Fundamentals of Competitive Strategy

On the last day of September 1999, I slid into my customary front-row seat for a 90-minute talk by Michael Porter on his latest thioughts on competitive strategy. Here's what he said:

The goal of competitive strategy is long-term return on investment.

The fundamental unit of analysis is the industry.

You must do both (which Drucker would call efficient and effectiveness.)

differentation (which merits a premimum price)

competititve advantage

lower cost (more efficient)

where does advantage come from? operational effectiveness =

• achieve
• maintain best practices
• extend

do it better

• employ the most up-to-day equipment, IT, inputs, mgt techniques
• eliminate waste
• stimulate continual improvement

the tools are

1. TQM
2. time-based
3. lean production
4. benchmarking
5. activity-based costing
6. re-engineering
7. virtual corporation
8. learning organization
9. change management

enablers are

1. CAD/CAE/CAM
2. ERP
3. the net

   but while operational effectiveness is needed, by itself it's insufficient, because...

   yields absolute, not relative improvement

   everybody's doing it (life as a hamster)

   competitive convergence (many players competing on the same things)

hence the need for STRATEGIC POSITIONING -- create a unique and sustainable competitive position

operational effectiveness = running a race with the competition

strategy = choosing to run a different race

the essence of strategy is setting limits.

example = Neutrogena soap. health aisle, not cleaning aisle. limited varieties, premium price

example = Southwest Air. all elements in harmony, playing a different game

strategy implies there is no one best way

create a distinct proposition

tradeoffs

system of interlinked activities