What Is Strategy Essay

2194 words - 9 pages

Michael Porter is associated with the positioning school (Mintzberg 2002:23), who‟s
analytical approach sees strategy making mainly based on a process to identify
drivers(forces) of intra-industry competition and its corresponding barriers. His reasoning is
based on the assumption that a company who deliberately choose a position within an
industry and at the same time is able to combine activities in a different fashion, can create
sustainable competitive advantages that will lead to profitability and with it sustain
competition.
Aside this more general position of Porter, in an article from 1996, he asks “What is
Strategy” and discussed operational efficiency in connection with ...view middle of the document...

Differences in profitability compared with competitors arises because of activities chosen in
order to deliver customer value. Those can be either that similar activities are combined on a

much lower cost base (unit cost) or the average unit price is higher due to superior perceived
value.
Operational effectiveness is not strategy
Porter refers to operational effectiveness (OE) as the means of performing similar activities
better than rivals and strategic positioning as the means to perform activities in a different
way. He uses the Japanese manufacturing during the 1980′s as example to show that
operational effectiveness can be responsible for lower cost and superior quality among those
Japanese companies but question a unique strategic position of those companies.
He shows that an industry (Japanese electronic industry) has worked as cluster of
competitors within this industry. The Japanese companies could not win market share within
their own industry because most companies employed similar processes and methodology
and had a similar cost-base therefore the strategic decision of those firms was to go a broad
and compete outside of Japan where operational effectiveness seemed to be a strategic
advantage.
He borrowed a concept from economics (possible production frontier) to introduce what he
called productivity frontier to show a frontier curve for a maximum possible productivity
(value) on a selected process. The combination of used methods (activities) with inputs
allows to assign cost factors to demonstrate a companies relative productivity position. Based
on a company‟s input and its used methods the cost factor can be compared with other best
practices and indicate their operational effectiveness.
The pure reliance on operational effectiveness as strategy replacement works only as long
competitors not employing to same process and improvements but as soon those best
practices are made common within the industry, operational effectiveness becomes mutual
destructive and counter-productive with imitations and homogeneity as end result.
Strategy rest on unique activities
Porter postulates that “real” competitive strategy can only be about being different with
deliberately choosing a different way to deliver a mix of values and activities.

Southwest Airlines found a position as provider for low-cost low-thrill, standardized provider
of flights within US for a value-based but low-cost position where other airlines have
difficulties to met the same cost structure and activities and therefore can n ot compete on the
chosen activity-value combination.
Ikea is cited as example that chooses a position as low-cost provider within the furniture
industry where customer are targeted under a self-serving model. The combination of
functional design, streamlined manufacturing and a modular furniture system have
been successful deployed to gain scale economies and a lower cost base. Those combined
activities are...

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