Porter, Michael. What Is Strategy? Harvard Business Review, November-December 1996.
* it is NOT operational effectiveness (OE) * a company can outperform rivals only if it can establish a difference that it can preserve * OE means performing similar activities better than rivals perform them * strategic positioning means performing different activitie from rivals' or performing similar activities in different ways * OE is eliminating wasted effort,employ more advanced technology, motivate employees better, have greater insight into managing activities * productivity frontier: the maximum value that a company delievering a particular product or service can create at a given cost using the best available technologies, skills, management techniques and purchased imputs. * constant improvement in OE is necessary to achieve superior profitability, but it is insufficient * few companies have competed successfully on the basis of OE... [because of] the rapid diffusion of best practices. Competitors can quickly immitate management techniques, new technologies, input improvements, and superior ways of meeting customers' needs * the resulting major productivity gains are being captured by customers and equipment suppliers, not retained in superior profitability * japan is notoriosly consensus oriented, and companies have a strong tendency to mediate differences among individuals rather than accenturate them. .. also have a deeply ingrained service tradition that predisposes them to go to great lengths to satisfy any need a customer expresses. Companies that compete in that way end up blurring their distinct positioning, becoming all things to all customers. * competition that is based on OE alone is mutually destructive, leading to wars of attrition that can be arrested only by limiting competition * contintinous improvement has been etched on managers' brains but its tools unwittingly draw companies toward imitation and homogeneity * competitive strategy is about being different. It means deliberately choosing a different set of activities to deliever a unique mix of value. * the essence of strategy is choosing to perform activities differently than rivals do * southwest does not offer meals, assigned seats, interline baggage checking or premoum classes of service * rather than rely solely on third party manufacturers, ikea designs its own low-cost, modular, ready to assemble furniture to fit its positioning * three distinct sources of strategic positions 1. Variety based: based on choice of product or service rather than on customer segmentation. meets only a subset of their needs a. jiffy lube - specializes in automobile libricants and does not offer care repair b. the vanguard group - sacrifices possibility of extraordinary performance in any one year for a good performance in every year 2. Needs based: meet all needs of target customers a. Ikea - seeks to meet all of the home furnishing needs of its target customers, not just a subset of them b. Bessemer trust - min $5mil capital, 1 acct officer per 14 families, no loans needed c. Citibank private bank - $250k assets, 1 acct officer per 250, lots of loans, no meetings 3. Access based: geography or customer scale a. Carmike - only in towns under 250,000 * positioning requires a tailored set of activities because it is always a function of differences on the supply side * sustaininable strategic position requires trade-offs * a valuable position will attract imitation 1. repositing to match a. J.C. Penney repositioned from a Sears clone to more upscale 2. straddling a. Continential Lite tried to straddle southwest - strategic position is not sustainable unless there are trade-offs with other positions * trade-offs arise for three reasons 1. inconsitancies in image or reputation a. ivory can't become a medical soap 2. from the activities themselves a. the more ikea has configured its activities to lower costs by having customers do their own assembly and delivery, the less able it is to satisfy customers who require higher levels of service 3. limits on internal coordination and control a. customers who try to be all things to all customers risk confusion in the trenches as employees attempt to make day-to-day operating decisions without a clear framework * OE is about achieving excellence in individual activities or function. strategy is about combining activies * [CORE COMPETANCE REFERENCE]: What is southwest's core competence? Wverything matters. southwest's strategy involves a whole system of activities, not a collection of parts. it's competitive advantage comes from the way its activities fit and reinforce one another * fit locks out imitators by creating a chain that is as strong as its strongest link. * [CORE COMPETANCE REFERENCE]: rather than seeing the company as a whole. managers have turned to core competencies. in fact, fit is a for more central component of competitive advantage than most realize * fit is important because discrete activities affect one another. * three types of fit, not mutually exclusive 1. first order: simple consistancy a. vanguard aligns all activies with its low-cost strategy, minimized portfolio turnover, limits advertising, ties bonuses to cost savings 2. second order: activities are reinforcing a. neutrogena marketing to upscale hotels encourages guests to ask about it from their doctor or drugstore. b. bic pens. heavy advertising, frequent packaging changes, point of sale displays 3. third order: optimization of effort a. gap: restock stores daily from warehouse, turns inventory over 7 1/2 times a year * the whole matters more than any individual part. competitive advantage grows out of the entire system of activities * [CORE COMPETANCE REFERENCE]: the competitive value of individual activities --or the associated skills, competenceies, or resources--cannot be decoupled from the system or the strategy. thus in competitive companies it can be misleading to explain success by specifying individual strengths, core competencies or critical resources. It is more useful to think in terms of themes. * it is harder for a rival to match an array of interlocked activities