Review the article What is strategy? by Michael .E. Porter
Michael Eugene Porter is a Professor at The Institute for Strategy and Competitiveness, based at the Harvard Business School. He is generally recognized as the father of the modern strategy field. One of his great writing is “What is strategy?” published in 1996.
The beginning of the article raises a mistake of Operational Effectiveness for Strategy that many companies had suffered for almost two decades. In the article, Operational Effectiveness means performing similar activities better than rivals perform them. To achieve this objective, companies based on its strength using their best available technologies, skill, management, human resource, eliminated wasted effort, motivated employees… As the result of this, they could offer lower cost but superior quality to the customers meanwhile moving toward the frontier. In this case, customers and suppliers received a lot of benefit. But for the companies the fast and dramatic profit they received at the early time day by day became nothing. They just run faster and faster in the endless race of Operational Effectiveness, no one could win. One of the reasons for this is so irony. Competitors imitated the best practices in technology, management, input improvement. Therefore most of the companies look nearly the same. There were no difference and competitive advantage anymore and the sinking price ever nearer to marginal cost. We can see it clearly in mobile phone market; Samsung is facing with the imitation from Chinese companies for example Xiaomi. Those new entrants put a heavy threat on market share and made Samsung lose a lot of money.
By finding out and describe the matter really clearly, this article has shown the conflict in operating the companies. Managers have tried to get the better but receive the worse. It explains why many companies got stuck in their management trap for almost twenty years. To make it clearer, a very typical example falls into Japanese companies which imitated and emulated one another, tried to satisfy any need from
customers. This argument from Porter helps managers avoid mistake and remind them about strategy.
In the second part of the article, the method to solve the matter is introduced: “Strategy rests on Unique Activities”. Porter suggested that to avoid copying, and to be different, managers have to choose a different set of activities to deliver a unique mix of value, and perform activities different from competitors. It is Strategy positioning including three sources: The first one is “Variety Based Positioning”. The companies use this if they can create a particular product or service using distinctive set of activities to satisfy one common need of a group of customers. A very good example for this case is Jiffy Lube International. It just focus on automotive lubricants, no other car repair or maintenance service. Therefore, their service is faster at lower cost, persuading customer to get oil changes. This way will attract customers with strong and specific need especially the wise customers who believe in the advantage of specialization.
The second one is “Needs Based Positioning” meaning serving all or most of the needs of a particular group of customers. To illustrate this case, Porter showed a very excellent example of Ikera. This company tried to serve all the home furnishing needs of its target customers who were happy to trade-off service for cost and need stylish furniture, in-store child care, extended hours. Besides according to the customers’ life period or special occasions, companies can offer different kinds of services, for example, BIDV bank can offer student a loan for study, after that another loan for buying car, house or when he needs some money for his wedding or business. The third one is “Access Based Positioning”: Segmenting customers who are accessible in different ways (geography, scale, or other differentiator that requires customizing of activities to reach this group of customers). For example, in Indian rural places where the roads were too poor that car and truck can not approach, Unilever group used local people to carry their products (shampoo…) and deliver to
the local people in those remote places. In practice, some companies likes Blackberries, Samsung can attract normal customers by advertising but for famous people who create the fashion trend and influence community’s preference, the best way is sponsor or giving them the new expensive product as a present and paying them to use it. Anyway, there is an argument that is strategy doesn’t mean niche approach and the most important is that decision
on selecting a set of activities has to meet a group of customers’ common needs. The more valuable the company’s position is the more attractive for rivals to imitate. Competitors can reposition itself or straddling (Continental airline maintain its full service while imitated Southwest point-to-point routes, no meal, low fare…). In order to make strategic position sustainable and avoid a burden of functions, companies have to trade-off. And it is mentioned in the third part of the article. “Trade-off” creates the need for choice and protects against repositioning and straddles as well as limit what a company offers. The company trades-off for three reasons; the first is in consistencies in image or reputation. For example Neutrogena has built it image for medical reputation, other brand can not copy because of huge expense. Some famous singers, actors or actresses never appear in small-time, unimportant show or event which may blur their image and reputation. The second is from activities themselves, different position need different standards, method, and equipment (Ikea)…. A university lab room is just used for teaching or checking models in simple cases. It can not be used to do business in complex case like the lab room in industry. Finally; it comes from limit on internal coordination and control. Continental lost a lot of money when imitating Southwest to add a new service for point-to-point flight.
