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The Hidden Value of Marrying Strategies and Activities
Common strategy trap
• Failure to perform a different set of activities than rivals
2* What is Strategy?, Michael Porter, HBR, November 1996
The airline industry is a good example of this
3
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The result has been a bloodbath for competitors
• The domestic airline industry reported negative net income in 23 of 31 years since the industry was deregulated
New York to Chicago
5* Uncommon Service, Frances Frei, Anne Morriss, 2012
Most important to price &
convenience sensitive
customers
Least important to price &
convenience sensitive
customers
On-board amenities
Extensive network
Convenient airports
Fast transport
Frequent departures
On-time arrivals
Friendly service
Low prices
0 1 2 3 4 5
Southwest
Delta
American
United
Attribute map for airline industry
Relative performance
6* Uncommon Service, Frances Frei, Anne Morriss, 2012
Most important to price &
convenience sensitive
customers
Least important to price &
convenience sensitive
customers
On-board amenities
Extensive network
Convenient airports
Fast transport
Frequent departures
On-time arrivals
Friendly service
Low prices
0 1 2 3 4 5
Southwest
Delta
American
United
That all changed when Southwest entered
Relative performance
Southwest’s activities align more deliberately with the attributes that matter most to it’s customers
• Low prices– No meals– No seat assignments– No baggage transfers– Automatic ticketing machines– Limited use of travel agents
• Friendly service– High employee compensation– High level of stock ownership– Flexible union contracts
• On-time arrivals/ Frequent departures
– Standardized fleet of 737s– No meals– No seat assignments– No connections w/ other airlines– Flexible union contracts
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• On-time arrivals/ Frequent departures
– Standardized fleet of 737s– No meals– No seat assignments– No connections w/ other airlines– Flexible union contracts
• On-time arrivals/ Frequent departures
– Standardized fleet of 737s– No meals– No seat assignments– No connections w/ other airlines– Flexible union contracts
Southwest’s activities also align and reinforce each other
• Low prices– No meals– No seat assignments– No baggage transfers– Limited use of travel agents– Automatic ticketing machines
• Friendly service– High employee compensation– High level of stock ownership– Flexible union contracts
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• Low prices– No meals– No seat assignments– No baggage transfers– Automatic ticketing machines– Limited use of travel agents
• Friendly service– High employee compensation– High level of stock ownership– Flexible union contracts
And the alignment of these activities has a compounding effect that is difficult to imitate
9* What is Strategy?, Michael Porter, HBR, November 1996
Ikea is another company that performs a different set of activities than its rivals do
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Attribute map for the furniture industry
11* Uncommon Service, Frances Frei, Anne Morriss, 2012
Most important to young
customers seeking style @
low cost
Least important to young
customers seeking style @
low cost
Location
Sales assistance
Assembly
Durability
Fun destination
Self service
One-stop shopping
Ability to change
0 1 2 3 4 5
Ikea
Retailer C
Retailer B
Reailer A
Relative performance
That all changed when Ikea entered the market
12* Uncommon Service, Frances Frei, Anne Morriss, 2012
Most important to young
customers seeking style @
low cost
Least important to young
customers seeking style @
low cost
Location
Sales assistance
Assembly
Durability
Fun destination
Self service
One-stop shopping
Ability to change
0 1 2 3 4 5
Ikea
Retailer C
Retailer B
Reailer A
Relative performance
Ikea’s activities align more deliberately with the attributes that matter most to it’s customers
• Superior furniture design– Team of highly skilled designers– Catalog and store layouts showcase
appealing room layouts– All designs focused on cost of
manufacturing and stocking
• Low manufacturing cost– 100% sourcing from long term
suppliers – Seamless integration of production
and shipping supply chain
• Self service– Explanatory catalogs– Most items in inventory– Daily re-stocking– Packaged for easy transport and
assembly– Limited sales staffing
13
Ikea’s activities also align and reinforce each other
• Superior furniture design– Team of highly skilled designers– Catalog and store layouts showcase
appealing room layouts– All designs focused on cost of
manufacturing and stocking
• Low manufacturing cost– 100% sourcing from long term
suppliers – Seamless integration of production
and shipping supply chain
• Self service– Explanatory catalogs– Most items in inventory– Daily re-stocking– Packaged for easy transport and
assembly– Limited sales staffing
14
And the alignment of these activities has a compounding effect that is difficult to imitate
15* What is Strategy?, Michael Porter, HBR, November 1996
One implication is that strategies need a long range time horizon to take root
• Frequent shifts in strategy are costly because companies must not only reconfigure individual activities, but must realign entire systems of activities as well
16* What is Strategy?, Michael Porter, HBR, November 1996
Summary
• One of the most common strategy traps is the failure to perform a different set of activities than rivals
• The alignment of activities is critical because individual activities often affect one another
• When activities are consistent and reinforcing, the competitive advantage accumulates rather than erodes or cancels itself out
• Companies like Southwest and Ikea outperform rivals because the cumulative effect of their activity systems are very hard to replicate
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