Porter what is strategy. General Porter Strategies. There are no "middle" strategies

Michael Porter was born on May 23, 1947 in Michigan in the family of an American army officer. He graduated from Princeton University, then received an MBA and a Ph.D. from Harvard University, completing each stage of his studies with honors. From 1973 to the present he has been working at the Harvard Business School, since 1981 as a professor. Lives in Brooklyn, Massachusetts.

Throughout his scientific career, M. Porter has been studying competition. He has been a consultant to many leading companies such as T&T, DuPont, Procter&Gmble and Royl Dutch/Shell, rendered services to the directorate lph-Bet Technologies, Prmetric Technology Corp., R&B Flcon Corp. and ThermoQuest Corp. In addition, Porter has served as a consultant and advisor to the governments of India, New Zealand, Canada and Portugal, and is currently the lead regional strategy development specialist for the presidents of several Central American countries.

Being one of the most influential specialists in the field of management, Porter largely determined the main directions of competition research (primarily in a global context), proposed models and methods for such research. He managed to link the development of enterprise strategy and applied microeconomics, which were previously considered independently of each other.

He has written 17 books and over 60 articles. Among the best known are: Competitive strategy: a methodology for analyzing industries and competitors” ( Competitive Strtegy: Techniques for nlyzing Competitors) (1980), "Competitive advantage: how to achieve a high result and ensure its sustainability" ( Competitive dvntge: Creting nd Sustining Superior Performance) (1985) and Competitive Advantages of Countries ( Competitive dvntge of Ntions) (1990).

In his main book, Competitive Strategy, Porter proposed revolutionary approaches to developing the strategy of an enterprise and individual sectors of the economy. This book is based on a thorough study of hundreds of companies in various business areas. According to Porter, the development of a competitive strategy comes down to a clear statement of what the goals of the enterprise should be, what means and actions will be needed to achieve these goals, and what methods the company will compete with. When talking about strategy, managers and consultants often use different terminology. Some talk about "mission" or "task" meaning "goal", others talk about "tactics" meaning "current operations" or " production activities". However, in any terms the main condition in the development of a competitive strategy is the distinction between goals and means.

On the figure 1 competitive strategy is presented in the form of a diagram called by Porter "The Wheel of Competitive Strategy":

• wheel axle is goals companies, including a general definition of its competitive intentions, specific economic and non-economic objectives, the results that it plans to achieve;
• wheel spokes are facilities(methods) by which the company seeks to achieve its main goals, key areas of business policy.

For each point of the scheme, the key points of the business policy are briefly defined (depending on the nature of the business, the wording may be more or less specific). Together, goals and directions represent the concept of strategy, which acts as a guide for the company, determining its development and behavior in the market. As in a wheel, the spokes (methods) emanate from the center (goals) and are connected to each other; otherwise the wheel will not roll.

AT general view the development of a competitive strategy is associated with the consideration of key factors that determine the boundaries of the organization's capabilities ( rice. 2). The advantages and weaknesses of the company - in the structure of its assets and competencies compared to competitors, including financial resources, technological state, brand recognition, etc. The individual values ​​of the organization include the motivation and demands of both top managers and other employees of the company implementing the chosen strategy. Strengths and weaknesses, combined with individual values, determine the inherent limitations of the choice of strategy.

It is equally important when developing a competitive strategy to take into account factors external to the company, given by its environment. The concept of "environment" is understood by Porter very broadly, it includes the action of both economic and social forces. key element external environment The company is the industry (s) in which it competes: the structure of the industry largely determines the rules of the game, as well as the acceptable options for competitive strategies. Since external factors tend to affect all firms in an industry simultaneously, taking into account forces outside the industry is relatively less important in developing a successful competitive strategy, more important than the ability of a particular company to interact with these forces.

The intensity of competition in the industry is far from accidental. It is defined economic structure industry, rather than subjective factors (for example, luck or the behavior of existing competitors). According to Porter, the state of competition in an industry depends on the action of five major competitive forces (rice. 3). The combined effect of these forces determines the industry's ultimate profitability potential, measured as a long-term measure of return on investment. Industries differ significantly in their potential for profitability because the competitive forces operating within them are different. With their intensive impact (for example, in industries such as the production of car tires, paper industry, iron and steel industry), companies do not receive impressive profits. With a relatively moderate impact, high profits are common (in the production of equipment for oil production, cosmetic products and toiletries; in the service sector).

Michael Porter proposed a revolutionary approach to the development of enterprise strategy - using the laws of microeconomics. He began to consider strategy as a basic principle that can be applied not only to individual companies, but also to entire sectors of the economy. Analysis of strategic requirements in various industries allowed the researcher to develop five forces model (rice. 3), taking into account the action of five competitive factors:

1. The emergence of new competitors. Competitors inevitably bring new resources, which requires other market participants to attract additional funds; accordingly, the profit decreases.
2. The threat of substitutes. The presence in the market of competitive analogues of products or services forces companies to limit prices, which reduces revenue and reduces profitability.
3. The ability of buyers to defend their own interests. This entails additional costs.
4. The ability of suppliers to defend their own interests. Leads to higher costs and higher prices.
5. Rivalry between existing companies. Competition requires additional investment in marketing, research, new product development, or price changes, which also reduces profitability.

The influence of each of these forces varies from industry to industry, but together they determine the profitability of a company in the long run.

Porter suggests three basic strategies: absolute leadership in costs; differentiation; focusing. By using these strategies, companies will be able to counteract competitive forces and achieve success. For the effective implementation of the chosen basic strategy, it is necessary to: develop targeted strategic plans ( organizational measures), coordination of actions of all divisions of the company, well-coordinated work of the team. Based on the basic strategy, each company develops its own own version strategies. The achievement by particular companies of superior performance relative to competitors in some industries can lead to an overall increase in profitability for all. In other industries, the very possibility of a company receiving an acceptable profit depends on the success of the implementation of a competitive strategy.

Porter makes it clear that there is no single "best" strategy in any industry: different companies use different strategies, each industry has the same five competitive forces, albeit in different combinations.

Another significant contribution of Michael Porter to management theory is the development value chain concepts. It takes into account all the actions of the company, leading to an increase in the value of a product or service. The researcher highlights main activities related to the production of goods and their delivery to the consumer, and auxiliary that either directly add value (such as technological development) or enable the company to operate more efficiently (through the creation of new lines of business, new procedures, new technologies, or new input materials). Understanding the value chain is extremely important: it allows you to understand that the company is more than a set of different types activities, since all activities in the organization are interconnected. In order to ensure the achievement of competitive goals and successfully respond to external influences from the industry, the company must decide which of these activities should be optimized, what trade-offs are possible.

In the work "Competitive Advantages" Porter moved from the analysis of the phenomenon of competition to the problem of creating strong competitive advantages. Later, he concentrated his efforts on applying the developed principles of competitive strategy analysis on a global scale.

