What is Strategy? (Porter)
The definition of strategy nowadays is different to what it used to be. Positioning is too static – nowadays, any competitive advantage is temporary as competitors can copy it quite easily. The article aims at redefining strategy by separating the term from operational effectiveness.
Operational effectiveness (OE) means performing similar activities better than rivals. Better means more efficient, faster, and cheaper. It is necessary to achieve superior profitability. However, while OE is necessary, it is not sufficient. It is not a strategy. A company needs to establish a difference that it can preserve.
Strategy is about being different. Different in a way of choosing a different mix of activities to provide a product or service. Strategic positions can emerge from three distinct sources which serve as a basis for positioning:
1. Variety-based positioning: A company can specialize in a subset of an industry’s product (e.g. sell chairs only)
2. Needs-based positioning: A company can try to serve more needs of a target group than rivals (e.g. not only sell chairs but furniture for the whole apartment)
3. Access-based positioning: A company can segment customers who are accessible in different ways (e.g. only sell chairs in big cities, or via the internet).
A sustainable strategic position requires trade-offs. Trade-offs become necessary when two activities are incompatible (e.g. you sell low-cost chairs while offering individual customer service). Companies have to make sure that their activities are coherent. This implies refraining from certain activities. Strategy is about choosing what not to do.
Another important aspect is how a company combines activities. By creating a fit among activities, imitators cannot copy the business model as easy anymore. The three types of fit are simple consistency (e.g. everything is low-cost); reinforcement (e.g. specific marketing strategies); and optimization...