What is strategy?

Thèmes abordés

Strategy, long-term profitability, business strategy, best practices, companies, strategic management

Résumé du document

The first thing to understand is that operational effectiveness is necessary but it's not sufficient to achieve a long-term profitability. Strategy and operational effectiveness are two different things: operational effectiveness means doing things better; strategy means doing otherwise. The operational effectiveness allows moving the productivity frontier outward but because of the rapid diffusion of best practices this is an endless-quest (for example the Japanese companies in the eighties).

Extraits

[...] Then a first definition of strategy can be drawn: the creation of a unique and valuable position, involving a different set of activities. III. A sustainable position requires trade-offs Yet, a strategic positioning won't be enough because competitors will always be able to copy it. Then trade-offs will arise for different reasons. First, a lack of consistency in image or reputation (because of a confusing positioning). Secondly, it comes from inflexibility of people, system and machines that cannot make different things in the same time. [...]

[...] What is strategy ? I. Operational effectiveness is not strategy The first thing to understand is that operational effectiveness is necessary but it's not sufficient to achieve a long-term profitability. Strategy and operational effectiveness are two different things: operational effectiveness means doing things better; strategy means doing otherwise. The operational effectiveness allows moving the productivity frontier outward but because of the rapid diffusion of best practices this is an endless-quest (for example the Japanese companies in the eighties). Besides there's a sneakier reason for operational effectiveness not to be sufficient is that the more companies are benchmarking, the less unique they are, and by doing so managers let operational effectiveness prevail over strategy. [...]

[...] Rediscovering strategy Managers must unlearn several things: the macho sense they have been taught about not making trade-offs (seen as a sign of weakness); the systematic improvement of operational effectiveness because it gives measurable performance; and their willingness to grow which compels them to broaden their position. For instance Maytag has been pressured to extend its activities, but despite soaring revenues profits have been falling, and this broadening eroded the competitive advantage of Maytag. The solution seems to deepen a strategic position by choosing activities that will be well performed due to the complementary activities. This solution relies on strong leaders who will provide discipline and set limits, and therefore give a strategic continuity by defining a unique position, making clear trade-offs and tightening fit. [...]

[...] Fit drives both competitive advantage and sustainability. The company strategy must enhance a particular fit that will be part of the company's identity and will combine successfully together the company's activities (this is how Southwest Airline locked out competitors). Three type of fit can be distinguished: simple consistency (such as low cost), which gives an easily understandable strategy; reinforcing activities, like Neutrogena working with luxury hostels; optimization effort in which coordination and clear information are the keys to prevent time-wasting and redundancy. [...]