Strategy according to Michael Porter

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Strategyaccording toMichael Porter

• Business Strategy
• Business Administration
• The University of Winnipeg

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What is Strategy? Harvard Business
ReviewNovember December, 1996

• Michael E. Porter
• Harvard Business School

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The Purpose of Strategy

• (strategy is)essential to superior performance,
  which, after all, is the primary goal of any
  enterprise.
• Michael E. Porter, What is Strategy?
• Strategy is about achieving competitive advantage
  winning!

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Competitive Advantage

• Outperforming the competition
• usually measured by Return on Equity
• Consistently outperforming the competition over
  time

Sustained Competitive Advantage
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Porters Route toCompetitive Advantage

• Strategic discipline to strengthen strategic
  position
• Continual improvement in operational effectiveness

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Operational Effectiveness

• Operational effectiveness (doing individual
  activities well) can and will likely be readily
  copied and therefore is not a sustainable source
  of advantage.
• However, it is still a necessary, (although not
  sufficient) condition for competitive advantage.

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Competitive Advantagerequires Sustainable
Difference

• A company can outperform rivals only if it can
  establish a difference that it can preserve.
• Michael Porter, What is Strategy?

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Competitive Advantagerequires a Defensible
Position

• Competitive Strategy is about being different.
  It means deliberately choosing a different set of
  activities to deliver a unique mix of value.
• Michael Porter, What is Strategy?

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The dimensions of aStrategic Position

• Strategic positions can be based on
• Customers needs
• WalMart, Superstore
• Companys products or services
• Toys-a-Us
• Way of Accessing Customers
• Amazon.com, Mary Kay Cosmetics

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A defensible Strategic Positioninvolves
Trade-offs

• A Strategic Position is sustainable only to the
  extent to which occupying it involves tradeoffs
  in the supporting activities.
• The necessity for tradeoffs is not only a
  function of resource constraints
• Some activities are inherently incompatible

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Strategy is about Choice

• Strategy is also about what not to do!
• Strategy requires hard choices.
• One of the leaders jobs (is) to say no.
• Michael Porter, What is Strategy?

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Strategy renders choices about what not to do as
important as choices about what to do.- Michael
Porter, What is Strategy?
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Competitive Advantagerequires fit among
activities

• Strategy is about combining activities
• Michael Porter, What is Strategy?
• For consistency with strategy
• For mutual reinforcement
• To optimize effort and mix of activities

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Strategy according to Michael Porter

• The goal is to win!
• Deliberate, disciplined choices based on analysis
• Leadership is key

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Comparisons and Contrasts

• Michael Porter

• Henry Mintzberg

Harvard Business School
McGill University
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Two Schools of Strategy
Position School
Process School

• Deliberate strategy
• (Porter / Harvard)
• Strategy is the conscious, analytical development
  of a distinct position in the environment

• Emergent strategy
• (Mintzberg / McGill)
• Strategy is an intuitive process through which
  the organization evolves by adapting to its
  environment

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Organizational Goals
Position School
Process School

• Competitive Advantage
• (strategy is)essential to superior performance,
  which, after all, is the primary goal of any
  enterprise
• Michael Porter
• What is Strategy?

• Continued Existence
• (strategy is)all things necessary for the
  successful functioning of an organization as an
  adaptive mechanism.
• Richard T. Pascale
• The Honda Effect

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Relationship to Environment
Position School
Process School

• Determine, develop and defend an advantageous
  position in the environment
• Be disciplined about this choice

• Learn and evolve through ongoing experience
  within the environment
• Dont be afraid to experiment

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Organizational Capabilities
Position School
Process School

• Build mutually-reinforcing fit among
  organizational activities in tightly focused
  support of chosen strategic position

• Encourage experimentation and variety in
  activities, from which potential new strategies
  may emerge

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Implications forStrategic Management
Position School
Process School

• Leadership conceptualizes strategy based on
  analysis and mobilizes the organization in
  well-coordinated support of it.

• Leadership nurtures a learning, flexible
  organization which is highly responsive and
  adaptable to the environment.

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Question for you!

• Which school of strategy do you find more
  convincing personally?
• Why?

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Preference forPosition versus Process strategy
seems to depend on.

• Degree of Volatility in the environment
• Size of the Company
• Internal / External locus of control
• Risk / Return preference
• Management style / ego

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Lets Compromise

• Strategy formation walks on two feet one
  deliberate, the other emergent.
• Henry Mintzberg
• Of Strategies Deliberate and Emergent