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 customers 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 companys
  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 companys unique position,
  making trade-offs and forging it among activities.