A Presentation on “What is Strategy”

Group Members:
Muhammad Souban Javaid Muhammad Tayyab
FA20-BEE-146 FA20-BEE-149

Every company has a unique strategy for competing with their competitors; the way you
compete with your competitors is defined by strategy, and the better the strategy, the better
your company.

I. Effectiveness in Operations is not a Strategy

According to Porter, today's management tools, such as total quality management,
benchmarking, time-based competition, outsourcing, partnering, and reengineering, do improve
and dramatically improve a company's operational effectiveness, but they do not provide the
company with long-term profitability. The failure of management to distinguish between
operational effectiveness and strategy appears to be the root cause of the problem: management
tools have taken the place of strategy.
Operational Effectiveness Is Important, But It Isn't Enough
Despite the fact that both operational effectiveness and strategy are required for an organization's
superior performance, they function in different ways.
Operational Effectiveness: Doing similar tasks better than competitors. Efficiency is one aspect
of operational effectiveness, but it isn't the only one. It refers to a variety of procedures that
enable a company to make better use of its resources.
Strategy: Differentiating one's activities from those of competitors, or performing similar
activities in different ways. According to Porter, a company can only outperform competitors if it
can establish a sustainable advantage. It must either provide more value to customers or create
similar value at a lower cost, or both. Porter, on the other hand, contends that most businesses
today compete on the basis of operational efficiency. The productivity frontier, depicted in the
figure below, exemplifies this concept of competition based on operational effectiveness.
The productivity frontier is the sum of all existing best practices at any given time, or the
maximum value that a company can create for a given cost by combining the best available
technologies, skills, management techniques, and purchased inputs. As a result, as a company's
operational effectiveness improves, it moves closer to the frontier. As new technologies and
management approaches are developed, as well as new inputs become available, the frontier is
constantly shifting outward. Managers have adopted techniques such as continuous
improvement, empowerment, learning organization, and others to keep up with the constant
shifts in the productivity frontier. While companies improve across multiple dimensions of
performance as they move closer to the frontier, the majority of them fail to compete
successfully on the basis of operational effectiveness over time. This is due to competitors'
ability to quickly imitate best practices such as management techniques, new technologies, input
improvements, and so on. As a result, operational effectiveness-based competition expands the
frontier and effectively raises the bar for everyone. However, such competition results in only
absolute improvements in operational effectiveness, with no relative gains for anyone.
Competition based solely on operational efficiency is mutually destructive, leading to attrition
wars that can only be stopped by restricting competition. Such competition can be seen in
Japanese companies, which in the 1970s and 1980s pioneered a global revolution in operational
effectiveness. Companies (including Japanese companies) competing solely on operational
effectiveness are now confronted with diminishing returns, zero-sum competition, static or
declining prices, and cost pressures, all of which jeopardize companies' ability to invest in the
long run.

II. The strategy is based on one-of-a-kind activities.

"It's all about being unique when it comes to competitive strategy. It entails selecting a distinct
set of activities in order to deliver a distinct mix of value ". Furthermore, according to Porter, the
essence of strategy is choosing to perform activities differently than competitors. Strategy is the
process of establishing a distinct and valuable position through a variety of activities.
Strategic Positions and Their Origins
Three sources of strategic positions emerge, which are not mutually exclusive and frequently
overlap.
1. Positioning based on variety: Create a subset of the products or services offered by an
industry. Rather than customer segments, it is based on the variety of products or services
available. As a result, this type of positioning will only meet a portion of the needs of most
customers. Only when a company can produce specific products or services using distinct sets of
activities is it economically viable.
2. Positioning based on needs: Supports the majority, if not all, of the needs of a specific group
of customers. It is based on a customer segmentation strategy. It occurs when a group of
customers has varying needs, and a customized set of activities is the best way to meet those
needs.
3. Positioning based on access: Customers who can be reached in a variety of ways are
segmented. Although their needs are similar to those of other customers, the best way to reach
them is through a different set of activities. Access can be determined by customer geography,
scale, or any other factor that necessitates a different set of activities in order to reach customers
in the most efficient manner.
Whatever the reason for positioning (variety, needs, access, or a combination of the three), it
necessitates a customized set of activities because it is always a function of differences in
activities (or differences on the supply side). Furthermore, positioning is not always a function of
demand (or customer) differences. Variety and access positioning, for example, are not based on
customer differences.