In Competing in Global Industries (1986), Porter and colleagues applied these principles to companies operating in international markets. Based on industry analysis, Porter identified two types of international competition. According to his classification, there are multi-internal industries in which there is internal competition in each individual country (for example, private banking), and global industries. A global industry is “an industry in which a firm's competitive position in one country largely depends on its position in other countries, and vice versa” (for example, automotive and semiconductor manufacturing). According to Porter, the key difference between the two types of industries is that international competition in multi-domestic industries is optional (companies can decide whether or not to compete in foreign markets), while competition in global industries is inevitable.

International competition is characterized by the distribution of activities that form a value chain among several countries. Therefore, in addition to choosing the space for competition and the type of competitive advantage, companies should develop their strategy options also taking into account the characteristics included in the value chain of activities:

• geography of distribution and concentration (where they are carried out);
• coordination (how closely they are related to each other).

There are four possible combinations of these factors:

1. High concentration - high coordination (simple global strategy: all activities are carried out in one region/country and are highly centralized).
2. High concentration - low coordination (a strategy based on export and decentralization of marketing activities).
3. Low concentration - high coordination (strategy of large-scale foreign investment in geographically dispersed, but well-coordinated operations).
4. Low concentration - low coordination (strategy targeting countries where decentralized subsidiaries focus on their own markets).

When competing in international markets, there is also no single correct, “best” strategy for companies. Each time the strategy is chosen depending on the nature of competition in the industry and the five main competitive forces. Porter points out that there may be cases where there is a "scattering" of some activities that define the value chain, and a "concentration" of others. It is important to remember that competitive advantage is determined primarily by as some type of activity is carried out, and not where .

In the book Competitive Advantages of Countries (1990), Porter deepens his analysis of the phenomenon of competition: he reveals determinants that determine the action of competitive forces at the national level:

• working conditions (the presence in the country of such factors necessary for the production of products as a skilled workforce or industrial infrastructure);
• demand conditions (features of the market for a particular product or service);
• presence of supporting or related industries (internationally competitive suppliers or distributors);
• the nature of the company's strategy (features of competition with other companies, including factors such as the organizational and management climate, as well as the level and nature of internal competition).

The influence of these determinants can be found in every country and in every industry. They define the forces of competition within industries: "The determinants of national advantage reinforce each other and grow over time, favoring an increase in competitive advantage in an industry." The emergence of such a competitive advantage often leads to increased concentration, both in individual industries(engineering in Germany, the electronics industry in Japan), and in geographical areas (in northern Italy, in the Rhine regions in Bavaria).

Porter emphasizes the importance of national competitive advantage often occurs under the influence initially unfavorable conditions when nations or industries are forced to actively respond to a challenge. “Individual factor deficiencies, powerful local buyers, early market saturation, skilled international suppliers, and intense domestic rivalry can be critical conditions for creating and maintaining advantage. Pressure and adversity are powerful drivers of change and innovation.” When new industrial forces try to change the existing order, nations experience ups and downs in terms of having a competitive advantage. The author makes an optimistic forecast: “In the end, nations will succeed in certain industries, as their internal environment is the most dynamic and most active, and also stimulates and pushes companies to increase and expand their advantages.”

The significance of Porter's contribution to management theory is not disputed by anyone. At the same time, some of the shortcomings of his work caused a number of fair criticisms. For example, the distinction he introduced between multi-domestic and global industries may disappear when demands for free trade and growing exports bring elements of international competition into the domestic markets of virtually all industries.

The main advantage and attraction of Porter's models is their simplicity. He encourages readers to use the proposed models as starting points for their own analysis of the relationships between various elements. These models provide extremely flexible opportunities for choosing the direction of movement, developing a strategy (especially international).

Michael Porter proposed effective methods for analyzing the phenomenon of competition and for developing a company's strategy (both in domestic and international markets). He demonstrated the benefits of collaborative exploration of strategic and economic challenges, thus making an important contribution to the development of understanding of strategy and competition.

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By general strategies, Porter means strategies that have universal applicability or are derived from certain basic postulates. In his book "Strategy of Competition" M. Porter presents three types of general strategies aimed at increasing competitiveness. A company that wants to create a competitive advantage for itself must make strategic choices in order not to lose face.

There are three basic strategies for this:

1) leadership in cost reduction;

2) differentiation;

3) focusing (special attention).

To satisfy the first condition, a company must keep costs lower than those of its competitors.

To ensure differentiation, it must be able to offer something unique in its own way.

The third strategy proposed by Porter suggests that the company focuses on a certain group of customers, a certain part of the product, or in a certain geographic market.

Leadership in cost reduction, perhaps the most characteristic of all three general strategies. It means that the company aims to become a low cost producer. The company's deliveries are very diverse and serve many segments of the industry. This scalability is often a key factor in cost leadership. The nature of these benefits depends on the structure of the industry, whether it be a matter of economies of scale, advanced technology, or access to sources of raw materials.

Low cost production is more than just moving down the experience curve. The product manufacturer must find and use every opportunity to obtain cost advantages. Typically, these benefits are obtained through the sale of standard products with no added value, when consumer goods are produced and sold, and when the company has strong distribution chains.

Porter goes on to point out that a company that has won leadership in cost reduction cannot afford to ignore the principles of differentiation. If consumers do not find the product to be comparable or acceptable, the leader will have to make price cuts to weaken his competitors and lose his lead in the process. Porter concludes that a leader in cost reduction in product differentiation must be on par with, or at least close to, its competitors.

Differentiation, according to Porter, means that the company strives for uniqueness in some aspect that is considered important by a large number of customers. She selects one or more of these aspects and behaves in such a way as to satisfy the needs of consumers. The price of such behavior is higher production costs.

From the foregoing, it follows that the parameters of differentiation are specific to each industry. Differentiation may be in the product itself, in the methods of delivery, in terms of marketing, or in any other factors. A company relying on differentiation must find ways to improve production efficiency and reduce costs, otherwise it risks losing competitiveness due to relatively high costs. The difference between price leadership and differentiation is that the former can be achieved in only one way - by establishing an efficient cost structure, while differentiation can be achieved in different ways.

The third type of strategy is focusing on some aspect of the activity. It is radically different from the previous two and is based on the choice of a narrow area of ​​competition within the industry.

Meaning focusing is to select a segment of the industry market and serve it with your strategy better and more efficiently than your competitors. By optimizing its strategy for the selected target group, the company that has chosen this course is trying to achieve competitive advantages in relation to the selected group.

Exist two types of focus strategy.

A company within a selected segment is either trying to achieve cost advantages or is increasing product differentiation in an attempt to stand out from other companies in the industry. Thus, it can gain competitive advantage by focusing on specific market segments. The size of the target group depends on the degree, and not on the type of focus, while the essence of the strategy under consideration is to work with a narrow group of consumers that differs from other groups.

According to Porter, any of the three main types of strategy can be used as an effective means of achieving and maintaining competitive advantage.

