What Is Strategy? (Porter, HBR Nov-Dec 1996)

Operational effectiveness (OE): Performing similar activities better than rivals (e.g., TQM, outsourcing, reengineering).
OE is necessary but insufficient for superior performance; strategy is essential.
Problem: Management tools (OE) have replaced strategy, leading to mutually destructive competition.
Porter (1996): Hypercompetition is often self-inflicted; failing to distinguish OE from strategy erodes long-term profits.
Productivity frontier: Represents maximum value a firm can create at a given cost with best practices.
- OE improvements move a firm toward the frontier, but these gains often diffuse to customers/suppliers, not the firm.
- Example: Japanese OE in the 1980s improved cost and quality but didn't guarantee sustainable strategic advantage.

Strategy: Deliberately choosing a different set of activities to deliver a unique mix of value.
- Examples: Southwest Airlines (low-cost, point-to-point, no frills); Ikea (self-service, ready-to-assemble furniture, showroom).
Essence of strategy: The chosen activities to deliver value differently.
Three sources of strategic positioning (not mutually exclusive):
1. Variety-based positioning: Producing a subset of products/services more efficiently (e.g., Jiffy Lube, Vanguard).
2. Needs-based positioning: Tailoring activities to meet most needs of a specific customer group (e.g., Ikea, Bessemer Trust).
3. Access-based positioning: Serving customers accessible in different ways (e.g., Carmike Cinemas in small towns).
New entrants often find new strategic positions, unconstrained by incumbents' trade-offs.
Trade-offs: Sustain strategy by limiting what a firm can do, protecting against imitation by creating explicit choices (e.g., low cost vs. high service).

Unique positions attract imitation; trade-offs make imitation costly or suboptimal.
- Imitation can be repositioning or straddling (e.g., Continental Lite failed by trying to straddle low-cost and full-service).
Trade-offs arise from three main reasons:
1. Inconsistencies in image/reputation: Difficult to credibly deliver conflicting values.
2. Trade-offs from activities themselves: Different positions require different configurations of equipment, behaviors, and systems.
3. Limits on internal coordination and control: Clear strategic direction streamlines decision-making.
Key takeaway: True strategic trade-offs are essential for sustaining advantage; without them, firms engage in an OE race to parity.

Strategy is about how activities fit and reinforce each other, not just choosing them.
- Example: Southwest's rapid gate turnarounds enable higher aircraft utilization, reinforcing low-cost, high-convenience.
Core competence: The entire system of activities; fit creates value and deters imitation.
Three types of fit (not mutually exclusive):
1. First-order fit: Consistency between each activity and overall strategy (e.g., Vanguard's low-cost investing strategy).
2. Second-order fit: Reinforcing activities that amplify each other (e.g., Neutrogena's marketing to dermatologists and premium packaging).
3. Third-order fit: Optimization of effort across activities (e.g., The Gap's inventory management).
Activity-system maps: Visualize how activities link and reinforce a strategic position.
The whole system of activities is much harder to replicate than individual activities.
Leadership role: Define unique position, make trade-offs, and forge fit; teach strategy and say no to distractions.

Failure to Choose: Many firms lack clear strategy due to misperceptions about competition, organizational failures, and growth desires.
The Growth Trap: Desire to grow can dilute strategy by broadening positions, adding features, or acquiring (e.g., Maytag, Neutrogena).
Profitable Growth: Deepen existing strategic position rather than broadening it, leveraging existing activity systems.
Reconnecting with Strategy:
- Identify core unique activities, distinctive products, customers, and channels.
- Remove accumulated