What Is Strategy

What is strategy? By M.E. Porter

Michael Porter formalized a new approach to competition, not limiting it to a confrontation on prices and products. The company needs to have a real long-term strategy based on an analysis of its sector’s structure to be successful and sustainable (durable).

In this article from 1996 M. Porter gives us his definition of the business strategy that has the ultimate objective to have a competitive advantage (or added value) in the long term. Porter introduced the strategy as not being only the pursuit of operational effectiveness. His definition of operational effectiveness in one sentence is “performing similar activities better than rivals”.

He strongly differentiated strategy to the operational effectiveness so favoured by the majority of decision makers. The question that we can ask would be:  can OE be sufficient to get a competitive advantage in long term review?

Operational effectiveness although important, has shortcomings: the "best practices" that are now experiencing rapid diffusion and they tend to standardize, uniform businesses. In fact, the race for "best practices" observed in some sectors more often destroys the competitive positions that it strengthens them, which is contrary to the objectives of the strategic approach (ex; Japanese companies).  In addition, the author defends the existence of a limit to this approach "productivity frontier" certainly moving (because of technologies), which forces companies to a sterile confrontation by penalizing prices, margins, and increasing pressure on costs, which is contrary to all the interests of the industry.

The main idea defended by Porter is: “A company can outperform rivals only if it can establish a difference that it can preserve.”  For Porter, the challenge is there: “Competitive strategy is about being different”. The author heavily insists on the notion of "trade-offs" explaining that the strategy is as much about choosing the activities to perform as not to perform.

For an efficient (and complete) strategy the various company activities must be consistent with each other (concept of strategic position or "fit") and should not interfere themselves. The most cited example is prestige brands that can afford to launch discount products without the risk of damaging their image. The author then identifies three approaches in positioning:

• Answer a few needs of a large number of customers "variety-based positioning".
• Responding to a large number of needs of a particular group of customers "needs-based positioning".
• Meeting the needs of customers who are only accessible in one way because of geographical segmentation, cultural… "Access-based positioning"

M. Porter then explicates the interest and the types of strategic positions. The essential idea is that the strategy lies more in the fact of combining these activities than to choose them: the competitors will meet many difficulties to reproduce the induced competitive advantage.

First because the links may not be visible to competitors, and secondly because the entire chain must be reproduced in order to have the competitive advantage in question (which often induces a disproportionate cost). The author then distinguishes three levels in the strategic position: