Strategy according to Michael Porter

Business Strategy Business & Administration The University of Winnipeg

What is Strategy?
Harvard Business Review November December, 1996

Michael E. Porter
Harvard Business School

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!

Competitive Advantage
Outperforming the competition
usually measured by Return on Equity

Sustained Competitive Advantage

Consistently outperforming the competition over time

Porters Route to Competitive Advantage

Strategic discipline to strengthen strategic position Continual improvement in operational effectiveness

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.

Competitive Advantage requires Sustainable Difference

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

Competitive Advantage requires 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?

The dimensions of a Strategic Position

Strategic positions can be based on:
Customers needs
Wal*Mart, Superstore

Companys products or services

Toys-a-Us

Way of Accessing Customers

Amazon.com, Mary Kay Cosmetics

A defensible Strategic Position involves 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

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?

Strategy renders choices about what not to do as important as choices about what to do. - Michael Porter, What is Strategy?

Competitive Advantage requires 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

Strategy according to Michael Porter

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

Comparisons and Contrasts

Michael Porter Henry Mintzberg

Harvard Business School

McGill University

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

Organizational Goals
Position School Process School

Competitive Advantage
(strategy

Continued Existence
(strategy is)all

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

things necessary for the successful functioning of an organization as an adaptive mechanism.

Richard T. Pascale
The Honda Effect

Relationship to Environment
Position School Process School

Learn and evolve Determine, develop through ongoing and defend an experience within advantageous position the environment in the environment Dont be afraid to Be disciplined about experiment this choice

Organizational Capabilities
Position School Process School

Build mutuallyreinforcing 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

Implications for Strategic Management

Position School Process School
Leadership Leadership nurtures conceptualizes a learning, flexible strategy based on organization which analysis and mobilizes is highly responsive the organization in and adaptable to the well-coordinated environment. support of it.

Question for you!

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

Preference for Position 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

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