what is strategy michael porter

by Michael E. Porter. As managers push to improve on all fronts, they move further away from viable competitive positions. In all three types of fit, the whole matters more than any individual part. In his famous article from the Harvard Business Review, “What Is Strategy,” Michael Porter seeks to define strategy through a series of influences. Many managers and leaders and organizations think that they are trying to be the best organization in their industry. If the Company is targeting the Entire Market or just a small Segment. Strategy: Performing different activities from rivals’ or performing similar activities in different ways. There are three types of fit, which are not mutually exclusive: 1. Variety-based positioning: Produce a subset of an industry’s products or services. Porter, M. E. 1996. Moreover, trade-offs create the need for choice and protect against repositioners and straddlers. One approach to persevering growth and reinforcing strategy is to concentrate on deepening a strategic position rather than broadening and compromising it. First-order fit: Simple consistency between each activity (function) and the overall strategy. For more than three decades, Harvard Professor Michael Porter has been developing and refining the essential frameworks that explain how competition works and its implications for strategy in business, government, and society. In contrast, the essence of strategy is choosing a unique and valuable position rooted in systems of activities that are much more difficult to match. For more information, see our Cookie Policy. After reading it, you understand the core of this strategy theory. Thus, the root cause of the problem seems to be failure of management to distinguish between operational effectiveness and strategy: Management tools have taken the place of strategy. According to Porter, a sustainable advantage cannot be guaranteed by simply choosing a unique position, as competitors will imitate a valuable position in one of the two following ways: 1. Further, consistency makes it easier to communicate the strategy to customers, employees, and shareholders, and improves implementation through single-mindedness in the corporation. Three key principles underlie strategic positioning. He is generally recognized as the father of the modern strategy field. 1. Operational effectiveness- performing similar activities better than rivals. A competitor can choose to reposition itself to match the superior performer.2. He illustrates how the last quarter-century saw managers believing corporate strategy is the nature of a firm’s operational effectiveness – or business activity efficiencies. All strategy is based on understanding competition. Strategic fit is fundamental not only to competitive advantage but also to the sustainability of that advantage because it is harder for a competitor to match an array of interlocked activities than it is merely to replicate an individual activity. Michael E. Porter is the C. Roland Christensen Professor of Business Administration at the Harvard Business School in Boston, Massachusetts. On the other hand, improvements in one activity will "pay dividends in others" (p. 74). By using this site, you agree to this use. In contrast, the essence of strategy is choosing a unique and valuable position rooted in systems of activities that are much more difficult to match. Bowman's Strategy Clock helps you think at the next level of details, because it splits Porter's options into eight sub-strategies. Thus, strategy can also be defined as creating fit among a company’s activities as the success of a strategy depends on doing many things well - not just a few - and integrating among them. In the Michael Porter’s Generic strategies, three main strategies are used as the base namely, Cost leadership, Differentiation leadership and Focus. He is credited for creating Porter's five forces analysis, which is instrumental in business strategy development today. What is a strategy? Operational Effectiveness Is Not Strategy. Moreover, strong leaders, who are willing to make choices, are essential. The serious study of strategy is usually credited to “Competitive Strategy,” a landmark book published in 1980 by Harvard Business School Professor Michael Porter. Achievements Neutrogena has established itself in the soap market through variety-based positioning. Operational Effectiveness: Necessary but Not Sufficient. The Generic Strategies can be used to determine the direction (strategy) of your organisation. Porter’s article is full of detailed information about strategy, and he uses multiple examples to explain his positions. by Michael E. Porter Included with this full-text Harvard Business Review article: The Idea in Brief— the core idea The Idea in Practice— putting the idea to work Article Summary What Is Strategy? This page shares his wisdom on the subject. 