Relations. Almost all countries of the world participate in them to one degree or another. At the same time, some states receive large profits from foreign economic activity, constantly expanding production, while others can hardly maintain the existing capacities. This situation is determined by the level of competitiveness of the economy.

Relevance of the problem

The concept of competitiveness is the subject of numerous discussions in the circles of people making corporate and government management decisions. The growing interest in the problem is due to various reasons. One of the key ones is the desire of countries to take into account the economic requirements that are changing within the framework of globalization. Michael Porter made a great contribution to the development of the concept of state competitiveness. Let's take a closer look at his ideas.

General concept

The standard of living in a particular state is measured in terms of national income per person. It increases with the improvement of the economic system in the country. Michael Porter's analysis showed that the stability of the state in the foreign market should not be viewed as a macroeconomic category, which is achieved by methods of fiscal and monetary policy. It must be defined as productivity, the efficient use of capital and labor. formed at the enterprise level. In this regard, the welfare of the state's economy must be considered for each company separately.

Michael Porter's theory (briefly)

For successful work enterprises should have low costs or endow differentiated quality products with a higher cost. To maintain a position in the market, companies need to constantly improve products and services, reduce production costs, thus increasing productivity. Foreign investment and international competition act as a particular catalyst. They form a strong motivation for enterprises. Together with the international level, it can not only have a beneficial effect on the activities of companies, but also make certain industries completely unprofitable. This situation, however, cannot be considered absolutely negative. Michael Porter points out that the state can specialize in those segments in which its enterprises are most productive. Accordingly, it is necessary to import those products in the release of which companies show worse results than foreign firms. As a result, the overall level of productivity will increase. One of the key components in it will be imports. Productivity can be increased through the establishment of affiliated enterprises abroad. Part of the production is transferred to them - less efficient, but more adapted to new conditions. Profits from production are sent back to the state, thus raising the national income.

Export

No state can be competitive in all production areas. When exporting in one industry, labor and material costs increase. This, accordingly, negatively affects less competitive segments. The ever-increasing exports cause the appreciation of the national currency. Michael Porter's strategy assumes that the normal expansion of exports will be facilitated by the transfer of production abroad. In some industries, positions will undoubtedly be lost, but in others they will become stronger. Michael Porter believes that they will limit the ability of the state in foreign markets, slow down the improvement in the standard of living of citizens in the long term.

The problem of attracting resources

And foreign investment can certainly significantly increase national productivity. However, they can also provide Negative influence on her. This is due to the fact that in every industry there is a level of both absolute and relative productivity. For example, a segment can attract resources, but it is not possible to export from it. The industry is not able to withstand competition in the field of imports if the level of competitiveness is not absolute.

The Five Forces of Competition by Michael Porter

If the industries of the country that are losing ground to foreign enterprises are among the more productive in the state, then its overall ability to increase productivity is reduced. The same is true for firms that move more profitable activities abroad, because there costs and earnings are lower. The theory of Michael Porter, in short, connects several indicators that determine the stability of the country in the foreign market. In each state, there are several methods to increase competitiveness. Collaborating with scientists from ten countries, Michael Porter formed a system of the following indicators:

Factor Conditions

Michael Porter's model suggests that this category includes:

clarification

Michael Porter points out that the key factor conditions are not inherited, but created by the country itself. In this case, it is not their presence that matters, but the pace of their formation and the mechanism of improvement. Another important point is the classification of factors into developed and basic, specialized and general. From this it follows that the stability of the state in the foreign market, based on the above conditions, is quite strong, although fragile and short-lived. In practice, there is a lot of evidence supporting the model of Michael Porter. An example is Sweden. It profited from its largest low-sulphur iron deposits until the main market Western Europe the metallurgical process has not changed. As a result, the quality of the ore no longer covered the high costs of its extraction. In a number of knowledge-intensive industries, certain basic conditions (for example, cheap labor resources and rich natural resources) may not provide any advantages at all. To increase productivity, they must be tailored to specific industries. These may be specialized personnel in processing industrial enterprises, which are problematic to form elsewhere.

Compensation

Michael Porter's model admits that the lack of certain basic conditions can also be a strength, motivating companies to improve and develop. So, in Japan there is a shortage of land. Lack of this important factor began to act as a basis for the development and implementation of compact technological operations and processes, which, in turn, became very popular in the world market. The lack of certain conditions must be compensated by the advantages of others. So, for innovations, appropriately qualified personnel are needed.

State in the system

Michael Porter's theory does not include it among the basic factors. However, when describing the factors influencing the degree of stability of the country in foreign markets, the state is given a special role. Michael Porter believes that it should act as a kind of catalyst. Through its policy, the state can influence all elements of the system. The influence can be both beneficial and negative. In this regard, it is important to clearly formulate the priorities of the state policy. The general recommendations are to encourage development, stimulate innovation activities, increased competition in domestic markets.

Spheres of influence of the state

Factors of production are affected by subsidies, policies in the field of education, financial markets, etc. The government determines internal standards and norms for the production of certain products, approves instructions that affect consumer behavior. The state often acts as a major buyer of various products (goods for transport, the army, education, communications, healthcare, and so on). The government can create conditions for the development of industries by establishing control over advertising media, regulating the operation of infrastructure facilities. State policy is able to influence the structure, strategy, characteristics of the rivalry of enterprises through tax mechanisms, legislative provisions. The influence of the government on the level of competitiveness of the country is quite large, but in any case it is only partial.

Conclusion

An analysis of the system of elements that ensure the stability of any state makes it possible to determine the level of its development and the structure of the economy. A classification of individual countries in a specific time period was carried out. As a result, 4 stages of development were identified in accordance with four key forces: production factors, wealth, innovation, investment. Each stage is characterized by its own set of industries and its own areas of activity of enterprises. The allocation of stages allows us to illustrate the process of economic development, to identify problems that companies face.

“In order for a company to generate a stable, growing income, it needs to achieve leadership in one of three areas: in a product, in price, or in a narrow market niche,” said Michael Porter, presenting his theory of effective competition to the whole world. In the article, we will consider the basic competitive strategies of an enterprise according to Porter and propose an action plan for a company that has not yet determined the strategic direction of business development. Each type of competitive strategies we have considered is actively used in marketing around the world. The presented classification of competition strategies is very convenient and suitable for a company of any size.

A leading professional in the field of competition strategy is Michael Porter. Throughout its professional activity he was engaged in the systematization of all models of competition and the development of clear rules for conducting competition in the market. The figure below shows the modern classification of competitive strategies according to Porter.

Let's understand the concept and essence of a competitive strategy for business. A competitive strategy is a list of actions that a company undertakes in order to obtain higher profits than competitors. Thanks to an effective competitive strategy, the company attracts consumers more quickly, incurs lower costs for attracting and retaining customers, and receives a higher rate of profitability (marginality) from sales.