However, in practice, trade-off is not easy. It’s not sure to choose what to remain and what to give up. In psychology, managers always want to make their company grow. When seeing the competitors who are successful and get a lot of profit, it’s hard to ignore without jump into that business. Therefore, trade-off requires thoughtful decision and sensitive impression. Furthermore, Porter argues that to gain competitive and sustainability every thing has to be “Fit”. That is the way activities relate to another. They are combined to fit and reinforce another. Activities can be performed separately but the give effect on each other. Since competitors are facing an entire ecosystem, with elements that allow and strengthen each other existence, they need to be very persistent, capitalize, or creative to be able to replicate or break the company’s strategy. To break a single chopstick is easy but it’s impossible to do the same with a bundle. Samsung’s success is achieved by a combination many aspects. Their products
are well designed by excellent designers who are often visit world’s wonders, museum, and learn more knowledge from specialists. In addition, they have 33 technology centers for research. Their new management philosophy is another strong point, quality control and positive changes are extremely focused. On the other hand, Long Thanh milk fell to get fit. Their product “Lothamilk” is really good on quality and preferred by customers but the conflict among the leaders, the problem in management, and weakness in promotion prevent them from being in the top and growth. In the last part, Porter mentions about Rediscovering Strategy. One of main point is Failure to choose. Managers have been confused about the necessity of making choices. Scaring of leaving behind, companies imitated one another rush to meet all the needs of customers. Focusing on the efficiency frontier could lead one to think that companies should be able to beat its rivals simultaneously on all dimensions.
Another one is Growth Trap that means blind pursuit of growth has a diluting effect on a company’s strategy. Neutrogena suffered such a painful experience when they expanded into a wide variety of products: eyes-makeup remover, shampoo…which are not unique and weaken their image. Everything became worse when they began turning to promotion. The second point is Profitable Grow: Too often efforts to develop might harm the strategy but managers can choose suitable activities and cost to element their performance, deepen the long-term position. For example, Maytag organized it value brands into separate units with different strategic position while creating umbrella appliance company for all its brands to gain critical mass. The last but not least important is The Role of Leadership. The managers’ making choice or decision is really important. They have to choose what to do and what to trade-off. In Samsung’s management, when the CEO’s decision is made, all the members in this company have to strictly follow without any other argument or objection. In conclusion, improving in Operational Effectiveness is essential but it’s not enough because company need strategy for long-term success. Therefore, every company has to create preservable positive difference to set up it position, know how to trade-off, keep fit, and flexible enough to adapt wit h major constructional changes in its industry.
The article “What is strategy” helps the readers to find out the difference between operational Effectiveness and Strategy, Then managers can realize the way to develop a valuable and sustainable strategy to control the company’s growth and maintain its composition as well as avoid mistake, and copy from the rivals. After reading this managers can combine positioning, trade-off, fit together to have a good strategy. It
also shows us Strategy is the direction and capacity of an organization over long-term, and it is very important for the success of any business organization. Besides all the arguments in the article are in a good order. At the beginning, the problem was raised, and then came many explanations leading the solution. Each argument is made clear by a typical example which is clearly analyzed. On the other hand, the subjects in examples are reused many times, that helps the readers feel familiar and understand deeply about every case. Moreover, the information in the article is really useful and practical for management because it is the result of a careful research based on real, practical situations of some famous companies from all over the world. In addition, the business reality reflected in this article clearly illustrates the theory in the book. Finally, it is well designed and easy to understand. Therefore, all readers from beginning or advantage levels can enjoy it and find something useful for them.
— The end —