What is strategy?

By: Michael E. Porter

Interpreted By: Nilesh Kumar 10BSP0148 IBS-B.

Situation:
Your company is under severe loss due to competitors habit of imitating the same product with nearly same quality and extended warranty coverage but at a comparative lower price. What will be your immediate step?

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Do you think of: Launching a new product. You have the power. Take operational advantage. Use 6 or JIT or Lean Manufacturing etc. Provide feature modifications. Increased volume sales. Lower the price and (or) increase warranty. Intensified promotional activities. Develop a STRATEGY at the understanding of Strategic Positioning. You may use operational effectiveness for existing product or develop a new product all together.

Need of strategy.
To sustain and thrive for excellence and avoid the need for 2nd chance. To define your VISION & MISSION and set achievable GOALS. To understand your environment, within & out. To create uniqueness in your activities and moves. To lead the way and demonstrate. Core competencies. To obtain best allocation and usage of your resources.

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To meet your objectives and align, if deviated. To satisfy those who expect advancement and profits from you. Its a 2 way process. Need fulfillment. Remember, STRATEGY is understood and used by those who are foresighted.
They have good assessment of Right Time, Right Place, Right Resources and hence develop Right Strategy w.r.t. requirements.

To meet seen & unseen uncertainties and certainties. What to do and What not to do.

Keep In Mind And We Shall Find Out In The End.

Operational Effectiveness vs. Strategy.

Vs.

Operational Effectiveness Is Not Strategy:

In the presence of competition you may:
Ask for FLEXIBILITY. Do the BENCHMARKING. Opt for OUTSOURCING. Nurture a few CORE COMPETENCIES. Go for POSITIONING.

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Above beliefs are half-truths. Whats the consequence?
Self competition & hyper competition. Nothings stable in this dynamic world of competition. Understand and realize the importance of flat world. Strive for productivity, quality & speed.

Root cause is ability to differentiate between Operational effectiveness & Business strategy. Current Belief: Management Tools = Operational Strategy. Result is FRUSTRATION & LOSS. Reason?

Example..??
Your example is NOKIA.
Very flexible organization. Leveraging its employee for extra and extensive sales activities. Benchmark its smart phone with Samsung. Outsourced developers for handset design and applications. Apart from durability, it has also chosen launch of a new handset very frequently. Extensive media ad & promotions.

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What else can be done?
They can make use of their strategic positioning, i.e. Environment, Expectation & Purpose and Resources & Competitors. May be launching a fewer but high quality and defect free usage smart phones and reap profits on them. May be acquisitions. May be collaborations with Google & Android.

Industrial talk: Nokia may be acquired.

Operational Effectiveness: Necessary But Not Sufficient.

Difference with preservation. Greater value at lower cost. Cost & price. Slashing one slashes another. Develop Operational effectiveness and also Operational strategy if necessary.

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Whom are you going to benefit when you overtake your benchmark? Think... Remember: operational effectiveness is necessary to compete but insufficient to win. Reason: Imitation & competition end. Japan: Toyota: Luxury cars vs. Prius. Use of strategic positioning.

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Concept of Productivity Frontier.

E.g. Maruti.
800 Zen Esteem

Baleno
. . .

High Value Delivered

Productivity Frontier

Vitara
Swift Dzire SX4 Kizashi

Low High Relative Cost Position Low

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Productivity frontier vs. technology Outwards. E.g. Companies that produced carburetors. New system: Order processing & after sales service. E.g. Forbes. Productivity frontier + continuous improvement + empowerment + change management + learning organization = Healthy organization.

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Race of productivity factor races parallel between companies and this becomes endless such that no one wins. E.g. P&G and HUL. Recent trend: Merger & acquisition. E.g. Infosys. The companies with strategic vision stand still and stand apart. E.g. Bosch.

Strategic Positioning & Its 3 Principles: The Idea In Practice.

What is strategic positioning & how does it helps?
Environment, Expectation & purpose and Resources & competencies. Perform different activities from rivals and/or perform similar activities in a different way. It helps in preserving Distinctiveness of the company.

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The 3 Principles:
1. Strategy is the creation of a unique and valuable position involving a different set of activities. 2. Strategy requires you to trade-offs in competing- to choose what not to do. E.g. 3. Strategy involves creating fit among a companys activities.

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1. Strategy is the creation of a unique and valuable position involving a different set of activities. The 3 distinct sources: 1. Few needs, many customers a.k.a. variety based positioning. E.g. Internet service providers like Tata Photon. 2. Broad needs, few customers a.k.a. need based positioning. E.g. Wealth management services like Bessemer. 3. Broad needs, many customers a.k.a. access based positioning. E.g. Telecom services like Tata Docomo.

 Tata Photon (+): ISP Market: New and developing at rapid pace. Uniqueness: USB Modem with high speed. Convenient packages Post/pre paid. Strategy: Partially Blue Ocean in ISP and Blue Ocean in USB modems. Observation: 1.Tata Photon 2.Tata Photon+3.Tata Photon TV
1. Testing and shaping the market. Logical Increment. 2. Capturing the market. New Service Launch. 3. Extending the market.