Porter distinguished 4 types of basic competitive strategies in the industry. The choice of the type of competitive strategy depends on the capabilities, resources and ambitions of the company in the market.

Fig.1 Competitive Strategies Matrix by Michael Porter

Porter's matrix of competitive strategies is based on 2 parameters: market size and type of competitive advantage. Market types can be broad (a large segment, an entire product category, an entire industry) or narrow (a small market niche accumulating the needs of a very narrow or specific target audience). The type of competitive advantage can be of two options: low cost of goods (or high profitability of products) or a wide variety of assortment. Based on such a matrix, Michael Porter identifies 3 main strategies for a company's competitive behavior in the industry: cost leadership, differentiation and specialization:

• Competitive or differentiation means creating a unique product in an industry;
• Competitive or price leadership means the company's ability to achieve the lowest level of costs;
• Competitive or leadership in a niche means focusing all the company's efforts on a certain narrow group of consumers;

There are no "middle" strategies

A firm that does not choose a clear direction for its competitive strategy is “stuck in the middle”, operates inefficiently and operates in an extremely unfavorable competitive situation. A company without a clear competitive strategy loses market share, manages investments poorly, and earns a low rate of return. Such a company loses buyers interested in a low price, so it is not able to offer them an acceptable price without losing profit; and on the other hand, it can't get buyers interested in specific product features because it doesn't focus on developing differentiation or specialization.

Action plan

If your company has not yet decided on the vector of competitive strategy, then it's time to rethink the key goals and objectives of the business, evaluate the resources and capabilities of the company and go through 3 consecutive steps:

Harvard Business Review is the premier business magazine in the world. We are proud to present a new issue of the HBR: Top 10 Articles series dedicated to the problems of strategic business planning. If your company spends a lot of energy on strategic planning, the results of which you are unhappy with, then this is the book for you. From hundreds of HBR articles on planning, we have selected the most useful from a practical point of view. From them you will learn what competitive forces should be considered when developing a company strategy; which indicators are important to take into account, and which are not; Who should delegate decision making? And most importantly: how to translate a great strategy into brilliant results.

• What is a strategy?. Michael Porter

A series: Harvard Business Review: Top 10 Articles

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What is a strategy?

Michael Porter

I. Operational efficiency is not a strategy

For nearly twenty years, managers have been learning to play by the new rules. Companies must be flexible in order to quickly respond to changes in the competitive and market situation. They must constantly evaluate their performance in order to achieve the best performance. They must aggressively attract external resources in order to increase efficiency. And they must carefully guard their core competitive characteristics and areas of expertise in order to stay ahead of the competition.

Positioning, once at the heart of strategy, is now dismissed as too static for today's dynamic markets and ever-changing technologies. The new dogma says that competitors can copy your market position very quickly, and any competitive advantage is temporary at best.

However, these new beliefs are only a half-truth, and a dangerous one at that, because more and more companies are going down the path of mutually destructive competition because of them. Yes, some barriers to competition are indeed falling due to the relaxation of regulations and the globalization of markets. Yes, companies that channel energy the right way are becoming leaner and more agile. However, in many industries, so-called hypercompetition is not the inevitable result of a paradigm shift, but an ever-festering sore.

The core of the problem lies in the inability to distinguish operational efficiency from strategy. The pursuit of productivity, quality and speed has given rise to a huge number of management tools and methods: total quality control, benchmarking, time-based competition, outsourcing, partnerships, reengineering, change management. Often, these approaches provide significant operational improvements, but many companies fail to convert these gains into sustainable profit improvements. And gradually, almost imperceptibly, management tools take the place of strategy. In an attempt to make progress on all fronts, managers are pushing their companies further and further away from viable competitive positions.

Operational Efficiency: Necessary but Not Enough

Both operational efficiency and strategy are mandatory conditions successful work, which, in general, is the main goal of any enterprise. But they operate in completely different ways.

A company can only outperform competitors when it has some advantageous differentiating feature that it can retain. It can deliver more value to the consumer, create comparable value at a lower cost, or do both. The arithmetic of the greatest benefit follows: greater customer value gives the company the opportunity to charge higher average prices per unit of goods; higher efficiency leads to lower average unit costs.

Idea in a nutshell

The multiple activities that make up the development, production, sale, and delivery of a product or service are the building blocks of competitive advantage. Operational efficiency is the best (cheaper, faster, fewer defects) performance of these activities compared to competitors. Companies can get huge benefits through operational efficiency, as demonstrated in the 1970s and 1980s by Japanese firms using techniques such as total quality control and continuous improvement. However, from a competitive perspective, the main problem with operational efficiency is that the most successful practices are easy to copy. When they are used by all players in a particular industry, there is an expansion productivity limits- the maximum value that a company can create for a given cost using the best possible technologies, skills and management methods - which leads to both cost reduction and value increase. Such competition provides an absolute increase in operational efficiency, but no one gains a relative advantage. And the more companies do benchmarking, the more competitive convergence they achieve, that is, the less companies differ from each other.

Strategic positioning strives to achieve a sustainable competitive advantage by maintaining the company's advantageous distinctive features. This includes carrying out activities that are different from those of competitors, or performing the same activities in other ways.

Ultimately, the difference in costs or prices between companies depends on the many activities required to develop, manufacture, sell and deliver their goods or services, such as customer acquisition, assembly of the final product, employee training, etc. Costs is the result of activity, and cost advantages over competitors can be achieved by conducting certain activities more efficiently than them. In addition, differences between companies are due to both the choice of activities and how these activities are carried out. Thus, activities are the main building blocks of competitive advantage. The overall advantage or disadvantage of a company depends on all the activities that it carries out, and not just on some of them.

Idea in practice

Strategic positioning is based on three main principles.

1. Strategy is the creation of a unique and valuable position through a set of activities that is different from competitors. The strategic position can be determined by three different sources:

meeting the few needs of a large group of consumers (Jiffy Lube only produces automotive lubricants);

meeting the broad needs of a small group of consumers (Bessemer Trust services are aimed exclusively at very wealthy clients);

meeting the broad needs of a large group of consumers in a narrow market segment (Carmike Cinema operates only in cities with a population of less than 200,000 people).

2. The strategy requires making compromises in competition - choosing what not to do. Some competitive activities are incompatible with each other, that is, advantages in one area can only be achieved at the expense of another. For example, Neutrogena soap is positioned primarily not as a cleanser, but as a medical product. The company is saying no to fragrance-based sales, ditching large volumes, and sacrificing operational efficiency. Conversely, Maytag's decision to expand its product line to include other brands demonstrates an inability to make a difficult compromise: increasing profits comes at the expense of profitability.

3. The strategy requires the achievement of "consistency" of the activities of the company. Alignment occurs when a company's activities interact and reinforce each other. For example, in the Vanguard Group, all activities are subject to a cost minimization strategy; funds are distributed directly to consumers, and portfolio turnover is minimized. Alignment contributes to both competitive advantage and company sustainability: when different activities mutually reinforce each other, competitors cannot easily copy them. Continental Lite's attempt to mimic just a few of the activities—rather than the entire interconnected system—of Southwest Airlines led to disastrous results.

Employees of the company must learn to deepen strategic positions, and not expand them or sacrifice them. Learn to reinforce the uniqueness of the company, while at the same time maximizing the alignment of its activities. Deciding which target groups of consumers and their needs to target requires discipline, the ability to clearly define boundaries, and direct, open communication. Undoubtedly, strategy is inextricably linked with leadership.

Operational efficiency (OE) is the performance of certain activities better than competitors. Productivity is just one of its components. OE can refer to any number of activities that enable a company to make better use of invested resources, such as reducing product defects or developing new products faster. In contrast, strategic positioning is the pursuit of activities that are different from those of competitors, or the conduct of the same activities in other ways.

Each company has its own operational efficiency. Some are able to get more out of their invested resources than others because they do not waste effort, use more advanced technologies, motivate employees better, or better understand the processes of managing certain activities. Such differences in operating efficiency are an important source of differences in profitability between competitors because they directly affect the relative level of costs.

Differences in operational efficiency became the foundation of the Japanese offensive against Western companies in the 1980s. The Japanese were so ahead of the competition in terms of operational efficiency that they could offer both lower cost and higher quality at the same time. It is worth dwelling on this, because it is the basis of much of today's discussion of competition. Imagine a productivity frontier that captures all the best practices that exist at a given point in time. This can be thought of as the maximum value that a company supplying a product or service can create at a given cost, using the best available technology, employee skills, management methods, and purchased capital goods. The concept of a productivity frontier can be applied to individual activities; to groups of related activities, such as order processing and manufacturing, and to all company activities as a whole. By increasing its operational efficiency, the company is approaching the frontier of productivity. This may require capital investment, recruitment of new employees, or simply new management methods.

Operational efficiency and strategic positioning

The productivity frontier is constantly expanding as new technologies and managerial approaches emerge, and as new resources become available. For example, laptops, mobile phones, the Internet, and software such as Lotus Notes have redefined the productivity frontier for sales and created rich opportunities to link sales to activities such as order processing and after-sales service. Similarly, lean manufacturing, which includes a whole "family" of activities, has significantly improved productivity and resource use.

For at least the past ten years, managers have been preoccupied with the task of improving operational efficiency. Using techniques such as TQM (total quality control), time-based competition, and benchmarking, they tried to change the way they do business in order to eliminate inefficiencies, increase customer satisfaction, and ensure the highest quality of work. Hoping to keep pace with changes in the productivity frontier, managers actively used continuous improvement processes, empowerment, change management, and the principles of the so-called learning organization. The popularity of outsourcing and virtual corporations reflects a growing understanding of the fact that it is very difficult to carry out all activities as productively as specialists do.

Approaching the frontier, many companies manage to improve in different areas of activity at the same time. For example, manufacturers that embraced Japan's rapid change practices of the 1980s were able to both lower costs and increase differentiation from competitors. What was once perceived as a real forced trade-off between defects and costs, for example, has turned out to be an illusion born of poor operational efficiency. Managers have learned to refuse such false compromises.

Continuous improvement in operational efficiency is essential to achieve maximum profitability. However, usually this alone is not enough. Few companies manage to maintain long-term success on the basis of operational efficiency alone, and it is becoming increasingly difficult to stay ahead of the competition every day. The most obvious reason for this is the rapid spread of the most effective methods. Competitors can quickly adopt management approaches, new technologies, manufacturing improvements, and the most successful ways to meet customer needs. The most general solutions - those that can be applied in different situations and circumstances - spread faster than others. The proliferation of MA methods is enhanced by the work of various consultants.

OE competition pushes the frontier of productivity, effectively raising the bar for everyone. But while such competition provides an absolute increase in operational efficiency, no one gains a relative advantage. Take, for example, the more than five billion dollar US commercial printing industry. Major players - R. R. Donnelley & Sons Company, Quebecor, World Color Press, Big Flower Press - go head to head, serving all consumer segments, offering similar technology sets, investing heavily in the same new equipment, speeding up work presses and reducing the number of employees in individual enterprises. But the resulting benefits do not provide significant benefits. Even industry leader Donnelley's return on sales, which was consistently above 7% in the 1980s, fell to less than 4.6% in 1995. These patterns are emerging in more and more industries. Even the Japanese, the pioneers of a new stage of competition, are suffering from persistently low profits. (See the sidebar “Japanese Companies Don’t Usually Have a Strategy.”)

The second reason that improving operational efficiency alone is not enough is that competitive convergence is more subtle and insidious. The more benchmarking companies do, the more they start to resemble each other. The more activities competitors outsource, often to the same partners, the more uniform the activity becomes. As competitors copy each other's improvements in quality, cycle times or partnerships, the strategies converge more and more, and the competition turns into a series of races along the same tracks, in which no one can win. Competition based solely on operational efficiency is mutually destructive and leads to wars of wear and tear that can only be dealt with by limiting competition.

Japanese companies usually don't have a strategy

In the 1970s and 1980s, Japan made a revolution in operational efficiency, pioneering approaches such as total quality control and continuous improvement. As a result, Japanese manufacturers have enjoyed significant cost and quality benefits over the years.

However, Japanese companies have rarely developed specific strategic positions of the sort that we are discussing in this article. Those who did, such as Sony, Canon, and Sega, were the exception rather than the rule. Most Japanese companies imitated and copied each other's activities. All competitors offered consumers almost all possible variations of goods, features and services; they used all the channels and copied the plans of the plants from each other.

Now the danger of competition in the Japanese spirit is becoming more and more obvious. In the 1980s, when competitors were operating far from the productivity frontier, it seemed possible to win in terms of cost and quality ad infinitum. All Japanese companies could grow both by staying in the developing domestic economy and penetrating the foreign market. It seemed like nothing could stop them. But as the performance gap narrowed, Japanese companies began to fall into a self-imposed trap. To avoid mutually destructive battles that threaten their productivity, Japanese companies needed to learn strategy.

To do this, they had to overcome tough cultural barriers. Japan is known for its focus on consensus, and companies have always sought to smooth differences between individuals rather than accentuate them. The strategy requires difficult decisions. In addition, the Japanese have a deeply rooted tradition of service, following which they are ready to go to great lengths to satisfy any wishes expressed by consumers. Companies entering the competitive arena with this approach ended up losing their unique position, becoming everything to everyone.

This discussion of the characteristics of Japanese companies is based on research conducted by the author in collaboration with Hirotaka Takeshi with the assistance of Mariko Sakakibara.

The latest wave of consolidation through mergers makes sense in the context of OE competition. Under intense pressure and lacking strategic vision, company after company finds nothing better than buying competitors. Those who stay afloat often simply last longer than others, but do not have real advantages.

