1: What is Strategy? (Porter)

Q1A: Strategic Positioning means performing similar activities better than rivals. T/F.

False

Q2A: Porter points out that OE is necessary to compete and sufficient to win long term. T/F.

False

Q6: Describe the three types of fit and give an example of each. Discuss "fit and sustainability"

First-order fit: "simple consistency" between each activity & the overall strategy - ie: Vanguard minimizes trading costs & middleman so no need for costly money managers/brokers Second-order: "activities are reinforcing" - Neutrogena markets to upscale hotels = aligns w/ upscale strategy Third-order: "optimization of effort" - GAP does daily restocking of basic items in few colors (minimizes in-store inventory, supports its short model cycle) Fit and Sustainability - strategic fit among many activities is fundamental not only to competitive advantage, but also to the sustainability of the advantage - Harder for competition to match an array of interlocked activities than to imitate a single approach - Positions built an systems of activities are far more sustainable than those built on individual activities - Focus allows companies to improve on that fit over time - making even stronger barriers - Implies strategic focus on longer term when possible

Q8: Describe Strategy in terms of a) positioning, b) trade-offs, and c) fit and sustainability.

Positioning: - creation of a unique and valuable position (image in customer eyes) involving a different set of activities than competitors. Trade-offs: - making trade-offs in competing. - Essentially making choices about what not to do! Fit and Sustainability: - creating fit among activities and do many well Conclusion: without success in these factors, OE determines relative performance - not distinct or sustainable

Q2: Describe the Productivity Frontier and how Porter believes it impacts businesses.

Productivity Frontier - The maximum value or sum of all existing best practices (ie: available tech, skills, mgmt) at a point in time - Frontier constantly shifts outward which lowers costs & improves value for customers - Must constantly improve OE to improve profit this way - Competing at the Productivity Frontier produces "absolute" improvement in OE - But... because everyone is adopting it, it generally produces no long term "relative" improvement for any firm - OE is necessary to compete, but not sufficient to win long term

Q5: Describe the importance of trade-offs and discuss Neutrogena's positioning.

Trade-offs create the need for choice and protect against repositioners and straddlers - create the need for choice & purposefully limit what a company offers - competitors that engage in copied strategies get thrown off - strategy is about making tradeoffs Trade-offs arise for 3 reasons: - Inconsistencies in image or reputation - Trade-offs arise from activities themselves; reflect inflexibilities in machinery, people or systems - Limits on internal coordination and control - management makes strategy clear (confusing to staff if trying to be all things to all customers) Neutrogena "kind to the skin" - Uses a slow, more expensive manufacturing process to mold its fragile soap - Residue-free pH balanced - Said no to deodorant and skin softeners - Gave up large volume potential by not competing on price - Created a premium "medical" soap reputation - Focus on dermatologists - Market through journals to doctors

Q4A: Which of the following is not one of the three distinct sources from which Porter states that strategic positions emerge A) Variety-Based B) Income-Based C) Needs-Based D) Access-Based

B) Income-Based

Q7A: Which of the following aspects of the Growth Trap cause companies to fail with strategy? A) Manager's lag technology B) Aggressive marketing C) Pressure to grow cause broadening of customer targets D) None of the above

C) Pressure to grow cause broadening of customer targets

What is Strategy?

Key Principles of Strategy: 1) Strategy = the creating of a unique & valuable position, involving a different set of activities.... emerges from: - serving few needs of many customers - serving broad needs of few customers - serving broad needs of many customers in a narrow market 2) Strategy requires you to make trade-offs in competing - to choose what not to do. 3) Strategy involves creating "fit" among a company's activities - Two decades of rapid change - Competition, markets, technology - Outsource aggressively for efficiencies - "Positioning" rejected as too static - Belief is prevalent that rivals can copy any market position - Competitive advantage is temporary - Renders positioning ineffective - Porter sees things differently Porter: - Agrees easing regulation and global business reduce barriers - Agrees companies are leaner and more nimble - Claims hypercompetition is a self inflicted wound! -Root of the problem - operational effectiveness (OE) ≠ strategy - Rampant quest for productivity, quality and speed (TQM, etc.) creates tool focus - Tool focus replaces strategy

Q7: Describe Porter's answer to why companies fail with strategy. Focus on the Growth Trap.

Manager's chase technology to keep up Sign of weakness not to have "winner take all" attitude Growth Trap - Trade-offs appear to limit growth so are counter-intuitive to many managers - Pressure to grow causes broadening of customer targets - resulting in loss of distinctiveness - Instead - better meet needs and provide varieties where company is already distinctive

Q1: Describe Operational Effectiveness (OE) versus Strategic Positioning. List some key elements of each.

Operational Effectiveness (OE) means performing similar activities better than rivals - Greater efficiency results in lower unit costs - doesn't work over time b/c OE practices are easy to copy by competitors Strategic Positioning means performing different activities from rivals or performing them in different ways - Greater value enables charging higher unit prices - More sustainable over time than OE

Q3: Describe the two reasons Porter claims that OE is insufficient as a strategy.

Resulting major productivity gains ... - drive costs down (passed on to customers) - competitors catch up in productivity and also charge less - consultants, suppliers & customers reap this value (not providers) Competitive convergence - all firms start looking the same b/c of benchmarking & outsourcing --> must eliminate the competition to win

Q4: Describe the three distinct sources from which Porter states that strategic positions emerge?

Variety-based positioning - Superior value chain for specific product or service using distinct activities - Usually meets only a subset of needs - ie: Jiffy-Lube: just does oil changes Needs-based - Serve all needs of a customer segment - Closest to traditional thinking of positioning - identify customers w/ different needs & tailor into set of needs - ie: IKEA: seeks to meet all home-furnishing needs of its target customers Access-based - Serve a distinct geological set of customers w/ specific activities - Standardized, low cost approaches to serve them - ie: Carmike Cinemas - only in towns of <200K, offer unique cheap option w/ specific activities

english

english