Operational Effectiveness (OE) is not Strategy ?

1. 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

2. OE is necessary but not sufficient: Weaknesses • Competitors can quickly imitate management techniques, technologies, input improvements and superior ways to meet customer’s needs. • Eg: Japanese companies (1970-1990) enjoyed substantial cost & quality advantages (productivity frontier). Now they need to learn strategy. • Competitive Convergence: The more the rivals outsource activities, the more generic those activities. • Rivals can quickly copy any market position. • Competitive advantage is temporary. • Rivals imitate the improvements in quality, cycle times or supplier partnerships.

3. OE is necessary but not sufficient: Weaknesses • Gradually, managers have let OE supplant strategy. The results are: • Zero-sum competition • Static or declining prices • Pressure on cost that compromise company’s ability to invest in the business for the long-term

4. Strategic Positions • The essence of strategy is choosing to perform activities different from rivals. • Strategic positions are often not obvious and finding them requires creativity and insight. • New entrants often discover unique positions that have been available but overlooked by established competitors. • E.g.: IKEA, ,Southwest Airlines

5. The Origins of Strategic Positions • Companies can obtain strategic position in three ways (not mutually exclusive): • Variety-based positioning • Needs-based positioning • Access-based positioning

6. 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 will meet only a subset of their needs. • E.g.: The Vanguard Group

7. 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.: Edward Jones

8. 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.: Amazon.com

9. Positioning & Strategy • Positioning : requires a tailored set of activities (based on variety, needs, access or a combination of them) because it is always a function of DIFFERENCE. • Strategy : is the creation of a unique and valuable position involving a different set of activities. • The essence is to choose activities that are different from rivals.

10. Important Concepts • Positioning trade-offs are pervasive in competition and essential to strategy. • Trade-offs create the need for choice and purposefully limit what a company offers. • Positioning determines also how activities relate to one another. • Strategy is combining activities. • Competitive advantage comes from the way activities fit and reinforce one another. Strategic fit = competitive advantage + superior profitability

11. Type of Fits • Create consistency between each activity or function and the overall strategy. • Create activities that are reinforcing. • Optimize efforts with coordination and information exchange to eliminate redundancy and minimize wasted efforts. • Competitive advantage grows out of the entire system of activities. • The fit among activities substantially reduces cost or increase differentiation.

12. 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 unless they successfully match the whole system.

13. 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 among them.

14. 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 pursue of growth may erode a competitive advantage.

15. 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 company’s unique position, making trade-offs and forging it among activities.