales and profits.
Trade-offs are the strategic equivalent of a fork in the road. If you take one path, you cannot simultaneously take the other.
If you have a strategy, you should be able to link it directly to your P&L.
The straddler, as the word implies, tries to match the benefits of the successful position while at the same time maintaining its existing position.
Trade-offs are choices that make strategies sustainable because they are not easy to match or to neutralize.
Its role in strategy highlights yet another popular misconception, that competitive success can be explained by one core competence, the one thing you do really well.
Good strategies depend on the connection among many things, on making interdependent choices.
Fit means that the value or cost of one activity is affected by the way other activities are performed.
According to data I saw a few years ago, Zara was marking down about 10 percent of items versus the industry average of 17 to 20 percent. In retailing, that’s a huge advantage.
Depot value proposition has three legs: huge selection, everyday low prices, and knowledgeable service. Nobody before had put these all together. The large warehouse store format was essential to offering both selection and low prices. But without excellent service, customers would have felt lost in the warehouse stores.
You can start by identifying the core elements of the value proposition. For IKEA, I would highlight three: distinctive design, low prices, and immediate use.
A common mistake in strategy is to choose the same core competences as everyone else in your industry.
Which activities are generic and which are tailored? Generic activities—those that cannot be meaningfully tailored to a company’s position—can be safely outsourced to more efficient external suppliers.
on. A lot of the change literature aimed at managers is motivational. It’s about firing up the organization. But it has produced an overheated rhetoric that can undermine good strategy.
Allow me one cooking metaphor: strategy isn’t a stir fry; it’s a stew. It takes time for the flavors and textures to develop.
A good strategy, consistently maintained over time through repeated interactions with customers, is what gives power to a brand.
But a real strength for strategy purposes has to be something the company can do better than any of its rivals. And “better” because you are performing different activities than they perform, because you’ve chosen a different configuration than they have.
The worst mistake—and the most common one—is not having a strategy at all. Most executives think they have a strategy when they really don’t.
A company can usually grow faster—and far more profitably—by better penetrating needs and customers where it is distinctive than by slugging it out in potentially higher growth arenas in which the company lacks uniqueness.
When you go to a foreign market, remember that you’re not trying to serve the whole market. You’re looking for the segment that values what you do.
So a disruptive technology is one that would invalidate important competitive advantages.
The new one meets just enough of their needs at the right price. Disruption from below is an example of a focus strategy. If you focus on the customers who don’t need all the special bells and whistles, you can establish a beachhead. A focuser with a disruptive technology can enter your industry and ultimately grow to occupy a major position. This is the Southwest Airlines story.
Disruptive technology is compelling as a metaphor, but managers need to be rigorous about what’s creating the disruption.
