[Value Proposition Design Ebook Download Configuration Cheats
Abdul Soumphonphakdy
STRATEGY IS ONE OF the most dangerous concepts in business. Why dangerous? Because while most managers agree that it is terrifically important, once you start paying attention to how the word is used you will soon be wondering whether it means anything at all.
How you think about competition will define the choices you make about how you are going to compete. It will impact your ability to assess those choices critically. That is why before we can even begin to talk about strategy, we need to tackle the question of competition and competitive advantage.
In business, multiple winners can thrive and coexist. Competition focuses more on meeting customer needs than on demolishing rivals. Just look around. Because there are so many needs to serve, there are many ways to win.
Competition to be unique reflects a different mind-set and a different way of thinking about the nature of competition. Here, companies pursue distinctive ways of competing aimed at serving different sets of needs and customers. The focus, in other words, is on creating superior value for the chosen customers, not on imitating and matching rivals.
Instead, competition is multidimensional, and strategy is about making choices along many dimensions, not just one. No single prescription about which choices to make is valid for every company in every industry.
Price competition, Porter warns, is the most damaging form of rivalry. The more rivalry is based on price, the more you are engaged in competing to be the best. This is most likely when
In other words, organizations are supposed to use resources effectively. The financial measure that best captures this idea is return on invested capital(ROIC). ROIC weighs the profits a company generates versus all the funds invested in it, operating expenses and capital. Long-term ROIC tells you how well a company is using its resources. It is also, Porter points out, the only measure that matches the multidimensional nature of competition: creating value for customers, dealing with rivals, and using resources productively. ROIC integrates all three dimensions. Only if a company earns a good return can it satisfy customers in a sustainable way. Only if it uses resources effectively can it deal with rivals in a sustainable way.
In gauging competitive advantage, then, returns must be measured relative to other companies within the same industry, rivals who face a similar competitive environment or a similar configuration of the five forces.
If you have a competitive advantage, then, your profitability will be sustainably higher than the industry average(see figure 3-1). You will be able to command a higher relative price or to operate at a lower relative cost, or both.
a good strategy would enable a nonprofit to produce more value for society(the analogue of higher price) for every dollar spent, or to produce as much value using fewer resources(the equivalent of lower cost).
Activities are discrete economic functions or processes, such as managing a supply chain, operating a sales force, developing products, or delivering them to the customer. An activity is usually a mix of people, technology, fixed assets, sometimes working capital, and various types of information.
The sequence of activities your company performs to design, produce, sell, deliver, and support its products is called the value chain. In turn, your value chain is part of a larger value system.
Why does it matter? The answer: The value chain is a powerful tool for disaggregating a company into its strategically relevant activities in order to focus on the sources of competitive advantage, that is, the specific activities that result in higher prices or lower costs
The key here is to lay out the major value-creating activities specific to your industry. If there are competing business models, lay out the value chain for each one. Then look for differences among rivals.
A second major consequence of value chain thinking is that it forces you to look beyond the boundaries of your own organization and its activities and to see that you are part of a larger value system involving other players.
But those differences can take two distinct forms. A company can be better at performing the same configuration of activities, or it can choose a different configuration of activities. By now, of course, you recognize that the first approach is competition to be the best. And by now, we are in a better position to understand why this approach is unlikely to produce a competitive advantage.
Each of the three reflects the most basic level of consistency that every effective strategy must have. Focus refers to the breadth or narrowness of the customers and needs a company serves. Differentiation allows a company to command a premium price. Cost leadership allows it to compete by offering a low relative price.
Choices in the value proposition that limit what a company will do are essential to strategy because they create the opportunity to tailor activities in a way that best delivers that kind of value.
This is a crucially important test that should be applied to any strategy. If the same value chain can deliver different value propositions equally well, then those value propositions have no strategic relevance. Only a value proposition that requires a tailored value chain to deliver it can serve as the basis for a robust strategy. This is the first line of defense against rivals.
Discovering new positions is a creative act. What triggers the initial insight often varies from one person, and one organization, to the next. No cookbook or expert system can reliably churn out winning strategies. By definition, strategy is about creating something unique, making a set of choices that nobody else has made.
IKEA chooses car-friendly locations(in the United States, never downtown) with ample free parking; it creates huge stores to display and stock every item(never small stores displaying only selected items).
When you try to offer something for everyone, you tend to relax the trade-offs that underpin your competitive advantage. Wherever you find an organization that has sustained its competitive advantage over a period of many years, you can be sure that company has defended its key trade-offs against numerous onslaughts.
Porter calls one of the great paradoxes about trade-offs in competition. Executives often resist making trade-offs for fear they will lose some customers. The irony is that unless they make trade-offs and deliberately choose not to serve all customers and needs, then they are unlikely to do a good job of serving any customers and needs.
The notion that the customer is always right is one of those half-truths that can lead to mediocre performance. Trade-offs explain why it is not true that you should give every customer what he or she wants.
Fit amplifies the competitive advantage of a strategy by lowering costs or raising customer value(and price). Fit also makes a strategy more sustainable by raising barriers to imitation.
Continuity gives an organization the time it needs to deepen its understanding of the strategy. Sticking with a strategy, in other words, allows a company to more fully understand the value it creates and to become really good at it.
At the opposite extreme, Porter warns against thinking that an organization can simply stumble its way into a strategy by encouraging unconnected experimentation in all of its units. Strategy is about the whole, not the parts. There must be a stable core to begin with, or at least a grounded hypothesis about how the company is going to create and capture value.
Porter: The granddaddy of all mistakes is competing to be the best, going down the same path as everybody else and thinking that somehow you can achieve better results. This is a hard race to win. So many managers confuse operational effectiveness with strategy.
His famous example was railroads that failed to see that they were in the transportation business, and so they missed the threat posed by trucks and airfreight. The problem with defining the business as transportation, however, is that railroads are clearly a distinct industry with distinct economics and a separate value chain. Any sound strategy in railroads must take these differences into account. Defining the industry as transportation can be dangerous if it leads managers to conclude that they need to acquire an airfreight company so they can compete in multiple forms of transportation.
The common mistake is to settle for 50 percent of your target segment when 80 percent is achievable. You can shoot for true leadership when the customer target is properly defined not as the whole industry, but as the set of customers and needs that your strategy serves best.
But you have to be really focused, because the tendency in geographic expansion is to get too caught up in the differences present in the new market. Find the part of the new market that responds to what you do rather than try to adapt to all the differences.
A disruptive technology is not any new technology. Many new technologies are not disruptive. Nor is it any big technological leap, because many big leaps are not disruptive. A disruptive technology is one that invalidates value chain configurations and product configurations in ways that allow one company to leap ahead of another and/ or make it hard for incumbents to match or respond because of the existing assets they have. So a disruptive technology is one that would invalidate important competitive advantages. The Internet offers a classic case.
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