After a decade of impressive operational efficiency gains, many companies are facing falling profits. Continuous improvement is ingrained in the minds of managers. But his tools unwittingly lead companies towards imitation and homogeneity.

Managers have gradually allowed operational efficiency to take the place of strategy. The result is zero-sum competition, price stagnation or decline, and cost pressures that undermine companies' ability to make long-term investments.

II. Strategy builds on unique activities

Competitive strategy relies on differences. This means deliberately choosing activities that are different from competitors, which allow you to create and disseminate a unique combination of values. For example, Southwest Airlines Company offers low-cost, short-haul flights between mid-sized cities and secondary airports in major cities. Southwest avoids major airports and does not fly long distances. Her clients include business travelers, families and students. The company's frequent flights and low ticket prices attract price-sensitive consumers who would otherwise be forced to travel by bus or car, as well as convenience-loving travelers who opt for full-service airlines on other routes.

Most managers, when talking about strategic positioning, define it from the perspective of the customer. For example: "Southwest Airlines caters to travelers who care about the price and convenience of flights." However, the essence of the strategy is the types of activities: the choice of other ways of their implementation or the choice of other types of activities compared to competitors. Otherwise, the strategy would be nothing more than a marketing slogan, unable to compete.

Full service airlines are designed to take passengers from almost anywhere A to any B. To be able to fly to a large number of destinations and operate connecting flights, they use a "hub and spoke" system with centers at major airports. To attract passengers seeking maximum comfort, they offer flights in first or business class. For the convenience of passengers flying with transfers, they coordinate flight schedules and carry out baggage transfer. Since many people have to travel for many hours, full service companies provide meals to their customers.

Southwest has abandoned all these activities in favor of cheap and convenient service on certain types of routes. With fast passenger landing service (as little as fifteen minutes), Southwest aircraft spend more hours in the air than competitors, while achieving greater flight frequency with fewer aircraft. Southwest does not provide passengers with meals, tickets with seats, does not share a baggage screening system with other companies, and does not offer premium services. Automated ticket sales right at the boarding gate gives passengers the opportunity not to contact transport agents and not pay an additional commission. A standardized all-Boeing 737 fleet improves maintenance efficiency.

Southwest has taken a unique and valuable strategic position based on a distinct set of activities. On routes operated by Southwest, full service companies will never be able to offer the same convenience or the same low prices.

Search for new positions: the advantage of enterprising

Strategic competition can be represented as a process of finding new products and services that can force existing consumers to abandon their usual ones or attract new consumers to the market. For example, giant supermarkets that specialize in one category of goods and offer a huge selection in that category take market share from department stores that offer a limited selection of goods in various categories. Mail-order catalogs appeal to consumers who crave convenience. Essentially, old and new players face the same problem of finding new strategic positions. In practice, the advantage is often on the side of enterprising newcomers.

Strategic positions are often not obvious and require creativity and inspiration. Newcomers often open unique positions that have always been available, but long-standing competitors simply did not pay attention to them. For example, IKEA found a consumer group that was being ignored or underserved by other retailers. The success of Circuit City Stores' used car division, CarMax, is based on a new way of doing business - overhaul vehicles, product warranties, sales set price, consumer lending in place - which in fact have always been open to existing companies, but not used by them.

Newcomers can succeed by taking on a position that was once held by a competitor but has been lost through years of imitation and compromise. And newcomers from other industries can create new positions based on specific activities borrowed from those industries. CarMax draws heavily from Circuit City's experience in supply chain management, lending and other activities related to consumer electronics retail.

However, most often new positions are opened due to change. New consumer groups or purchasing opportunities appear, the development of society creates new needs, new distribution channels, new technologies, new equipment or information systems. When such changes occur, it is easier for newcomers who are not shackled by the industry's long history to see the potential of new ways to compete. Unlike long-term players, newcomers have more flexibility as they don't have to compromise with existing activities.

IKEA, a global furniture retailer headquartered in Sweden, also has a clear strategic position. IKEA's target consumer segment is young shoppers who want to create stylish environments for little money. This marketing concept becomes strategic positioning because of the particular set of activities through which it works. Like Southwest, IKEA decided to operate differently than its competitors.

Let's take an ordinary furniture store. The showrooms display samples of the goods sold. There can be 25 sofas in one department; the other has five dining tables. But these items represent only a small part of what is offered to buyers. Dozens of fabric swatch albums, display stands with pieces of wood or alternative styles offer consumers thousands of options to choose from. Sales assistants accompany buyers around the store, answering questions and helping to navigate this maze. When the customer makes a choice, the order is sent to a third party manufacturer and, with any luck, the customer will receive their furniture in six to eight weeks. This value chain maximizes individualization and service quality, but comes at a high cost.

IKEA, on the other hand, is aimed at buyers who are willing to sacrifice service for a low price. Instead of a staff of salespeople guiding shoppers around the store, IKEA is using a self-service model based on informative in-store displays. Instead of relying solely on third parties, IKEA develops its own low-cost, modular, easy-to-assemble furniture that matches the company's positioning. In its huge stores, IKEA showcases all of its products in a "home-like" setting, so shoppers don't need a specialist designer to imagine how items fit together. Next to the showrooms is a warehouse where boxed goods are placed on racks. It is up to the buyers to select and transport the goods themselves, and IKEA may even sell or rent you a car trunk that you can return on your next visit.

While most of IKEA's low prices come from self-service, the company offers some Additional services that competitors do not have. One of them is the playground in the store, where you can leave your child under supervision while you shop. Another distinguishing feature is the long working hours. These offerings are uniquely suited to the needs of IKEA consumers – young, low-income people who may have children but usually don't have a babysitter, and who, in order to make a living during the day, are forced to shop at non-standard times.

Origin of strategic positions

Strategic positions may arise from three different sources, which are nonetheless not mutually exclusive and often overlap. First, positioning can be based on the production of a narrow set of goods or services that are generally relevant to the industry in which the company operates. I call this option based positioning because it is based on product or service options rather than customer segment. This positioning makes economic sense when a company can produce better products than its competitors using a specific set of activities.

For example, Jiffy Lube International specializes in automotive oils and does not offer other repair or maintenance cars. Its value chain provides faster service at a lower cost than workshops offering a wider range of services. This combination is so attractive that many customers choose to do their oil changes at Jiffy Lube and go to competitors for other services.

Vanguard Group, the leading mutual fund, is another example of option-based positioning. Vanguard works with a range of stock, bond and money market investment funds that deliver reliable performance and extremely low costs. The company's investment approach is based on the fact that it does not promise exceptionally high returns in any one year, but guarantees a stable average return over many years. Vanguard, for example, is famous for its index funds. The company does not play on interest rates and avoids narrow groups of securities. Fund managers keep trading volume low to keep costs down; in addition, the company does not encourage customers to make quick purchases and sales, as this leads to higher costs and can force the manager to enter into auctions in order to raise new capital and earn cash to make payments. Vanguard also takes a low cost approach to fund management, customer service and marketing. Many investors include one or more Vanguard funds in their portfolios while buying aggressively managed or specialized funds from competitors.

