‘Understanding Michael Porter’ by Joan Magretta
The essence of strategy is choosing what not to do.
If competition didn’t exist, there’d be no need for strategy.
Strategy is the antidote to competition.
Two ways of gaining a competitive advantage:
- do different things
- do things differently
Competing to be the best is a destructive, zero sum game.
Competing on price is the business equivalent of mutually assured destruction.
Strategic competition = choosing a different path, competing to be unique.
Uniqueness is the essence of competitive advantage.
Run a different race from your rivals.
A good strategy is like a shelter in a storm.
Competitive advantage means you operate at a lower cost, command a premium price, or both.
To sustain a premium price you have to offer something that is unique and valuable.
Improving operational effectiveness does not provide a robust competitive advantage. ‘Best practice’ advantages are rarely sustainable.
Every good strategy has:
- a distinctive value proposition
- a tailored value chain
- trade-offs different from rivals
- interdependent fit across value chain
- continuity over time
Find a unique way to serve your chosen segment profitably.
Effective strategy requires:
- a set of choices that nobody else has made
- trade-offs throughout the value chain, eg Ikea.
- either/or choices – straddling is usually a mistake.
A stable value proposition can still deliver huge innovation. Lots of things in how Walmart works have changed – it’s value proposition hasn’t.
When you substitute flexibility for strategy, your organisation doen’t stand for anything. Flexibility without strategy will guarantee mediocrity.
An effective strategy is dynamic. It’s a path, not a fixed point.
Sticking with a strategy allows it to emerge and improve.
Continuity of direction makes effective change more likely.
Strategy guards against fads.
Ten practical implications:
- Vying to be the best is intuitive but self-destructive.
- Competition is about profits, not market share.
- Competitive advantage is not about beating rivals but creating unique value for customers.
- A strategic value proposition requires a specifically tailored value chain to deliver it.
- A good strategy deliberately makes some customers unhappy.
- Making trade-offs is the linchpin that makes competitive advantage possible and sustainable.
- Without good execution even the most brilliant strategy won’t deliver superior performance.
- Good strategies depend on many choices and the connections among them.
- Too much change can be just as disastrous for strategy as too little.
- Strategy doesn’t require heroic predictions about the future – it does require a point of view.