What Is Strategy ? By Michael E.Porter

A R T I C L E

What Is Strategy?

by Michael E.Porter

P R O D U C T N U M B E R 4 1 3 4

New sections to

guide you through

the article:

• The Idea in Brief

• The Idea at Work

• Exploring Further . . .

Rivals can easily copy

your improvements

in quality and efficiency.

But they shouldn’t be

able to copy your strategic

positioning—what

distinguishes your company

from all the rest.

HBR

OnPoint

FROM THE HARVARD BUSINESS REVIEW

T myriad activities that go into creating,

producing, selling, and delivering a product or

service are the basic units of competitive advantage.

Operational effectiveness means performing

these activities better—that is, faster, or

with fewer inputs and defects—than rivals.

Companies can reap enormous advantages from

operational effectiveness, as Japanese firms

demonstrated in the 1970s and 1980s with such

practices as total quality management and continuous

improvement. But from a competitive

standpoint, the problem with operational

effectiveness is that best practices are easily

emulated. As all competitors in an industry

adopt them, the productivity frontier—the

maximum value a company can deliver at a

given cost, given the best available technology,

skills, and management techniques—shifts outward,

lowering costs and improving value at the

same time. Such competition produces absolute

improvement in operational effectiveness, but

relative improvement for no one. And the more

benchmarking that companies do, the more

competitive convergence you have—that is,

the more indistinguishable companies are

from one another.

Strategic positioning attempts to achieve sustainable

competitive advantage by preserving

what is distinctive about a company. It means

performing different activities from rivals, or

performing similar activities in different ways.

What Is Strategy?

T key principles underlie strategic

positioning.

1. Strategy is the creation of a unique and

valuable position, involving a different set

of activities. Strategic position emerges

from three distinct sources:

• serving few needs of many customers

(Jiffy Lube provides only auto lubricants)

• serving broad needs of few customers

(Bessemer Trust targets only very

high-wealth clients)

• serving broad needs of many customers in

a narrow market (Carmike Cinemas

operates only in cities with a population

under 200,000)

2. Strategy requires you to make trade-offs

in competing—to choose what not to do.

Some competitive activities are incompatible;

thus, gains in one area can be achieved

only at the expense of another area. For

example, Neutrogena soap is positioned

more as a medicinal product than as a

cleansing agent. The company says “no”

to sales based on deodorizing, gives up

large volume, and sacrifices manufacturing

efficiencies. By contrast, Maytag’s decision

to extend its product line and acquire other

brands represented a failure to make

difficult trade-offs: the boost in revenues

came at the expense of return on sales.

3. Strategy involves creating “fit” among a

company’s activities. Fit has to do with the

ways a company’s activities interact and

reinforce one another. For example, Vanguard

Group aligns all of its activities with

a low-cost strategy; it distributes funds

directly to consumers and minimizes portfolio

turnover. Fit drives both competitive

advantage and sustainability: when activities

mutually reinforce each other, competitors

can’t easily imitate them. When Continental

Lite tried

...