ASSIGNEMENT 1

What is the strategy?

by Michael E. Porter

Samir SADQUI

Strategy & Innovation | MR HAMDI AHMED

 Table of contents

SUMMARY: _________________________________________________________________ 2

Introduction: ________________________________________________________________ 4

What is the strategy? __________________________________________________________ 5

Positioning: _______________________________________________________________________ 5

Trade-offs:________________________________________________________________________ 5

Fit: ______________________________________________________________________________ 6

Operational effectiveness: ______________________________________________________ 7

CONCLUSION_______________________________________________________________ 8
 Annexes
Figure 1: southwest Airlines Activities System ______________________________________________________ 6
Figure 2: Productivity Frontier __________________________________________________________________ 7
 SUMMARY:

Strategy is creation of unique and valuable position in the marketplace by

performing different set of valuable activities efficiently (your core competitive

advantage), staying focused in your core by constantly making the right trade-off

decisions and improving the “fit” among existing core competitive advantages.
 Introduction:

The purpose of this study is to define what is the strategy, and its importance to the
firm survival. Also, define the operational effectiveness to show the difference from
the strategy and explain the criteria of strategy (positioning, trade-offs, and fit).
What is the strategy?
Strategy is creation of unique and valuable position in the marketplace by doing
three things:
1. Performing different set of valuable activities efficiently (your core
competitive advantage) “Positioning”.
2. Staying focused in your core by constantly making the right “Trade-offs”
decisions.
3. Improving the “Fit” among existing core competitive advantages.

Positioning:
A company can outperform its rivals and maintain its competitive advantage only if it can
establish a difference in activities that it can uniquely do and improve overtime. There are three
ways to positioning for the customers:
a. Variety based positioning:
Targets specific services instead of specific customers.
AIR ARABIA company, for example, offers short-haul, low cost, point-to-point
service between midsize cities and secondary airports in large cities. The company
frequent departure and lows attract price- sensitive customers who otherwise would
travel by car or bus.
Jiffy Lube succeeds because they focus in one specific needs, that is Oil changes.
b. Need based positioning:
The grocer has the need of distributor in front of him because having all products
from different marketplace or direct shipping from the company will impact the
grocery in such different ways, the disponibility of products, high cost of shipping,
the delivery time, and the portfolio management. Atacadão offers a high variety of
products, low cost, and point-to-point service. The company positioning its strategy
at the need of these customers.
c. Access based positioning:
Broad needs to the many (in narrow market)
Carmike Cinemas offered nearly all movie to nearly all potential movies watchers
in a narrow geographic market (<200k population cinema chain).
Trade-offs:
Choosing what to do and what not to do. Remember that quality is not always free. Without
clear strategy and trade-offs decisions you keep in compromising. You have to say “NO” to
some potential profit opportunities in order to focus on the capabilities. If the activities of the
company are successful, competitors will copy what to do. Whit making the right trade-offs
decision leads the firm to differentiation and creates a straddling penalty for competitors.
a. Inconsistency of image and reputation with customers.
 b. Activity, configuration and skill differences for different products. Productivity can
be improved when variation of activity can be limited.
c. Clear priorities for company, employees and leadership.
Southwest Airline company, for example, for create their unique service offering which can be
directly copied by their competitors, Southwest says “NO” to many things:
• 1st Class seating section
• Seat Assignment
• Baggage Fees
• Flight Meals
With trade-offs decision, southwest keep its strategy clear and in the right direction.
Fit:
Interlocked activities are harder to copy. Locks out imitators by creating a chain that is as
strong as its strongest link. Fit make imitation hard. Due to Fit, it is usually misleading to label
success of a company attributed to a specific core competency.
Fit make it difficult for competitors to imitate your product and ensure synergies between firm
and activities. Three orders of fit:
a. Simply Fit:

All activities tie consistency in org toward a common objective. In other term,
simple consistency between specific activities and overall strategy.
b. Reinforcing Fit:

Activities reinforce one another. Southwest, for example, the lack of seat
assignment or the flight meals and the fact they use standardized 737s (figure 1),
all reinforced second firm activity “Rapid Boarding” this led to aircraft utilization
rates and hence both lower fares and higher profits.

Figure 1: southwest Airlines Activities System

c. Optimizing Fit:
• Reducing wastage with coordination and information sharing.
• Optimization of effort.
Operational effectiveness:
Operational effectiveness alone is not strategy, you got to do, benchmarking, quality control
(reduce defects), productivity improvement, outsourcing, partnering, change management, re-
engineering…,
all this tools and techniques are using by the firm to be efficient (How to do it better), but
“WHAT TO DO?!!!!”.
Operational effectiveness it pursued by all competitors is a zero-sum game in the long run. It leads
to convergence of best practices overtime and eventually leads to price wars and value destruction.

Figure 2: Productivity Frontier

Operational effectiveness is critical for business success but is not a business strategy. It is simply
required to complete in the marketplace. If we look at the possible relationships between value and
cost, the possible combination of these factors is called the productivity frontier (figure 2).
A company producing products at the possible frontier of cost and value can be said to be
operationally efficient.
Porter tells us that an outsized focus on operational effectiveness can be counterproductive.
He relates a story about commercial printers back in the 1980s. Firms in the industry offered nearly
identical products and focused extensively on process engineering, while their products were at
the productivity frontier. Ultimately, they were all too similar they were all at the productivity
frontier this led of course to a price war which results in low profits for everyone.
 CONCLUSION

The purpose of this article was to understand the strategy, explain why it’s important
to firm survival, and show the difference between strategy and operational
effectiveness. Also, understanding how strategy is related to positioning and fit
between his activities competitive advantage.
After reading the article (What is the strategy, Michael E. Porter) and in addition to
research done due to this work, I can identify three critical business strategies that
are important to firm success however the industry:
Create a unique and valuable industry niche
Ensure product differentiation by saying no to some potentially profitable
activities
Ensure fit among firm activities to make it hard for competitors to imitate
your product and services.