Strategic Positioning Game Played By Tata Photon:

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2. Strategy requires you to trade-offs in competing- to choose what not to do. Incompatibility of competitive activities. E.g. Maruti vs. Toyota. Trade-offs are necessary. E.g. Blackberry mobiles.

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3. Strategy involves creating fit among a companys activities. To examine whether the practice applied fits into the organization. E.g. Design excellence fits Apple but may not fit with Samsung or Nokia. Design uniqueness has given Apple the competitive advantage as well as core competency with sustainability.

Situation:
How do you feel you are different from the one sitting next to you? Its your uniqueness and that turns out to be your competitive strategy. It may be your knowledge, skill set, leadership, hard work & smart work etc. The placement which you will acquire through college will be based on this unique competitive strategy, but you may not acknowledge it with the term strategy now.

Strategy Rests On Unique Activities:

How do you tailor your activities? Understanding the need: Environment Customers requirement Affordability & accessibility May be then you can develop a suitable uniqueness that can be your competitive advantage and hence strategic positioning. Differentiation strategy: Deliberate selection of set of activities to deliver unique mix of values. May be price or product features. Alleviates strategic positioning.

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Dell: Customization along with online ordering along with high responsiveness along with JIT inventory and affordable prices. Southwest Airlines: Uniqueness of connectivity service, price, small airports and frequency of flights. This uniqueness became their strategy.

A Sustainable Strategic Position Requires Trade-Offs:

Continental Lite vs. Southwest Airlines. Points of parity: Low cost on some routes & full service on others. Tradeoffs are essential to strategy. They create the need for choice and purposefully limit what a company offers. Remembering that a valuable position will attract copycats.

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Cant be all things to all people. Be best at doing a few things. Then expand on those core competencies. E.g. Apple, Google. Competitors follow either repositioning or straddling method to overtake. Positioning not only selects but highlights the interdependencies between them.

Why Does Trade-Offs Arises?

3 reasons support this. Lets see how.

+
Mark the trade-off: Service industry to OEM. A confusion to customers and danger of brand reputation. So they need to trade-off to avoid inconsistencies in image or reputation. First reason.

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Designer and unique

Difference in activity. Here R&D will have to be kept aside then. Different positioning requires a different set of management, control, employee, market etc. Second reason.

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Limit on internal co-ordination and control, i.e. make organizational priorities clear, transparent and visible. Third reason. E.g. Aston Martin for James Bond & car fans. Competency is robust design & engine efficiency. Aston Martin will not go down to produce small segment vehicles, not at least in near future.

&
So with all the 3 reasons in mind, the creation of need for choices is purposefully limited to what a company offers.

Fit Drives Both: Competitive Advantage & Sustainability.

Fit locks out imitators by creating a chain that is as strong as its strongest link. What if FIT becomes UNFIT? Many strategies fit into an organization. Its how do we combine them with relevance. E.g. Southwest Airlines.

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Types of fit:
1. First order fit simple consistency. MakeMYTrip No brick models till now to book tickets. 2. Second order fit activities are reinforcing. MakeMytrip Extensive promotions and internet ads. 3. Third order fit optimization of effort. MakeMytrip With tie up among various airlines and real time data.

The 3 fits collectively help in strategy formulation.

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Fit & sustainability.
It is harder to imitate greater set of activities performed strategically and uniquely. The more you account for 2nd and 3rd fit, better sustainability of advantages is achieved. A simple game of probability multiplication. Fit creates pressure which ultimately induces operational effectiveness. Hence imitation is harder.

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The role of top management in an organization is: Leadership. Defining an organizations position, activities and strategy. Making trade-offs between activities and positioning. Innovation. This is what we learnt in Chinese Toy industry case but at a macro level.

Rediscovering Strategy:
Inefficient managers fail to distinguish between operational effectiveness and strategy. Strategy is affected by external competition & environment and within the organization. Deviation from actual strategy. Desire to grow (growth trap) leads to rapid change of strategies without watching or realizing their post implementation effects. Inability to recognize appropriate strategy and hence misguided activities and irrelevant trade-offs.

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In order to grow rapidly, focus on deepening the strategic positioning, i.e. Environment, Expectation & purpose and Resource & competency. Deepening position helps in Distinctiveness, Strengthening fit and Communicating the strategy to customers. Globalizing often helps in consistency with strategy but at a wider level.

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Strategy is leaded by a leader.
Leader
Defines and communicates companys position. Makes trade-offs. Forges fit among activities. Maintains companys distinctiveness. Setting limits so as what to do and what not to do.

A company have to change its strategy if theres major industrial change.

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Need of alignment with: New practice Set appropriate activity & trade-offs Understand the requirement - Customers & stakeholders perspective Best usage of its available resources Coordinate among organizing structure.

Now we can answer What is strategy?

Creation of unique and valuable position. Involve a different set of activities. Positioning of strategic positioning in a company. Essence of trade-offs, in other words What not to do. About integrating and coordinating activities and creating a fit among them.

The Strategy Focused Organization

Mission: Why we exist Core Values: What we believe in Vision: What we want to be Strategy: Our game plan (how to win) Goals For Implementing Strategy (Metrics): What we need to do OUTCOMES Satisfied Shareholders Delighted Customers Effective Process Motivated and Prepared Workforce