Core phonics survey

The myriad activities that go into creating, producing, selling, and delivering a product or service are the basic units of competitive advantage.

Operational effectiveness

means performing these activities better— that is, faster, or with fewer inputs and defects—than rivals. Companies can reap enormous advantages from operational ef- fectiveness, as Japanese firms demon- strated in the 1970s and 1980s with such practices as total quality management and continuous improvement. But from a com- petitive standpoint, the problem with oper- ational effectiveness is that best practices are easily emulated. As all competitors in an industry adopt them, the

productivity frontier

—the maximum value a company can deliver at a given cost, given the best available technology, skills, and manage- ment techniques—shifts outward, lowering costs and improving value at the same time. Such competition produces absolute improvement in operational effectiveness, but relative improvement for no one. And the more benchmarking that companies do, the more

competitive convergence

you have—that is, the more indistinguish- able companies are from one another.

Strategic positioning

attempts to achieve sustainable competitive advantage by preserving what is distinctive about a com- pany. It means performing

different

activi- ties from rivals, or performing

similar

activi- ties in different ways.

Three key principles underlie strategic positioning.

1. Strategy is the creation of a unique and valuable position, involving a different set of activities.

Strategic position emerges from three distinct sources:

•

serving few needs of many customers (Jiffy Lube provides only auto lubricants)

•

serving broad needs of few customers (Bessemer Trust targets only very high- wealth clients)

•

serving broad needs of many customers in a narrow market (Carmike Cinemas op- erates only in cities with a population under 200,000)

2. Strategy requires you to make trade-offs in competing—to choose what

not

to do.

Some competitive activities are incompatible; thus, gains in one area can be achieved only at the expense of another area. For example, Neutrogena soap is positioned more as a me- dicinal product than as a cleansing agent. The company says “no” to sales based on deodor- izing, gives up large volume, and sacrifices manufacturing efficiencies. By contrast, Maytag’s decision to extend its product line and ac- quire other brands represented a failure to make difficult trade-offs: the boost in reve- nues came at the expense of return on sales.

3. Strategy involves creating “fit” among a company’s activities.

Fit has to do with the ways a company’s activities interact and rein- force one another. For example, Vanguard Group aligns all of its activities with a low-cost strategy; it distributes funds directly to con- sumers and minimizes portfolio turnover. Fit drives both competitive advantage and sus- tainability: when activities mutually reinforce each other, competitors can’t easily imitate them. When Continental Lite tried to match a few of Southwest Airlines’ activities, but not the whole interlocking system, the results were disastrous.

Employees need guidance about how to deepen a strategic position rather than broaden or compromise it. About how to ex- tend the company’s uniqueness while strengthening the fit among its activities. This work of deciding which target group of cus- tomers and needs to serve requires discipline, the ability to set limits, and forthright commu- nication. Clearly, strategy and leadership are inextricably linked.

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