Relationship with basic strategies

In "Competitive Strategy" I proposed the concept of basic strategies—cost leadership, differentiation, and focus—to represent alternative strategic positions in an industry. The concept of typical strategies is quite possible to apply today to characterize strategic positions at the most simple and general level. Thus, Vanguard follows a cost leadership strategy, IKEA exemplifies cost focus with its narrow customer base, and Neutrogena is a focused differentiator. The various positioning grounds—options, needs, and availability—take the understanding of basic strategies to a more concrete level. For example, both IKEA and Southwest focus on cost, but IKEA focuses on the needs of a specific group, while Southwest offers a unique service option.

The principle of basic strategies implies the need for choice in order to avoid the trap of internal contradictions. different strategies. These contradictions are explained by the trade-offs between activities inherent in incompatible positions. An example is the Continental Lite, which tried to compete on two fronts at the same time and failed.

People who turn to Vanguard or Jiffy Lube are drawn to a distinct value chain for a particular type of service. Variant-based positioning can be targeted at a wide range of consumers, but typically only addresses a subset of their needs.

The second source of positioning is the satisfaction of all or almost all the needs of a certain group of consumers. I call this positioning based on needs, which is close to the traditional understanding of targeting the consumer segment. This positioning arises when there are groups with different needs and when it is possible to meet these needs better than competitors through a unique set of activities. Some consumer groups are more price sensitive than others, require different product characteristics, and require different levels of information, support and service. IKEA shoppers are a good example of such a group. IKEA strives to satisfy all the needs of its target consumer, and not just some of them.

Another variation of needs-based positioning is possible, where the same consumer may have different needs in different cases or with different types of transactions. For example, the same person may require different services when traveling for business and when traveling with family for pleasure. A buyer of cans—for example, a beverage manufacturer—is likely to have different requirements for their primary supplier and their second-in-command.

Most managers intuitively view their business in terms of the needs of the customers they are trying to satisfy. But the critical element of needs-based positioning is far from intuitive and often overlooked. Differences in needs alone do not create a good position unless there is a best set of activities that is also different from the others. Without it, any competitor can satisfy the same needs, and there will be nothing unique or valuable in positioning.

For example, in private banking, Bessemer Trust Company targets families with at least $5 million in investable assets who want to maintain and grow their capital. Bessemer provides a personalized service to its clients by assigning one account manager to manage the affairs of just 14 families. For example, meetings usually take place not at the company's office, but at the client's ranch or yacht. Bessemer offers a wide range of specialty services, including investment and property management, oversight of oil and gas investments, and accounting for racing horses and private jets. Loans, the backbone of many private banks, are rarely required by Bessemer customers and represent a very small proportion of the bank's customer operations and income. Despite the very impressive wages and the highest percentage of transactions that account managers receive, Bessemer's differentiation aimed at a certain group of families gives the company some of the highest return on equity among competitors.

On the other hand, Citibank caters to clients with a minimum of $250,000 in assets who, unlike Bessemer's clients, want easy access to credit, from extra-large mortgages to transaction financing. Citibank account managers are first and foremost loan officers. If the client needs other services, the account manager directs him to other bank specialists, each of which can offer certain ready-made service packages. Citibank's system is not as individualized as Bessemer's and allows one manager to serve 125 clients. Meetings in the office, which take place every six months, are offered only to the largest clients. Bessemer and Citibank organize their activities to meet the needs different groups private banking clients. The same value chain cannot meet the needs of both of these groups to the benefit of the company.

The third source of positioning is the segmentation of consumers by differences in access to them. Although the needs of one segment may overlap with those of another, the best configuration of activities to attract them is different. I call this type of positioning based on customer access. Access may depend on geographical, quantitative or any other factors that require different activities for the most effective work with the consumer.

Access segmentation is less common than the other two positioning bases and is not as well known. For example, Carmike Cinema opens its cinemas exclusively in cities with less than 200,000 inhabitants. How does the company manage to make money in a market that is not only limited in size, but also does not support the pricing policy of big cities? This is due to a set of activities that provides a lean cost structure. The needs of Carmike customers in smaller towns can be met with standardized, low-cost theaters that do not require as many screens and sophisticated screening technologies as large cities. Own Information system and the organization of the management of the company do not require the presence of local staff, with the exception of the only manager of the cinema. Carmike also benefits from centralized purchasing, low rent and staff costs (due to its location) and has the industry's lowest corporate overhead rate of just 2% versus 5% on average. Operating within small residential areas also allows Carmike to take a personal approach to management, where the theater manager knows all patrons and ensures attendance through personal contacts. As the main, if not the only source of entertainment in its market - often the high school football team is the main competitor - Carmike is also able to offer viewers a special selection of films and negotiate better deals with distributors.

Serving consumers from rural areas and large cities is one example of a difference in activities based on differences in access. Other examples are servicing large or small clients, or clients that are densely or sparsely seated. In all these cases best ways marketing, order processing, logistics and after-sales service for various groups will differ.

Positioning is not just about defining your niche. The position arising from any of the sources can be wide or narrow. A focused competitor, such as IKEA, thrives at the expense of consumer groups to which broader competitors offer too much service (and therefore too high service costs) or, conversely, insufficient service. Broader-focused competitors such as Vanguard or Delta Air Lines serve a wide range of customers with activities that address their common needs. At the same time, they ignore or only partially satisfy the unique needs of individual groups.

Whatever the basis - options, needs, access, or some combination of any of these - positioning requires a specific set of activities, as it always depends on differences on the part of the supplier, that is, differences in activities. However, positioning does not have to be driven by differences on the demand or consumer side. Positioning based on options and access does not depend on consumer differences at all. In practice, however, differences in access are often associated with differences in needs. For example, the tastes—that is, the needs—of Carmike's small-town customers lean more towards comedies, westerns, action films, and family films. Carmike does not show films rated NC-17 (which children under the age of 17 are not allowed to see).

Now that we have defined what positioning is, we can begin to look for the answer to the question of what is strategy. Strategy is the creation of a unique and valuable position involving a specific set of activities. If there was only one ideal position, there would be no need for strategy. Companies would need only one thing - the first to find and use it. The essence of strategic positioning is the choice of activities that differ from those of competitors. If the same set of activities were required for all options, needs and access, companies could easily switch from one to another, and success would be determined only by operational efficiency.

III. A sustainable strategic position requires compromises

However, choosing a unique position is not enough to guarantee a sustainable advantage. Competitors will inevitably try to copy a successful position found by someone in one of two ways.

First, a competitor may change its position to get closer to the most successful player. For example, J.C. Penny has repositioned itself from a Sears clone to a more upscale and fashionable consumer goods retailer. The second and much more common type of imitation is the addition. Companies that choose this path complement existing activities with some features that ensure the success of a competitor - new features, services or technologies.