than it is merely to imitate a particular sales-force approach, match a process technology or replicate a set of product features. * the more a company's positioning rests on activy systems with second and third order fit, the more sustainable its advantage will be. such systems, by their very nature, are usually difficult to untangle from outside the company and therefore hard to imitate * strategy is creating fit among a company's activities * when companies operate far from the productivity frontier, trade-offs appear unnecessary * some managers mistake "customer focus" to mean they must serve all customer needs or respond to every request from distribution channels * pressures to grow or apparent saturation of the target market lead managers to broaden positions by entending product lines, adding new feattures, imitating competitors' popular services, matching processes and even making acquisitions * compromises and inconsistencies in the prusuit of growth will erode the competitive advantage a comapny had with its original varieites or target customers. attempts to compete in several ways at once create confusion and undermine organizational motivation and focus 1. neutrogena distrubution broadened to include walmart * efforts to grow blur uniqueness, create compromises, reduce fit and ultimately undermine copetitive advantage. * look for extension of the strategy that leverage the existing activity system by offering features or services that rivals would find impossible or costly to match on a stand-alone basis. In other words, managers can ask themselves which activities, features or forms of competition are feasible or less costly to them because of complementary activities that their company performs. * leadership: defining and communicating the company's unique position, making trade-offs, and forging fit among activities * OE is driving many industries toward competitve convergence
Porter, M. E. & Kramer, M. R. 2006. Strategy and society: The link between competitive advantage and corporate social responsibility. Harvard Business
* Corporate Social Responsibility (CSR) * CSR efforts not as productive because: 1. pit business against society when clearly the two are interdependent 2. pressure companies to think of CSR in generic ways insteadd of in the way most appropriate to the firm's strategy * four prevailing arguments for CSR 1. moral obligation 2. sustainability 3. license to operate 4. reputation * companies should operate in ways that secure long-term economic performance by avoiding short-term behavior that is socially detrimental or environmentally wasteful * a firm that views CSR as a way to placate pressure groups often finds that its approach devolves into a series of short-term defensive reations--a never ending public retaliations palliative with minimal value to society and no strategic benefit for the business. * Value Chain analysis 1. primary activities a. Inbound logistics (e.g. incoming material, data collection) b. Operations (e.g. assembly, fabrication) c. Outbound logistics (e.g. order processing, warehousing) d. Marketing and Sales (e.g. sales force, promotion, web site) e. after-sales service (e.g. installation, customer support) 2. support activities a. admin infrastructure (e.g. financing, planning, investor relations) b. HR (e.g. recruting, training, compensation) c. technology development (e.g. product design, testing, research) d. procurement (e.g. components, machinery, advertising) * diamond framework 1. context for firm strategy and rivalry 2. local demand conditions 3. related and supporting industries 4. factor(input) conditions * business and society need each other * strong regulary standards protect both consumers and competitive companies from exploitation * if governments, NGO and other participants in civil society weaken the ability of business to operate productively, they may win battles but lose wars. * points of intersection 1. inside out linkages - company imoinges upon society 2. outside in linkages - external social conditions influence corporations * competitive context 1. quantity and quality of available business inputs 2. rules and incentives that govern competition 3. size and sophistication of local demand 4. local availability of supporting industries * categories of social issues 1. Generic Social Issues 2. Value Chain Social Impacts 3. Social Dimensions of Competitive Context * where a social issue is salient for many companies across multiple industries, it can often be address most effectively through cooperative models * responsive CSR: acting as a good corporate citizen and mitigating existing or anticipated adverse effects from business activities. their effect is inherently limited, however. No matter how beneficial the program is, it remains incidential to the company's business. * strategic CSR: (Strategy= choosing a unique position --doing things differently from competitors in a way that lowers cost or better serves a particular set of customer needs.) SCSR unlocks shared value by investing in social aspects of context that strengthen company competitiveness. the more closely tied a social issue is to the company's business the greate the opportunity to leverage the firm's resources and capabilities and benefit society. * organizing for CSR: identify and prioritize social issues based on their salience to business operations and their importance to the company's competitive context. move away from an emphasis on image to an emphasis on substance. * the most important thing a corporation can do for society and for any community is contribute to a prosperous economy. * companies must stop thinking in terms of CSR and start thinking in terms of corporate social integration * perceive social responsibility as building shared value rather than as damage control or as a PR campaign * identify the particular set of societal problems that is best equipped to help resolve and from which it can gain the greatest competitive benefit. addressing social issues by creating shared value will lead to self-sustaining solutions that do not depend on private or government subsidies.
