Operational effectiveness oe is not strategy
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Operational Effectiveness (OE) is not Strategy ?. OE and Strategy are both essential to obtain superior performance, but a company can outperform rivals only if it can establish a difference that it can preserve.

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Operational Effectiveness (OE) is not Strategy ?

  • OE and Strategy are both essential to obtain superior performance, but a company can outperform rivals only if it can establish a difference that it can preserve.

  • Managers have been preoccupied with improving operational effectiveness through programs such as:

    • TQM

    • Time based competition

    • Benchmarking

      Results in the short run:

      ↓costs + ↑ prices = ↑ profitability

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OE is necessary but not sufficient: Weaknesses

  • Competitors can quickly imitate management techniques, technologies, input improvements and superior ways to meet customer’s needs.

    • Eg: Japanese companies (1970-1990) enjoyed substantial cost & quality advantages (productivity frontier). Now they need to learn strategy.

  • Competitive Convergence: The more the rivals outsource activities, the more generic those activities.

    • Rivals can quickly copy any market position.

    • Competitive advantage is temporary.

    • Rivals imitate the improvements in quality, cycle times or supplier partnerships.

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OE is necessary but not sufficient: Weaknesses

  • Gradually, managers have let OE supplant strategy. The results are:

    • Zero-sum competition

    • Static or declining prices

    • Pressure on cost that compromise company’s ability to invest in the business for the long-term

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Strategic Positions

  • The essence of strategy is choosing to perform activities different from rivals.

  • Strategic positions are often not obvious and finding them requires creativity and insight.

  • New entrants often discover unique positions that have been available but overlooked by established competitors.

    • E.g.: IKEA, ,Southwest Airlines

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The Origins of Strategic Positions

  • Companies can obtain strategic position in three ways (not mutually exclusive):

    • Variety-based positioning

    • Needs-based positioning

    • Access-based positioning

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Variety-Based Positioning

  • Based on the choice of product or service varieties rather than customer segments.

  • This position can serve a wide array of customers but it will primarily will meet only a subset of their needs.

    • E.g.: The Vanguard Group

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Needs- Based Positioning

  • Based on targeting a segment of customers.

  • This position is not that obvious if companies consider the difference in needs and the range of activities that should differ between the segments.

    • E.g.: Edward Jones

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Access- Based Positioning

  • Based on the importance of accessing the product/service.

  • Access can be a function of customer geography or anything that requires a different set of activities to reach customers in the best way

    • E.g.: Amazon.com

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Positioning & Strategy

  • Positioning : requires a tailored set of activities (based on variety, needs, access or a combination of them) because it is always a function of DIFFERENCE.

  • Strategy : is the creation of a unique and valuable position involving a different set of activities.

    • The essence is to choose activities that are different from rivals.

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Important Concepts

  • Positioning trade-offs are pervasive in competition and essential to strategy.

  • Trade-offs create the need for choice and purposefully limit what a company offers.

  • Positioning determines also how activities relate to one another.

  • Strategy is combining activities.

  • Competitive advantage comes from the way activities fit and reinforce one another.

    Strategic fit = competitive advantage + superior profitability

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Type of Fits

  • Create consistency between each activity or function and the overall strategy.

  • Create activities that are reinforcing.

  • Optimize efforts with coordination and information exchange to eliminate redundancy and minimize wasted efforts.

  • Competitive advantage grows out of the entire system of activities.

  • The fit among activities substantially reduces cost or increase differentiation.

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Strategic Position (SP): Fit and Sustainability

  • Strategic fit among many activities is essential to the sustainability of the competitive advantage.

  • Positions built on systems of activities are more sustainable than those built in individual activities (OE).

  • When activities complement one another, rivals will get little benefit from imitation unless they successfully match the whole system.

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Strategic Position (SP): Fit and Sustainability

  • SP sets the trade-off rules that defines how individual activities will be integrated.

  • SP should have a long-term horizon of a decade or more, not a single planning cycle.

  • The success of strategy is doing many things well and integrating them among them.

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Why many companies do not have a strategy?

  • Leaders have the idea that making trade-offs is a sign of weakness and do not understand the need of it.

  • Pursuing OE is easier to attain because is concrete and actionable.

  • Companies imitate one another assuming that rivals have something they do not.

  • Trade-offs and limits appear to constrain growth. However, compromise and inconsistencies in the pursue of growth may erode a competitive advantage.

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What should companies and leaders do ?

  • They should reevaluate their strategies and challenge themselves to start over.

  • They should refocus on the unique core and realign the companies activities with it.

  • Evaluate the vision of the founder and reexamine the original strategy.

  • Leaders should be in charge of defining and communicating the company’s unique position, making trade-offs and forging it among activities.