III. Trade-offs are required for a long-term strategic position

Porter claims that choosing a unique position does not guarantee a sustainable advantage because
competitors will imitate a valuable position in one of two ways:
1. A competitor can choose to reposition itself in order to compete with the superior performer.
2. While maintaining its current position, a competitor can try to match the benefits of a
successful position (known as straddling).
As a result, trade-offs with other positions are required for a strategic position to be sustainable.
"A trade-off indicates that more of one thing necessitates less of another".
When activities are incompatible, trade-offs occur for three reasons:
1. A company that is known for providing one type of value may lose credibility and confuse
customers, as well as jeopardize its own reputation, by providing a different type of value or
attempting to deliver two incompatible things at the same time.
2. Trade-offs are inevitable as a result of activities. Different product configurations, equipment,
employee behavior, skills, and management systems are required for different positions. In
general, if an activity is overdesigned or under designed, it loses value.
3. Limitations on internal coordination and control lead to trade-offs. Management demonstrates
its organizational priorities by choosing to compete in one way and not the other. Companies that
try to be everything to all customers, on the other hand, risk creating confusion among their
employees, who will then attempt to make day-to-day operational decisions without a clear
framework.
Furthermore, trade-offs encourage flexibility and protect against repositions and straddlers. As a
result, strategy can also be defined as the process of making trade-offs when competing. The
essence of strategy is deciding not to do something.

