Today’s dynamic markets and technologies have called into question the sustainability of competitive advantage. Under pressure to improve productivity, quality, and speed, managers have embraced tools such as TQM, benchmarking, and re-engineering. Dramatic operational improvements have resulted, but rarely have these gains translated into sustainable profitability. And gradually, the tools have taken the place of strategy. In his five-part article, Michael Porter explores how that shift has led to the rise of mutually destructive competitive battles that damage the profitability of many companies. As managers push to improve on all fronts, they move further away from viable competitive positions. Porter argues that operational effectiveness, although necessary to superior performance, is not sufficient, because its techniques are easy to imitate. In contrast, the essence of strategy is choosing a unique and valuable position rooted in systems of activities that are much more difficult to match. Porter thus traces the economic basis of competitive advantage down to the level of the specific activities a company performs. Using cases such as Ikea and Vanguard, he shows how making trade-offs among activities is critical to the sustainability of a strategy. Whereas managers often focus on individual components of success such as core competencies or critical resources, Porter shows how managing fit across all of a company’s activities enhances both competitive advantage and sustainability. While stressing the role of leadership in making and enforcing clear strategic choices, Porter also offers advice on how companies can reconnect with strategies that have become blurred over time.
Many Strategies Fail Because They’re Not Actually Strategies
Many strategy execution processes fail because “new strategies” are often not strategies at all. A real strategy involves a clear set of choices that define what the firm is going to do and what it’s not going to do. Many strategies fail to get implemented because they do not represent such a set of clear choices. And many so-called strategies are in fact goals. “We want to be the number one or number two in all the markets in which we operate” is one of those. It does not tell you what you are going to do; all it does is tell you what you hope the outcome will be. But you’ll still need a strategy to achieve it. Another reason why many implementation efforts fail is that executives see it as a pure top-down, two-step process: “The strategy is made; now we implement it.” That’s unlikely to work. A successful strategy execution process is seldom a one-way trickle-down cascade of decisions.
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This article originally appeared on Fortune.com.
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