What is Strategy?
Strategy is the creation of a unique and valuable position, involving a different set of activities. Ultimately, strategy is creating fit among a company’s activities. The success of a strategy depends on doing many things well–not just a few–and integrating among them. If there is not fit among activities, there is no distinctive strategy and little sustainability.
- Strategy should be mission based and value guided. After that, you must have the passion to see the vision through.
- The challenge of developing or reestablishing a clear strategy is often primarily an organizational one and depends on leadership. In many companies, leadership has degenerated into orchestrating operational improvements and making deals. But the leader’s role is broader and far more important. General management is more than the stewardship of individual functions. Its core is strategy: defining and communicating the company’s unique position, making trade-offs, and forging fit among activities. Strategy requires constant discipline and clear communication.
- A company can out perform rivals only if it can establish a difference that it can preserve. The essence of strategy is choosing to perform activities differently than rivals do.
- Operational Effectiveness means performing similar activities better than rivals perform them. In contrast, strategic positioning means performing different activities from rivals or performing similar activities in different ways.
- While operational effectiveness is about achieving excellence in individual activities or functions, strategy is about combining What is Intermountain’s core competence? Its key success factors? The correct answer is that everything matters. Intermountain’s strategy involves a whole system of activities, not a collection of parts. Its competitive advantage comes from the way its activities fit and reinforce one another. Intermountain’s activities complement one another in ways that create real value. One activity’s cost, for example, is lowered because of the way other activities are performed. Similarly, one activity’s value to customers can be enhanced by a company’s other activities. That is the way strategic fit creates competitive advantage and superior profitability. The more a company’s positioning rests on activity systems with second- and third-order fit, the more sustainable its advantage will be. Such systems, by their nature, are usually difficult to untangle from outside the company and therefore hard to imitate. And even if rivals can identify relevant interconnections, they will have difficulty replicating them. Achieving fit is difficult because it requires the integration of decisions and actions across many independent subunits.
- It is harder for a rival to match an array of interlocked activities that it is merely to imitate a particular sales-force approach, match a process technology, or replicate a set of product features. Positions built on systems of activities are far more sustainable that those built on individual activities.
- Constant improvement in operational effectiveness is necessary to achieve superior profitability. However, it is not usually sufficient.
- Competition based on operational efficiency alone is mutually destructive. (e.g. Legacy airlines). Competitive strategy is about being different (e.g. Southwest).
- There are two fundamental options that are most likely to generate a competitive advantage: 1) low-cost 2) high differentiation.
- Focused competitors thrive on groups of customers who are over served by more broadly targeted competitors (e.g. Ambulatory Surgery Services).
- Strategy is about perspective and should seek to avoid reaction.
- If there are not tradeoffs companies will never achieve a sustainable advantage. They will have to run faster and faster just to stay in place. 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.
Strategic positions emerge from three distinct sources, which are not mutually exclusive:
- Variety-based positioning: based on providing a subset of an industry’s products or services (e.g. Jiffy Lube). This positioning model can serve a wide-array of customers, but most it will meet only a subset of their needs.
- Needs-based positioning: serves most or all the needs of a particular group of customers (e.g. Ikea serves young, stylish, and middle-class home furnishings customers.)
- Access–based positioning: a function of customer geography or customer scale (e.g. rural vs. urban).
Source of Competitive Advantage
- Pace- measured timing and intensity of strategic planning.
- Position- projection of distinctive and valued images to customers.
- Potential- access to distinctive and superior capabilities and resources.
- Performance- superiority in operations and implementation of strategy.
- Power- accumulation and effective use of organized mass.