I recently read “What is Strategy?” by Michael E. Porter (Harvard Business Review) and that gave me the idea to write a post mentioning briefly the concepts discussed in that document. Some people might claim that the article is outdated after more than 10 years but I really enjoy it and believe that it is still very much up to date.
From the article is it’s clear that the author separates both concepts but both are essential for a company if they want to achieve superior performance.
Operational Effectiveness, in theory, is no more than performing similar activities better than your rivals. They can easily be copied but that should not dissuade companies from doing so. Constant improvement ensures superior profitability.
Strategy on the other hand is more about performing different activities or, similar activities in different ways. “Strategy is the creation of a unique and valuable position, involving a different set of activities”. This can hardly be imitated .
Continue to read if you want to know why and are interested in the concepts of “Strategic positioning”, Trade-offs” and “Fit“.
On Strategic positioning we encounter:
- Varied based - A company chooses to position itself based on service or a choice instead of a costumer segment
- Needs based -The company chooses to serve most (or all) the needs of a particular segment of costumers
- Access based – Segmenting costumers who are accessible in different ways. The best configuration to reach them is different although their needs are the same
A strategic position is not sustainable unless there are Trade-offs. These create the need for choice and will protect your company against repositioners and Straddlers.
Trade-Offs arise mainly because:
- Inconsistencies on images and reputation – Changing an image can cost several millions and it is often a powerful barrier to imitation
- Limits on internal coordination and control – By taking this decisions Senior Management makes clear what are the priorities and expectations for the future
- Activities themselves (most important) – Different activities require different sets of employee skills, different equipment, different product configuration etc.
Strategy is about combining activities. FIT locks out imitators by “creating a chain that is as strong as the strongest link“.
- First Order Fit – Consistency between each activity and the overall strategy
- Second Order Fit - When activities are re-enforcing
- Third order Fit – Optimizing the effort – “It goes beyond re-enforcing. Coordinating and information exchange across activities to eliminate redundancy and minimize waist of effort”
In all types of fit, the whole matters more than any individual part. Finding new strategic positions is often better than being a follower. The 2nd and 3rd order fit makes companies more sustainable.
The most viable positions are the ones whose activity systems are not acceptable due to trade-offs.