What Is Strategy

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What is Strategy? – Michael E. Porter

I. Operational effectiveness is not strategy

So in the quest to beat competition managers focus on improving quality, speed and productivity all related to operational effectiveness. But in this way, they move further away from viable competitive positions which can only be achieved by an appropriate strategy. Positioning which was once the way to go about beating competition is now rejected, since its too static. Rivals can easily copy the market position and competitive advantage. However, that is not entirely true as hypercompetition is a self-inflicted wound. It is important to watch out for what your competitors are doing, but improving operational effectiveness alone is not enough, and that cannot be your only strategy.

Operational effectiveness and strategy are both important for superior performance which is what a firm aims for. A company can beat rivals if it can stand out, establish a difference it can preserve. Basically a company can either provide greater value to customers or comparable value at low prices, or both. Delivering greater value means higher unit prices, greater efficiency means lower unit costs.

Cost arises from performing activities and cost advantage comes from performing activities more efficiently than your competitors. This can be in the choice of the activity or how the activity is performed. So activities are what creates competitive advantage.

Operational effectiveness means performing similar activities better than rivals. Strategic positioning means performing different activities or similar activities in a different way.

Productivity frontier is the sum of all existing best practices at a given time. Maximum value a company delivering a particular product can create. Improving operational effectiveness helps companies move towards the frontier. Emerging new technologies…...

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