Porter, Michael E. The Competitive Advantage of Nations. Harvard Business Review, March-April 1990.
* ultimately nations succeed in particular industries because their home environment is the most forward-looking, dynamic and challenging * companies achieve competitive advantage through acts of innovation * once a company achieves competitive through innovation, it can sustain it only through relentless improvement * the only meaningful concept of competitiveness at the national level is productivity. productivity is the value of the output produced by a unit of labor or capital * creating more sustainable advantages often means that a compnay must make its existing advantage obsolete--even while it is still an advantage * nation attributes 1. factor conditions - nations position in factors of production such as skilled labor 2. demand conditions - nature of home market demand 3. related and supporting industries - supplier industries that are internationally competitive 4. firm strategy, structure and rivalry - conditions governing how companies are created, organized and managed as well as nature of domestic rivalry * the stock of factors that a nation enjoys at a particular time is less important than the rate and efficiency with which it creates, upgraddes and deploys them in particular industries. * selective disadvantages in the more basic factors can prod a company to innovate and upgrade * companies must also have active domestic rivals who create pressure to innovate * U.S consumer electronic companies, faced with high relative labor costs, chose to leave the product and production process largely unchanged and move labor-intensive activities to Taiwan and other Asian coutnries. Instead of upgrading their sources of advantage, they settled for labor-cost parity. On the other hand, Japanese rivals, confronted with intense domestic competition and a mature home market, chose to eliminate labor through automation. * suppliers and end-users located near eacch other can take advantage of short lines of communication, quick and constant flow of information and an ongoing exchange of ideas and innovations. * companies benefit the most when suppliers are themselves global competitors * domestic rivalry, like any rivalry, creates pressure on companies to innovate and improve. local rivals push reach other to lower costs, improve quality and service, and create new products and processes. bubt unlike rivalries with foreign competitors, which tend to be analytical and distant, local rivalries often go bbbeyond pure economic or business competition and become intenselu presonal. domestic rivals engage in active feuds, they compete not only for market share but also for people, for technical excellence and perhaps most important "bragging rights." * government's proper role is as a catalyst and challenger; it is to encourage--or even push-- companies to raise their aspirations and move to higher levels of competitive performance. * it is not hard to understand why so many governments make the same mistakes so often in pursuit of national competitiveness; competitive time for companis and political time for governments are fundamentally at odds. it often takes more than a decade for an industry to create competitive advantage... but in politics a decade is an eternity. most governments favor politices that offer easily percieved short-term benefits, such as subsidies, protection and arranged mergers. policies that make a real difference are slower and carry with them the sting of short-term pain. deregulating a protected industry, for example, will lead to bankrupcies cooner and to stronger, more competitive companies only later. * how government can help: 1. focus on specialized factor creation - education, infrastructure, research 2. avoid intervening in factor and currency markets 3. enforce strict product, safety and environmental stangards 4. sharply limit direct cooperation among industry rivals - under certain limited conditions, cooperative research can prove beneficial. projects should be in areas of basic product and process research, not subjects closely connected to a company's proprietary sources of advantage 5. promote goals that lead to sustained investment -encourage sustained investment in human skill, in innovation and in physical assets - tax incentive for long term capital gains restricted to new investment in corporate equity 6. deregulate competition 7. enforce strong domestic anti-trust policies - real national competitiveness requires governments to disallow mergers, acquisitions and alliancecs that involve industry leaders 8. reject managed trade - compensatory tariffs that punish companies for unfair trade practices are better than market quotas - also good are restrictions that prevent companies in offending nations from investing in acquistions or production facilities in the host country * the company agenda - recognize the central role of innovation - know that innovation grows out of pressure and challenge 1. Create pressure for innovation 2. seek the most capable competitors as motivators 3. establish early-warning systems 4. improve the national diamond - put headquarters and other key operations where there are concentrations of sophisticated buyers, important suppliers or specialized factor-creating mechanisms such as universities or laboratories 5. welcome domestic rivalry 6. globalize to tap selecctive advantages in other nations - competitive advantage comes from continuous improvement, not from protecting today's secrets 7. use alliances only selectively 8. locate the homebase to support competitive advantage
Porter, Michael. From competitive advantage to corporate strategy. Harvard Business Review, May-June 1987.
