HBR

FROM THE HARVARD BUSINESS REVIEW

OnPoint
ARTICLE

Rivals can easily copy

your improvements
What Is Strategy?
by Michael E. Porter
in quality and efficiency.

But they shouldn’t be

able to copy your strategic
positioning—what
distinguishes your company
from all the rest.

New sections to
guide you through
the article:
• The Idea in Brief
• The Idea at Work
• Exploring Further . . .

PRODUCT NUMBER 4134

T H E I D E A I N B R I E F What Is Strategy?

T  myriad activities that go into creating,

producing, selling, and delivering a product or
given cost, given the best available technology,
skills, and management techniques—shifts out-
service are the basic units of competitive advan- ward, lowering costs and improving value at the
tage. Operational effectiveness means perform- same time. Such competition produces absolute
ing these activities better—that is, faster, or improvement in operational effectiveness, but
with fewer inputs and defects—than rivals. relative improvement for no one. And the more
Companies can reap enormous advantages from benchmarking that companies do, the more
operational effectiveness, as Japanese firms competitive convergence you have—that is,
demonstrated in the 1970s and 1980s with such the more indistinguishable companies are
practices as total quality management and con- from one another.
tinuous improvement. But from a competitive
standpoint, the problem with operational Strategic positioning attempts to achieve sus-
effectiveness is that best practices are easily tainable competitive advantage by preserving
emulated. As all competitors in an industry what is distinctive about a company. It means
adopt them, the productivity frontier—the performing different activities from rivals, or
maximum value a company can deliver at a performing similar activities in different ways.

T H E I D E A AT W O R K

T     key principles underlie strategic

positioning.
brands represented a failure to make
difficult trade-offs: the boost in revenues
came at the expense of return on sales.
1. Strategy is the creation of a unique and
valuable position, involving a different set 3. Strategy involves creating “fit” among a
of activities. Strategic position emerges company’s activities. Fit has to do with the
from three distinct sources: ways a company’s activities interact and
reinforce one another. For example, Van-
• serving few needs of many customers
guard Group aligns all of its activities with
(Jiffy Lube provides only auto lubricants)
a low-cost strategy; it distributes funds
• serving broad needs of few customers directly to consumers and minimizes port-
(Bessemer Trust targets only very folio turnover. Fit drives both competitive
high-wealth clients) advantage and sustainability: when activi-
ties mutually reinforce each other, competi-
• serving broad needs of many customers in
tors can’t easily imitate them. When Conti-
a narrow market (Carmike Cinemas
nental Lite tried to match a few of South-
operates only in cities with a population
west Airlines’ activities, but not the whole
under 200,000)
interlocking system, the results were
2. Strategy requires you to make trade-offs disastrous.
in competing—to choose what not to do.
Some competitive activities are incompati-
ble; thus, gains in one area can be achieved Employees need guidance about how to deepen
only at the expense of another area. For a strategic position rather than broaden or
example, Neutrogena soap is positioned compromise it. About how to extend the com-
more as a medicinal product than as a pany’s uniqueness while strengthening the fit
cleansing agent. The company says “no” among its activities. This work of deciding
to sales based on deodorizing, gives up which target group of customers and needs to
large volume, and sacrifices manufacturing serve requires discipline, the ability to set lim-
efficiencies. By contrast, Maytag’s decision its, and forthright communication. Clearly,
to extend its product line and acquire other strategy and leadership are inextricably linked.

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