Strategy according to Michael Porter

StrategyStrategyaccording toaccording to

Michael PorterMichael Porter

Business StrategyBusiness & 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

Consistently outperforming the competition over time

Sustained Competitive Advantage

Porter’s Route toCompetitive 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 Advantagerequires Sustainable Difference

“A company can outperform rivals only if it can establish a difference that it can preserve.”

• Michael Porter, What is Strategy?

Competitive Advantagerequires 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 aStrategic Position

Strategic positions can be based on:– Customers’ needs

• Wal*Mart, Superstore– Company’s products or services

• Toys--Us– Way of Accessing Customers

• Amazon.com, Mary Kay Cosmetics

A defensible Strategic Positioninvolves 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 leader’s 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 Advantagerequires “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

“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

Position School Process School

Organizational Goals

Competitive Advantage– “(strategy is)…

essential to superior performance, which, after all, is the primary goal of any enterprise”

• Michael Porter– What is Strategy?

Continued Existence– “(strategy is)…all

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

• Richard T. Pascale– The Honda Effect

Position School Process School

Relationship to Environment

Determine, develop and defend an advantageous position in the environment

Be disciplined about this choice

Learn and evolve through ongoing experience within the environment

Don’t be afraid to experiment

Position School Process School

Organizational Capabilities

Build mutually-reinforcing “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

Position School Process School

Implications forStrategic Management

Leadership conceptualizes strategy based on analysis and mobilizes the organization in well-coordinated support of it.

Leadership nurtures a learning, flexible organization which is highly responsive and adaptable to the environment.

Position School Process School

Question for you!

Which “school of strategy” do you find more convincing personally?

Why?

Preference forPosition 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

Let’s Compromise

“Strategy formation walks on two feet… one deliberate, the other emergent.”

– Henry Mintzberg– Of Strategies Deliberate and Emergent