* three premises of corporate strategy: 1. Competition occurs at the business unit level 2. Diversification adds costs and constraints to business units 3. Shareholders can readily diversify themselves * three essential tests: 1. Attractiveness test - Many companies ignore this test because: . They believe the industry "fits" very close with their own business . Low entry costs . Diversifying companies are prone to use the rapid growth of an industry as a proxy for this test - attractive industry . high average return on investment . difficult to enter because entry barriers are high . suppliers and buyers have only modest bargaining power . substitute products and services are few . rivalry among competitors is stable - unattractive industry . structural flaws . plethora of substitute materials . powerful and price-sensitive buyers . excessive rivalry caused by high fixed costs . large group of competitors, many of whom are state supported 2. cost-of-entry test - The more attractive an industry is, the higher the cost of entry. - In the excitement of finding an attractive business many corporations ignore the high cost of entry that can eat all of the future profits - an acquirer beats the market if it pays a price not fully reflecting the prospects of the new unit 3. better-off-test - Two types of benefits: . One time (such as installing good management team). This kind of benefit does not contribute to long term benefits. . Ongoing (such as distributing the new units product through the corporations channels). This type of benefit is ongoing and leads to better success throughout the life of the relationship. - Either the new business unit must gain competitive advantage from the relationship with the corporation, or vice versa * Four concepts of corporate strategy 1. portfolio management - Primarily based on diversification through acquisition - The corporation acquires sound businesses with talented management teams that agree to stay on. - Acquired units are autonomous. Corporate provides them with capital and works with each to provide professional management techniques - Top management provides review and coaching without the emotional attachment to the business - in most countries, the days when portfolio management was a valid concept of corporate strategy are past . large companies no longer corner the market for professional management . the benefit of giving business units complete autonomy is questionable - no longer a valid model for corporate strategy in advanced economies 2. restructuring - Corporations seek out underdeveloped, sick or threatened organizations - The corporation intervenes and restructures the business. Typically this involves: . New management team . Shifting strategy . Infusing the business with new technology - This requires a management team with the ability to find the right acquisitions - companies find it very hard to dispose of business units that are restructured and performing well 3. transferring skills - exploit interrelationships - Be careful not to use perceived synergy as a justification for the diversification. - Focus on value activities to identify real value that can be added. These are: a. primary activities . Inbound logistics . Operations . Outbound logistics . Marketing and sales . Service b. secondary activities . Company infrastructure . HR Management . Technology development . Procurement - Value created when utilizing similarities between corporate and business unit - Three conditions must be met . The activities between companies are similar enough that sharing expertise is meaningful. . The activities are important to competitive advantage, not just peripheral activities . The expertise is both advanced and proprietary enough that they are beyond the capabilities of the competition 4. sharing activities - Sharing activities can lower cost or raise differentiation - They lower costs if: . It achieves economies of scale . Boosts efficiency or utilization of resources . Helps a company move more rapidly down the learning curve - Sharing must involve activities that are significant to competitive advantage, such as: . Distribution channels - which to use? . All can be successful, however portfolio management should only be used in certain situations . None are mutually exclusive, and great success can be achieved by combining the concepts . because they don't rely on superior insight or other questionable assumptions about the company's capabilities, sharing activities and transferring skills offer the best avenues for value creation. * Corporate strategy must place emphasis on nurturing the business units to succeed * There are hidden costs such as: * Time spent complying with planning and corporate systems * Live with company guidelines and personnel policies * Forgo the opportunity to motivate employees with equity ownership * Shareholders can diversify their own interests easily * Shareholders can buy diverse shares at market price, not through acquisition * Corporate strategy must add real value to the business in a way that a shareholder cannot * Most companies will make certain that their proposed strategies pass some of these tests. But my study clearly shows that when companies ignored one or two of them, the strategic results were disastrous. * action program 1. Identify the relationship between already existing business units 2. Find all the activities that can add value by being shared or the skills that could be transferred 3. Select the core business that will be the foundation of the corporate strategy 4. Create a horizontal organizational mechanism to facilitate interrelationships among the core business and lay the groundwork for future diversification 5. Pursue diversification opportunities that allow shared activities 6. Pursue diversification through skill transferring is shared opportunities are limited 7. Use a restructuring method if this fits the skills of management 8. Pay dividends so that shareholders can be portfolio managers
Prahalad, C. K. & Hamel, Gary. The Core Competence of the Corporation. Harvard Business Review, May-June 1990.
