Michael Porter: What Is Strategy?

Comprehensive vocabulary flashcards defining the essential terms, principles, and strategic frameworks from Michael E. Porter's foundational article 'What Is Strategy?'.

Operational Effectiveness (OE)

Performing similar activities better—faster, or with fewer inputs and defects—than rivals perform them.

Strategic Positioning

Performing different activities from rivals, or performing similar activities in different ways, to deliver a unique mix of value and achieve sustainable competitive advantage.

Activities

The basic units of competitive advantage consisting of the discrete economic steps required to create, produce, sell, and deliver products or services; overall advantage or disadvantage results from all of a company's activities.

Productivity Frontier

The maximum value a company delivering a particular product or service can create at a given cost, using the sum of all existing best practices, available technologies, skills, and management techniques.

Competitive Convergence

The phenomenon in which rivals imitate one another's improvements, benchmark continuously, and outsource to the same third parties, making strategies converge and competitors virtually indistinguishable from one another.

Variety-Based Positioning

A strategic position based on producing a distinct subset of an industry’s products or services using tailored sets of activities, serving many customers while meeting only a subset of their needs (e.g., Jiffy Lube, Vanguard).

Needs-Based Positioning

A strategic position that arises when targeting a specific group of customers with differing needs and serving most or all of those needs through a tailored set of activities (e.g., Ikea, Bessemer Trust).

Access-Based Positioning

A strategic position based on segmenting customers who have similar needs to others but require a different configuration of activities to be reached due to customer geography, scale, or distribution access (e.g., Carmike Cinemas).

Straddling

A form of imitation where a competitor attempts to match the benefits of a successful rival's position while maintaining its own existing position, grafting new features, services, or technologies onto activities it already performs (e.g., Continental Lite).

Repositioning

A form of imitation where an established company shifts its entire strategic stance and reconfigures its activities to match a superior performer (e.g., J.C. Penney repositioning from a Sears clone to an upscale fashion retailer).

Trade-offs

Incompatibilities between competitive activities occurring when more of one thing necessitates less of another, creating the need for choice and deterring imitation by straddlers or repositioners.

Fit

The way a company's discrete activities interact, complement, and reinforce one another to create an interlocking system that locks out imitators and sustains competitive advantage.

First-Order Fit

Simple consistency between each discrete activity (or functional policy) and the company's overall strategy, ensuring advantages cumulate rather than cancel out.

Second-Order Fit

A level of strategic fit where individual activities actively reinforce one another, multiplying competitive advantages (e.g., Neutrogena's upscale hotel distribution reinforcing sales through drugstores and dermatologists).

Third-Order Fit

Optimization of effort across activities that goes beyond mutual reinforcement to eliminate redundancy and minimize wasted effort (e.g., The Gap's frequent warehouse restocking minimizing store inventory).

Activity-System Map

A diagram showing how a company's strategic position is delivered through high-order strategic themes implemented through clusters of tightly linked, tailored operational activities.

The Growth Trap

The hazard wherein management's desire for revenue growth leads to incremental additions of product varieties, imitation of rivals, and compromise of trade-offs, ultimately blurring uniqueness and eroding profitability.

Deepening a Strategic Position

An approach to growth that focuses on making existing activities more distinctive, strengthening fit, and offering features or services that leverage the company's unique system rather than compromising it through broadening.

The Operational Agenda

The management responsibility involving continual improvement, flexibility, and relentless efforts to achieve best practice everywhere there are no trade-offs.

The Strategic Agenda

The leadership responsibility involving the definition of a unique position, making clear trade-offs, tightening fit, maintaining continuity, and decisively choosing what not to do.

Generic Strategies

Michael Porter's foundational framework identifying cost leadership, differentiation, and focus as the three broad, alternative strategic positions available in an industry.