IV. Fit is the key to both competitive advantage and long-term viability.
Positioning decisions influence not only which activities a company will undertake and how
those activities will be configured, but also how those activities will interact with one another.
While operational effectiveness is concerned with individual activities, strategy is concerned
with the combination of activities.
"Fit keeps imitators out by creating a chain as strong as its stronger link." Because discrete
activities often affect one another, Porter believes that fit is a critical component of competitive
advantage.
The most valuable fit is strategy-specific because it enhances a position's uniqueness and
amplifies trade-offs. Although fit among activities is generic and applies to many companies, the
most valuable fit is strategy-specific because it enhances a position's uniqueness and amplifies
trade-offs. There are three distinct types of fit, none of which are mutually exclusive:
1. First-order fit: The overall strategy and each activity (function) must be consistent.
Consistency ensures that activities' competitive advantages accumulate rather than eroding or
cancelling out. Furthermore, consistency facilitates communication of the strategy to customers,
employees, and shareholders, as well as improving implementation through corporate unity.
2. Second-order fit: When activities are mutually reinforcing, this occurs.
3. Third-order fit: Beyond activity reinforcement, Porter refers to this as effort optimization.
The most basic types of effort optimization are coordination and information exchange across
activities to eliminate redundancy and wasteful effort.
In all three types of fits, the whole is more important than any single component. The activities
of the entire system give it a competitive advantage. The alignment of activities lowers costs and
improves differentiation. Furthermore, rather than specifying individual strengths, core
competencies, or critical resources, companies should think in terms of themes that pervade
many activities (i.e., low cost), according to Porter, because strengths cut across many functions
and one strength blends into others.
Fit and long-term viability
Because it is more difficult for a competitor to match an array of interconnected activities than it
is to replicate a single activity, strategic fit is critical not only to competitive advantage but also
to its sustainability. As a result, "positions based on systems of activities are far more sustainable
than positions based on single activities." The more a company's positioning is based on activity
systems that are second- and third-order fit, the more long-term its competitive advantage will
be. Even if competitors are able to identify the interconnections, such systems are difficult to
untangle and imitate. Furthermore, imitating only a few activities within the entire system
provides very little benefit to a competitor. As a result, achieving fit is a difficult task because it
necessitates the integration of decisions and actions from numerous independent subunits.
Fit between activities also creates pressures and incentives to improve operational effectiveness,
making imitation even more difficult. Fit means that poor performance in one activity will
degrade performance in others, exposing flaws and making them more likely to be noticed.
Improvements in one activity, on the other hand, will "pay dividends in others."
Strategic positions should have a ten-year or longer horizon, not just a single planning cycle,
because continuity encourages improvements in individual activities and the fit between them,
allowing an organization to develop unique capabilities and skills that are tailored to its strategy.
Continuity also helps a company's identity to stand out. Frequent strategy shifts are not only
costly, but they also inevitably result in hedged activity configurations, cross-functional
inconsistencies, and organizational dissonance.
As a result, strategy can also be defined as creating a fit between a company's activities, because
a strategy's success is dependent on doing many things well - not just a few - and integrating
them. There is no distinct strategy and little sustainability if activities do not fit together.
Alternative Approaches to Strategy
The Past Decade's Implicit Strategy Model Advantage in the Long Run
In the industry, there is a perfect competitive The company has a distinct competitive
position. advantage.
All activities are being benchmarked in order
Activities that are specific to the strategy
to achieve best practice.
To gain efficiencies, aggressive outsourcing Clearly defined trade-offs and options in
and partnering are used. comparison to competitors
A few key success factors, critical resources,
Fit across activities provides a competitive
and core competencies underpin the
advantage.
advantages.
Flexibility and quick responses to all changes The activity system, not the parts, is the
in the competitive market source of sustainability.
The efficiency of a given operation
V. Strategy Rediscovered
Failure to Make a Decision
Although external changes can threaten a company's strategy, a greater threat to strategy often
comes from within the company, according to Porter. "A misguided view of competition,
organizational failures, and, most importantly, the desire to grow undermine a sound strategy."
Furthermore, the root of the problem is the managers' "best-practice" mentality, which believes
in making no compromises, relentlessly pursuing operational effectiveness, and imitating
competitors to stay ahead in the race for operational effectiveness. As a result, managers simply
do not comprehend the importance of having a strategy.
The Growth Dilemma
"Of all the influences on strategy, the desire to grow has perhaps the most perverse effect."
Extending product lines, adding new features, copying popular services from competitors,
matching processes, and making acquisitions are all common ways for businesses to expand.
Most businesses, on the other hand, begin with a distinct strategic position involving clear trade-
offs. Nonetheless, as time passes and pressures of growth mount, businesses are forced to make
compromises that were initially almost imperceptible. As a result, companies have compromised
their way to homogeneity with their competitors through a series of incremental changes that
seemed reasonable at the time. Compromises and inconsistencies in the pursuit of growth erode a
company's competitive advantage and uniqueness over time. Rivals continue to compete until
desperation breaks the cycle, resulting in a merger or a downsizing to the original position.
Efforts to grow, according to Porter, blur uniqueness, create compromises, reduce fit, and, as a
result, erode competitive advantage.
Growth That Pays
Concentrating on deepening a strategic position rather than broadening and compromising it is
one approach to long-term growth and strategy reinforcement. A company can do so by
leveraging the existing activity system and providing features or services that competitors would
find difficult or expensive to match on their own. As a result, deepening a position entail
differentiating the company's activities, improving fit, and better communicating strategy to
those customers who value it. However, many businesses are attempting to expand by adding
popular features, products, or services without adapting their strategy.
Because globalization opens larger markets for a focused strategy, it often allows for growth that
is consistent with a company's strategy. As a result, expanding globally rather than domestically
is more likely to strengthen a company's unique position.
Leadership's Role
"Developing or reestablishing a clear strategy is frequently an organizational challenge that relies
on leadership." Furthermore, strong leaders who are willing to make decisions are required.
General management should be responsible for more than just individual functions. They should
define and communicate the core company's unique position, make trade-offs, and find a fit
between the company's various activities. Furthermore, the company's leader must decide how it
will respond to changes in the industry and customer demands. The organization's leader should
be able to teach others about strategy, as well as say no.
It's all about deciding what to do and what not to do when it comes to strategy. Developing a
strategy requires deciding which target group of customers, varieties, and needs the company
should serve. However, strategy includes deciding not to serve other customers or needs, as well
as not to provide certain features or services. As a result, strategy necessitates ongoing discipline
and clear communication. Employees should be guided by strategy when making decisions that
arise from trade-offs in their daily activities and decisions.
Furthermore, managers must recognize that, while operational effectiveness is an important part
of management, it is not a strategy. Managers must be able to tell the difference between the two.
Conclusion
"A static view of competition does not imply strategic continuity. A company must constantly
improve its operational effectiveness and actively try to shift the productivity frontier; at the
same time, it must continue to work to expand its uniqueness while improving the fit between its
activities ". However, a major structural change in the industry may force a company to change
its strategic position. A company's new position should be determined by its ability to find new
trade-offs and turn a new system of complementary activities into a long-term competitive
advantage.
-------------------------------------------------------------------------------------------------------