There is an opinion that competitors can copy any market position. The airline industry is a perfect example of the opposite. It may seem that any carrier can copy any of the activities related to this service sector. Any airline can buy the same planes, lease the same lanes, and offer the same food, ticketing, and baggage services as other carriers.

Continental Airlines saw how well Southwest was doing and decided to learn from Southwest. While maintaining its position as a full-service carrier, Continental also attempted to compete with Southwest on some local routes. The company has launched a new venture, Continental Lite. It eliminated premium food and service, increased flight frequency, lowered ticket prices and shortened boarding times. Since Continental remained a full-service airline on other routes, the company continued to use the services of ticketing agents, retained a mixed fleet, as well as baggage transfers and tickets with seats.

However, a strategic position cannot be sustainable without compromises with other positions. Such compromises are the inevitable consequence of incompatible activities. To put it simply, if something has arrived somewhere, then something has inevitably gone away somewhere. An airline can decide to feed passengers – which will increase the cost of flights and flight preparation times – or choose not to, but it is impossible to do both while maintaining operational efficiency.

Compromises create choices and protect against imitators of any kind. Take, for example, Neutrogena soap. Neutrogena Corporation's variant-based positioning is built around producing "skin-friendly" bare soaps with a special formula that maintains pH balance. Neutrogena's marketing strategy for hiring dermatological research is more like that of a pharmaceutical company than a soap manufacturer. The company advertises in medical journals, sends letters to doctors, attends medical conferences, and conducts its own scientific research at the Skincare Institute. To strengthen its position, Neutrogena initially focused its distribution on pharmacies and avoided promotions. The company uses a slower and more costly process to produce its specialty soaps. By choosing this position, Neutrogena has said no to fragrances and softeners that appeal to many soap buyers. She donated large volumes of sales that would have been possible with distribution through supermarkets and promotions. In order to preserve the special properties of its soap, the company abandoned efficient production. Neutrogena's unique position required a number of such compromises, but it protected the company from imitators.

Compromises are due to three reasons. The first is the risk of damaging your image or reputation. A company known for delivering a particular type of value can lose some of its credibility and confuse consumers—or even seriously damage its reputation—if it suddenly delivers a different value or tries to offer incompatible things at the same time. For example, the Ivory soap maker, marketed as a simple, inexpensive everyday product, would be in serious trouble if it tried to change its image and copy Neutrogena's special "medical" reputation. Attempts to create a new image usually cost companies tens or even hundreds of millions of dollars, which creates a significant barrier to imitation.

The second, and more important, reason for trade-offs is the activities themselves. Different positions (each with its own specific set of activities) require different product configurations, different equipment, different worker behaviors, skills and management systems. Many trade-offs reflect the inflexibility of means of production, people, or systems. The more IKEA subordinates its operations to cost reduction through customer assembly and delivery, the less it is able to satisfy those who desire a higher level of service.

However, trade-offs can also occur at an even more fundamental level. In general terms, value is destroyed if an activity is too complex or too simple. For example, even if a salesperson can provide one customer with the maximum level of assistance in making a purchase, and not provide another at all, his talent (and part of the cost of it) will be spent on the second buyer. Moreover, productivity can be increased by limiting activity options. Constantly providing all customers high level help, an individual salesperson can often become more efficient in terms of learning and scale (as well as the whole sales process).

Finally, the need for compromise may arise from a lack of internal coordination and control. By making a well-defined choice in favor of only one path of competition, the management of the company clearly indicates its priorities. Companies that try to be everything to everyone, on the contrary, run the risk of confusing their own employees, who will try to make day-to-day decisions without a clear prioritization scheme.

Positioning trade-offs are ubiquitous in the competitive field and essential to strategy. They create a need to select and deliberately limit the company's offerings. They interfere with any type of imitation, as competitors attempting to reposition or supplement their position undermine their own strategies and destroy the value of existing activities.

Compromises ultimately killed the Continental Lite. The airline lost hundreds of millions of dollars, and its CEO lost his post. The departure of her flights was often delayed at major airports due to their congestion or problems with the transfer of luggage. Such delays or cancellations generated thousands of complaints per day. Continental Lite could not afford to compete on price and continue to pay the standard commission to agents, and at the same time could not provide a full service without them. In an attempt to solve this problem, the company has reduced the commission for all international flights Continental. Likewise, it could not deliver the standard loyalty benefits to passengers using cheap Lite flights. All Continental frequent flyer rewards had to be reduced. Result? Angry transport agents and full service customers.

Continental tried to compete on two fronts at the same time. It paid dearly for its efforts to be a low-cost carrier on some routes and full service on others. If she didn't have to compromise between the two positions, she would have succeeded. However, the lack of compromise is a dangerous half-truth that managers should not get used to. Quality doesn't always come for free. Southwest's ease of use, one measure of high quality, was consistent with low ticket prices, because frequent departures were supported by a range of low-cost practices, such as quick turnaround and automated ticketing. However, other dimensions of the quality of flights - tickets with seats, meals, luggage transfer - are more expensive.

In general, false trade-offs between price and quality arise predominantly from excess or waste of effort, poor control and accuracy, or poor coordination. Simultaneous improvement in cost and differentiation is possible either when a company starts far from the productivity frontier, or when the frontier expands. At the frontier, where companies have already reached the best this moment functioning, a compromise between price and quality is extremely rare.

After reaping the benefits of productivity for a decade, Honda Motor Company and Toyota Motor Company have finally reached the frontier. In 1995, faced with increasing consumer resistance to rising car prices, Honda found that the only way to produce cheaper cars is to save on equipment. In the United States, it replaced the Civic's expensive disc brakes with drum brakes and switched to cheaper upholstery for the rear seats, hoping buyers wouldn't notice. Toyota in Japan tried to sell its most popular Corolla with unpainted bumpers and cheaper seats. Toyota buyers rebelled, and the company quickly abandoned innovations.

In the past ten years, with significant improvements in operational efficiency, managers have become accustomed to the idea that it's good to avoid trade-offs. But without compromise, no company would achieve sustainable advantage. They would have to run faster and faster just to stay in place.

Returning to the question of what is strategy, we see that trade-offs add new dimensions to the answer. Strategy is about compromises in competition. The point of strategy is to choose what not to do. If compromises were not needed, there would be no need to choose, and therefore no need for strategy. Any successful idea could be (and would be) quickly copied. And then the success of the activity would depend solely on operational efficiency.

IV. Alignment is needed for strategic advantage and sustainability

The choice of position determines not only the set of activities that the company must carry out and the configuration of individual activities, but also how these activities relate to each other. If operational efficiency is the achievement of excellence in individual activities, then strategy is the right combination of these types.

End of introductory segment.

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The following excerpt from the book Strategy (Elizabeth Powers, 2011) provided by our book partner -