Mintzberg, Henry & Waters, James A. Of Strategies, Deliberate & Emergent. Strategic Management Journal, Vol. 6, 257-272, 1985.
Mintzberg, H. The Fall and Rise of Strategic Planning. Harvard Business Review, Jan-Feb 1994.
* Q. Why did these two companies, starting with comparable business portfolios, perform so differently?
* A. Largely because NEC conceived of itself in terms of core competencies and GTE did not
* core competence defined: the principal distinctive capabilities possessed by a company what it is really good at.
* NEC: digital technology, esp VLSI and systems integration
* Honda: engines and power trains
* Canon: optics, imaging and microprocessor controls
* Phillips: optical-media
* Three tests to identify CCs
1. Provides potential access to wide variety of markets
2. Makes a big contribution to perceived customer benefits of end product
3. Difficult to imitate
* Probably only have 5 or 6
* CP is physical embodiment of CC
Canon:
CC: optics, imaging and microprocessor controls
CP: laser printer engines
EP: laser printers
* To sustain leadership in CC areas, seek to maximize world manufacturing share in CP
* The problems with SBU approach:
1. SBU owns resources (no sharing)
2. Underinvestment in developing CCs and CPs
3. Bounded innovation- no hybrids
* in the long run, competitiveness derives from an ability to build at lower cost and more speedily than competitors, the core competencies that spawn unanticipated products
* individual businesses don't own anybody. SBUs are entitled to the services of individual employees so long as SBU management can demonstrate that the opportunity it is pursuing yields the highest possible pay-off on the investment in their skills.
The TWO POLES:
Deliberate Strategy: a strategy (a pattern in a stream of actions) that is realized as intended
1- a priori desired intentions
2- shared intentions
3- intentions realized as intended
Emergent Strategy: patterns or consistencies realized despite (in absence of) intentions
1- consistency in action over time
Planned: detailed, clear intentions, backed with formal controls, with an environment that can support it
Entrepreneurial: one dude imposes his vision on the organization. Adaptable, can be changed completely
Ideological: members of
organization share vision
and pursue it
Umbrella: leaders have
only partial control over
other actors. They set the
boundaries for the actors.
Process:
Unconnected:
Consensus:
Imposed:
Our conclusion is that strategy formation walks on two feet, one deliberate, the other emergent. managing requires a light deft touch to direct in order to realize intentions while at the same time responding to an unfolding pattern of action.
* unrealized strategy: intentions not successfully met, realized strategy that is unsuccessful in its consequence, or intentions realized but those intentions dont achieve desired result
* deliberately emergent: central leadership intentionally creates the conditions under which strategies can emerge
* strategic planning is not strategic thinking
* strategic programming: the articularion and elaboration of strategies or visions that already exist
* strategy making: capturing what the manager learns from all sources and then synthesizing that learning into a vision of the direction that the business should pursue
* three fallacies of strategic planning
1. fallacy of prediction
2. fallacy of detachment
3. fallacy of formalization
* planner lack manager's authority to make commitments, and more importantly, manager's access to soft information
* planners as strategy finders, analysts, catalysts
* left and right handed planners: analytic and creative thinkers
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