Michael Porter

What is Strategy?

by Michael E. Porter

Harvard Business Review
Reprint 96608

HarvardBusinessReview
NOVEMBER-DECEMBER 1996
Reprint Number
MICHAEL E. PORTER

WHAT IS STRATEGY?

96608

STEPHEN S. ROACH

THE HOLLOW RING OF THE PRODUCTIVITY REVIVAL

96609

NIRMALYA KUMAR

THE POWER OF TRUST IN
MANUFACTURER-RETAILER RELATIONSHIPS

96606

JAMES WALDROOP AND TIMOTHYBUTLER

THE EXECUTIVE AS COACH

96611

AMAR BHIDE

THE QUESTIONS EVERY ENTREPRENEUR MUST ANSWER

96603

ROB GOFFEE AND GARETH JONES

WHAT HOLDS THE MODERN COMPANY TOGETHER?

96605

MICHAEL C. BEERS

HBR CASE STUDY
THE STRATEGY THAT WOULDN’T TRAVEL

96602

THINKING ABOUT…
THE HUMAN SIDE OF MANAGEMENT

96610

SOCIAL ENTERPRISE
PROFITS FOR NONPROFITS: FIND A CORPORATEPARTNER

96601

PERSPECTIVES
THE FUTURE OF INTERACTIVE MARKETING

96607

BOOKS IN REVIEW
INSIDE INTEL

96604

THOMAS TEAL

ALAN R. ANDREASEN

ADAM M. BRANDENBURGER
AND BARRY J. NALEBUFF

HBR
NOVEMBER-DECEMBER 1996

I. Operational Effectiveness Is Not Strategy
F or almost two decades, managers have been
learning to play by a new set of rules. Companies
must be flexible torespond rapidly to competitive and market changes. They must benchmark
continuously to
achieve best practice. They must
outsource aggressively to gain efficiencies. And
they must nurture a few core competencies in the by Michael
race to stay ahead of rivals.
Positioning – once the heart of strategy – is rejected as too static for today’s dynamic markets and
changing technologies. According tothe new dogma, rivals can quickly copy any market position,
and competitive advantage is, at best, temporary.
But those beliefs are dangerous half-truths, and
they are leading more and more companies down
the path of mutually destructive competition.
True, some barriers to competition are falling as
regulation eases and markets become global. True,
companies have properly invested energy inbecoming leaner and more nimble. In many industries,
however, what some call hypercompetition is a
self-inflicted wound, not the inevitable outcome of
a changing paradigm of competition.
The root of the problem is the failure to distinguish between operational effectiveness and strat-

egy. The quest for productivity, quality, and speed
has spawned a remarkable number of management
toolsand techniques: total quality management,
benchmarking, time-based competition, outsourcing, partnering,
reengineering,
change management. Although
the resulting operational improvements have often
E. Porter been dramatic, many companies have
been frustrated by their inability to
translate those gains into sustainable profitability.
And bit by bit, almost imperceptibly, management
toolshave taken the place of strategy. As managers push to improve on all fronts, they move farther
away from viable competitive positions.

What Is Strategy?

HARVARD BUSINESS REVIEW

Operational Effectiveness:
Necessary but Not Sufficient
Operational effectiveness and strategy are both
essential to superior performance, which, after all,
is the primary goal of any enterprise. But they workin very different ways.
Michael E. Porter is the C. Roland Christensen Professor
of Business Administration at the Harvard Business
School in Boston, Massachusetts.

November-December 1996 Copyright © 1996 by the President and Fellows of Harvard College. All rights reserved.

Operational Effectiveness
Versus Strategic Positioning
high

Productivity Frontier
(state of best practice)Nonprice buyer value delivered

A company can outperform rivals only if it can
establish a difference that it can preserve. It must
deliver greater value to customers or create comparable value at a lower cost, or do both. The arithmetic of superior profitability then follows: delivering greater value allows a company to charge higher
average unit prices; greater efficiency results in...