What is Strategy - By Michael Porter

For almost two decades, managers are learning to play by new rules. There’s an increasing trend of managers adopting new ways of managing their business and subsequently their business processes. Flexibility, Benchmarking, Outsourcing, TQM, Six Sigma – these are just some of the tools and techniques floating out there. Managers have taken to the thought that they need to be flexible to respond to today’s dynamic and complex environment. When everybody’s into the same business, have the same competencies, how do you get that edge? You improvise, optimize and make sure you are leading the race. But does it translate to you winning the race? The answer is No - because that’s a different story altogether. Even after obtaining efficiencies and improvements in the business, it has been noticed there is no sustainable profitability for companies. Why – because operational effectiveness and strategy and two different things. Its like salt and pepper – different colors, taste and purpose - but you need both to create a perfect recipe! As managers push for improvement on all fronts, they move farther away from their viable competitive positions. It’s like a race where no one wins – everyone is running faster but all they do is maintain their original position in the grid.

Porter goes on to emphasize that a company can outperform rivals only if it can establish a difference it can preserve – called Strategic Position. A company can do this by concentrating on its activities and recognizing that activities are the units of competitive advantage. Doing the same activities in a better way will only achieve operational effectiveness. Yes, its crucial for your business to be lean, eliminate waste, be more productive etc. But this alone is not sufficient.

There are couple of reasons why! Firstly, there will be diffusion of best practices. Sooner or later, your competition will realize the reasons of the deficit and latch on to the same tools and techniques you employed to get ahead. It will be good for the industry as a whole with absolute improvement for all the players but there would be no relative improvement for any of them. There would be no differentiating factor with any of the players. Back to square one! Secondly, with increasing competitive convergence, companies have to out-last others rather than out-class them. When everybody is doing the same thing, with the same efficiencies, it boils down to stamina or how long these companies can sustain their business. And slowly, they start experiencing diminishing returns. Back to square one again!

The key, therefore, is to think and do things differently. That’s one essence of strategy – get those cog oiled up and create a new engine that others cannot imitate. Achieve a strategic position by doing the activities differently or think of new activities altogether. This will shake things up and create a unique position for you in the market. Not only is it important to know what to do but also to know what not to do.

Please bear with this lame example: Let's suppose you have 5 jars full of gems (representing profits) with a golden coin (representing competitive advantage) at the bottom of each one of the jars. If I'm a smart ass company, I'll dip my fingers in all five, try to reach for as many gems as possible and also aim for the golden booty. So instead of getting the competitive edge, all I can manage is a handful of gems from different jars. Companies have to be careful of this honey trap. They need to realize that its better to concentrate on one jar, get the gems, get the coin and make the jar your own. Getting the drift...?...Create a unique position!!

The key to creating that valuable and unique position is to concentrate on activities! Excellence in individual activities will only achieve operational effectiveness. The strategy should be to excel in all activities combined. Like a Swiss watch - everything matters and is tuned to perfection. There is no single link that can be identified as the 'strongest link' or the 'weakling'. There has to be a 'fit' among the activities. The degree of fit would determine the intensity of your competitive advantage. Moreover, your competition would find it hard to imitate such a close interlocked system of activities. It is easy to imitate technology or products but much harder to copy a set of activities that are closely knit.

So the takeaway from the whole post is to do things differently! that's it... my two cents.