2. If you read nothing else on strategy, read these 10 articles (featuring “What Is Strategy?” by Michael E. Porter).We've combed through hundreds of Harvard Business Review articles and selected the most important ones to help you catalyze your organization's strategy development and execution. In contrast, the essence of strategy is choosing a unique and valuable position rooted in systems of activities that are much more difficult to match. Michael Porter is one of the foremost leaders on strategy. Compromises and inconsistencies in the pursuit of growth eventually erode the competitive advantage of a company and their uniqueness. The leader should be able to teach others in the organization about strategy - and to say no. "Strategic continuity does not imply a static view of competition. Michael Porter’s frameworks help explain how organizations can achieve superior performance in the face of competition. In addition to defining strategy, Porter also talks about what strategy is not. What Is Strategy? Positioning choices determine not only which activities a company will perform and how it will configure individual activities but also how activities relate to one another. What Is Strategy? Im Mittelpunkt seiner Arbeiten stehen Fragen von Strategie und Wettbewerb: für Einzelunternehmen, Regionen und Volkswirtschaften… Porter believed that price couldn’t be the only thing influencing strategy. Thus, for most customers, this type of positioning will only meet a subset of their needs. If there is no fit among activities, there is no distinctive strategy and little sustainability. In a 1996 Harvard Business Review article [5] and in an earlier book [6], Porter argues that competitive strategy is "about being different." Such competition can be witnessed in Japanese companies, which started the global revolution in operational effectiveness in the 1970s and 1980s. First, Michael Porter (1996) argued that operational effectiveness (OE) is different from strategy and most people fall due to inability to distinguish the two. Michael Porter argues that operational effectiveness, although necessary to superior performance, is not sufficient, because its techniques are easy to imitate. Strategy is the creation of a unique and valuable position, involving a different set of activities. Thus, competition based on operational effectiveness shifts the frontier outward and effectively raises the bar for everyone. These are known as Porter's three generic strategies and can be applied to any size or form of business. Fit means that poor performance in one activity will degrade the performance in others, so that weaknesses are exposed and more prone to get attention. Access-based positioning: Segmenting customers who are accessible in different ways. Strategy Explained. Michael Porter argues that operational effectiveness, although necessary to superior performance, is not sufficient, because its techniques are easy to imitate. He is the Bishop William Lawrence University Professor at Harvard Business School, and he was one of the founders of the consulting firm The Monitor Group and FSG, a social impact consultancy. Michael Eugene Porter is a Professor at The Institute for Strategy and Competitiveness, based at the Harvard Business School. Thus, deepening a position means making the company’s activities more distinctive, strengthening fit, and communicating strategy better to those customers who value it. It’s about charting a clear course for your company, rather than individual units of the company, with the CEO playing the role of commander-in-chief. You can change your cookie choices and withdraw your consent in your settings at any time. It must deliver greater value to customers or create comparable value at a lower cost, or do both. This concept of competition based on operational effectiveness is illustrated via the productivity frontier, depicted in the figure below. Fit, as per Porter, is the central component of competitive advantage because discrete activities often affect one another. Operational Effectiveness Is Not Strategy What Is Strategy? "Among all other influences, the desire to grow has perhaps the most perverse effect on strategy" (p. 75). Needs-based positioning: Serves most or all the needs of a particular group of customers. But such competition only produces absolute improvement in operational effectiveness and no relative improvement for anyone. A company can outperform rivals only if it can establish a difference that it can preserve. Porter claimed that a company must only choose one of the three or risk that the business would waste precious resources. Porter's generic strategies detail the interaction between cost minimization strategies, … "Fit locks out imitators by creating a chain that is as strong as its strongest link" (p. 70). By choosing to compete in one way and not the other, management is making its organizational priorities clear. “Strategy is the big picture of how the organization is going to win in its environment, whatever that is.” “Strategy is not competing to be the best. Today's dynamic markets and technologies have called into question the sustainability of competitive advantage. Strategy is the creation of … Although fit among activities is generic and applies to many companies, the most valuable fit is strategy-specific because it enhances a position’s uniqueness and amplifies trade-offs. Trade-offs occur when activities are incompatible and arise for three reasons: 1. The book deals with strategy at a high level. Porter's later thinking on strategy rides the new wave of revolutionary strategic thinking led by Hamel and links consistently with his earlier work. Rivals continue to match each other until desperation breaks this vicious cycle, and results in a merger or downsizing to the original positioning. Michael E. Porter is the leading authority on competitive strategy, the competitiveness and economic development of nations, states, and regions, and the application of competitive principles to social problems such as health care, the environment, and