Operational Effectiveness is Not Strategy

The main problem is the failure to distinguish between

operational effectiveness and strategy.
Operational effectiveness- performing similar activities better
than rivals. E.g: reducing defects in products
Strategic positioning- performing different activities from
rivals or performing similar activities in different ways.
A company can outperform rivals only if it can establish a
difference that it can preserve.
Eg: Japanese companies rarely have strategy
Strategy Rests on Unique Activities
Competitive strategy is about being different
Essence of strategy is- choosing to perform activities
differently or to perform different activities than rivals.
Eg: Southwest Airlines-
Short haul point to point
Low cost
No food
Turnaround time
Small Airports
No agent commission
 Strategic position emerge from 3 sources
Variety-based positioning- producing a subset of an
industrys products or services. Eg: Jiffy Lube
International specializes in automotive lubricants only
Need- based positioning- serving most or all the needs of a
particular group of customers.
Eg: Ikea furniture meets all the home furnishing needs of its
target customers
Access- based positioning- Segmenting customers who are
accessible in different ways. Access can be customer
geography or customer scale.
Eg: Amazon.com, accessing customers exclusively through
internet
A sustainable strategic position requires trade-offs
A strategic position is not sustainable unless there are trade-offs
with other positions.
Trade-offs occur when activities are incompatible.
Trade-offs create the need for choice and protect against
repositioners and straddlers.
 Trade-offs arise for three reasons:
1. Inconsistencies in image or reputation
2. Trade-offs arise from activities themselves
3. Trade-offs arise from limits on internal coordination and
control
Tradeoffs are essential to strategy. They create the need for
choice and purposefully limit what a company offers.
 Trade-offs add a new dimension to the definition of strategy
Strategy is making trade-offs in competing.
The essence of strategy is choosing what not to do.
Without trade-offs, there would be no need for choice and thus
no need for strategy
Fit drives both competitive advantage and
sustainability
The importance of fit among functional policies is one of the
oldest ideas in strategy.
Fit is important because discrete activities often affect one
another.
Three types of fit
1. First-order fit is simple consistency between each activity
(function)
2. Second-order fit occurs when activities are reinforcing
3. Third- order fit occurs when optimization of effort (reducing
redundancy & waste)
 Competitive advantage grows out of the entire system of
activities.
The fit among activities substantially reduces cost or
increases differentiation
Strategy is creating fit among a companys activities.
The success of strategy depends on doing many things well-
not just a few and integrating among them.
Rediscovering strategy
Profit is the key to a successful strategy, not Profit is the key to
a successful strategy, not growth.
Compromises and inconsistencies in the pursuit of growth will
erode the competitive advantage a company.
Keep an eye on profitable growth.
The role of top management in an organization is:
Defining an organizations position and strategy
Making trade-offs
Forging fit among activities
Building an innovation machine
And strategy may have to change along with major structural
changes in an industry -- flexibility is vitally important.
Profitability Frontier