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What is Strategy?

Strategy v. operational
effectiveness
Whats been
happening to
Toyota?

The last 20
years?

The past 5
years?

Strategy v. operational effectiveness

Operational effectiveness means


performing the value-creating
activities better than rivals.

Companies can reap enormous


advantages from operational
effectiveness, as Japanese firms
demonstrated with such practices
as total quality management and
continuous improvement.

Operational Effectiveness (OE) is not


Strategy
OE and Strategy are both essential to obtain superior
performance, but a company can outperform rivals only if it can
establish a difference that it can preserve.
Managers have been preoccupied with improving operational
effectiveness through programs such as:
TQM
Time based competition
Benchmarking
Results in the short run:
costs + prices

profitability

Strategy v. operational effectiveness

The problem with


operational effectiveness?
Best practices are easily
emulated. As all competitors in
an industry adopt them, the
productivity frontier shifts
outward.

Knowledge is usually resident


in the third-party implementer
Rents are captured by the implementer,
so the surplus available to the firm is
limited
This also enables rapid diffusion of new
practices, as well as transmission of
sector-specific solutions to competitors

OE is necessary but not sufficient:


Weaknesses
Gradually, managers have let OE supplant
strategy. The results are:

Zero-sum competition
Static or declining prices
Pressures on cost that compromise companys ability to
invest in the business for the long-term

Strategic positioning
Strategic positioning: achieve sustainable
competitive advantage by reserving what is
distinctive about a company.
It means performing different activities
from rivals, or performing similar activities
in different ways.

The Origins of Strategic Positions

Companies can obtain strategic position in


three ways (not mutually exclusive):
1. Variety-based positioning
2. Needs-based positioning
3. Access-based positioning

1.

Variety-Based Positioning

Based on the choice of product or service varieties rather than


customer segments.

This position can serve a wide array of customers but it will


primarily meet only a subset of their needs.
E.g.: The Vanguard Group

2.

Needs- Based Positioning

Based on targeting a segment of customers.

This position is not that obvious if companies consider the


difference in needs and the range of activities that should differ
between the segments.
E.g.: Citibank Private bank v. Bessemer

3.

Access- Based Positioning

Based on the importance of accessing the product/service.

Access can be a function of customer geography or anything that


requires a different set of activities to reach customers in the best
way
E.g.: Carmike Cinemas

Three key principles underlie strategic positioning

IKEAS Strategic Positioning

IKEAS Strategic Positioning

IKEA Activity Map

Trade-offs

Trade-offs

Fit

Fit

Types of fit

Types of fit

Types of fit

Strategic Position (SP): Fit and


Sustainability
Strategic fit among many activities is essential to the sustainability of
the competitive advantage.
Positions built on systems of activities are more sustainable than
those built in individual activities (OE).

When activities complement one another, rivals will get little benefit
from imitation ( e.g.: Continental Airlines) unless they successfully
match the whole system.

Strategic Position (SP): Fit and


Sustainability
SP sets the trade-off rules that defines how individual
activities will be integrated.
SP should have a long-term horizon of a decade or more,
not a single planning cycle.
The success of strategy is doing many things well and
integrating them.

Why many companies do not have a


strategy?
Leaders have the idea that making trade-offs is a sign of
weakness and do not understand the need of it.
Pursuing OE is easier to attain because is concrete and
actionable.
Companies imitate one another assuming that rivals have
something they do not.
Trade-offs and limits appear to constrain growth. However,
compromise and inconsistencies in the pursuit of growth may
erode a competitive advantage.

What should companies and leaders do ?


They should reevaluate their strategies and challenge themselves to
start over.
They should refocus on the unique core and realign the companies
activities with it.
Evaluate the vision of the founder and reexamine the original
strategy.
Leaders should be in charge of defining and communicating the
companys unique position, making trade-offs and forging it among
activities.

Why is the study of strategy important to


you as future leaders?