corporate responsibility. Porter's Generic Strategies offer a great starting point for strategic decision-making. Moreover, the fundamental problem lies in the "best-practice" mentality of the managers, who believe in making no trade-offs, incessantly pursuing operational effectiveness, and imitating competitors to catch up in the race for operational effectiveness. I. This website uses cookies to improve service and provide tailored ads. Professor Porter is generally recognized as the "Father of Strategy", as has been identified in a variety of rankings and The reason for this being that competitors are quickly able to imitate best practices like management techniques, new technologies, input improvements, etc. What Is Strategy? Thus, strategy requires continuous discipline and clear communication. Thus, "positions built on systems of activities are far more sustainable than those built on individual activities" (p. 73). Copyright © President & Fellows of Harvard College, The Agenda for the Next Generation of Health Care Information Technology, A Recovery Squandered: The State of U.S. Competitiveness 2019, NEJM Catalyst Innovations in Care Delivery. Trade-offs arise from limits on internal coordination and control. What makes the Company “Strong” in the Market. 2. Whatever the basis (variety, needs, access, or some combination of the three), positioning requires a tailored set of activities because it is always a function of differences in activities (or differences on the supply side). Er gilt als einer der führenden Managementtheoretiker. It arises when there are a group of customers with differing needs, and when a tailored set of activities can serve those needs best. Managers should be able to clearly distinguish between the two. Harvard Business Review (November-December): 61-78. What is strategy- Michael Porter 1. Porter wrote in 1980 that strategy targets either cost leadership, differentiation, or focus. The productivity frontier is the sum of all existing best practices at any given time or the maximum value that a company can create at a given cost, using the best available technologies, skills, management techniques, and purchased inputs. 1. He says it is not operational effectiveness. Michael Porter argues that operational effectiveness, although necessary to superior performance, is not sufficient, because its techniques are easy to imitate. Such systems are difficult to untangle and imitate even if the competitors are able to identify the interconnections. "A sound strategy is undermined by a misguided view of competition, by organizational failures, and, especially, by the desire to grow" (p. 75). “Strategy is the big picture of how the organization is going to win in its environment, whatever that is.” “Strategy is not competing to be the best. Thus, expanding globally is more likely to reinforce a company’s unique position than broadening domestically. Strategy is about choosing what to do as well as what not to do. Michael E. Porter is the C. Roland Chiistensen Professor The root of the problem is the failure to distin- of Business Adminislralion at the Harvard Business guish between operational effeetiveness and strat- School in Boston, Massachusetts. Trade-offs arise from activities themselves. Additionally, fit among activities creates pressures and incentives to improve operational effectiveness, which makes imitation even harder. Under pressure to improve productivity, quality, and speed, managers have embraced tools such as TQM, benchmarking, and reengineering. Different positions require different product configurations, different equipment, different employee behavior, different skills, and different management systems. Published on November 11, 2015 November 11, 2015 • 112 Likes • 13 Comments While operational effectiveness focuses on individual activities, strategy concentrates on combining activities. I applaud the author and publisher for experimenting here and for a fresh and innovative approach. However, both are important for higher performance. Access can be a function of customer geography or customer scale or of anything that requires a different set of activities to reach customers in the best way. “What is strategy” is a fun, innovative way of presenting them. Although both operational effectiveness and strategy are necessary for the superior performance of an organization, they operate in different ways. I. But, they have their own working way. A company must continually improve its operational effectiveness and actively try to shift the productivity frontier; at the same time, there needs to be ongoing effort to extend its uniqueness while strengthening the fit among its activities" (p. 78). Competitive advantage stems from the activities of the entire system. Professor of Business Administration at the Harvard Business School in Boston, Massachusetts. Michael Porter helicopters into the HQ of Acorn, a company trying to develop a strategy to move forward and decide where to spend its limited resources. In contrast, companies that try to be all things to all customers, often risk confusion amongst its employees, who then attempt to make day-to-day operating decisions without a clear framework. Professor Porter is generally recognized as the "Father of Strategy", as has been identified in a variety of rankings and IV. It means deliberately choosing a different set of activities to deliver a unique mix of value" (p. 64). 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