What is strategy

FROM THE HARVARD BUSINESS REVIEW

OnPoint
A R T I C L E

HBR
Rivals can easily copy your improvements But they shouldn’t be

What Is Strategy?
by Michael E. Porter

in quality and efficiency.

able to copy your strategic positioning—what distinguishes your company from all the rest.

New sections to guide you through the article: • The Idea in Brief • The Idea at Work • ExploringFurther. . .
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What Is Strategy?

he 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 reapenormous 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 candeliver at a

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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 moreindistinguishable 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.

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h r e e key principles underlie strategic positioning.
1. Strategy is the creationof 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 highwealth clients) • serving broad needs of many customers in a narrow market (Carmike Cinemas operates only incities 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, givesup large volume, and sacrifices manufacturing efficiencies. By contrast, Maytag’s decision to

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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 andreinforce 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 to match a few of Southwest Airlines’ activities,but not the whole interlocking system, the results were disastrous.

Employees need guidance about how to deepen a strategic position rather than broaden or compromise it. About how to extend the company’s uniqueness while strengthening the fit among its activities. This work of deciding which target group of customers and needs to serve requires discipline, the ability to set limits, and...