Lecture Notes: Michael Porter's 'What is Strategy?'

Introduction

• Focus on Michael Porter's seminal article "What is Strategy?"
• Key topics: Competitive advantage through three core business strategies and two follow-up topics.
• Core strategies: Industry position, trade-offs, and activity fit.
• Additional topics: Operational effectiveness and straddling.

Core Business Strategies

1. Industry Position

• Firms need to find a unique and valuable position within their industry by understanding customer needs.
• Variety-based Positioning
  • Targets the few needs of many customers.
  • Example: Jiffy Lube focuses on oil changes for a broad customer base.
  • Example: Lyft offers simple transport options (cars, scooters) focusing on point A to B travels.
• Needs-based Positioning
  • Targets the broad needs of a few customers.
  • Example: Urban Outfitters caters to urban hipsters with a wide range of lifestyle products.
• Access-based Positioning
  • Targets broad needs of many customers in a narrow geographical market.
  • Example: Carmike Cinemas offers a wide range of movies to local audiences.

2. Strategic Trade-offs

• Firms must make choices and trade-offs to maintain focus and avoid competition.
• Example: Southwest Airlines avoids seat assignments, in-flight meals, and other services to maintain low costs and quick boarding times.
• Importance of saying no to certain profit opportunities for focus.
• Hipster example: Bicycle companies opting for fixed-gear bikes to maintain street cred.

3. Activity Fit

• Combining activities to reinforce product differentiation and create synergies.
• First Order Fit: Consistency between actions and strategy (e.g., Southwest's no-seat assignment policy reduces costs).
• Second Order Fit: Activities reinforcing each other (e.g., Southwest's policies support rapid boarding).
• Third Order Fit: Full optimization of firm efforts.
• Ensures competitors find it hard to imitate.

Introduction to Michael Porter

• Harvard Business School professor known for accessible strategy writing.
• Adaptable ideas for various industries and target audiences.

Supporting Topics

1. Operational Effectiveness

• Essential for competitive success but not a strategy.
• Best combination of value and cost is at the productivity frontier.
• Example of operationally efficient firms: Hyundai, Toyota.
• Over-focus can lead to hyper-competition with minimal differentiation.
• Story of commercial printers in the 1980s.

2. Straddling

• Attempt to match competitors' benefits while maintaining an existing position.
• Example: Continental Airlines' failed attempt with Continental Light trying to match Southwest's model.
• Great strategy comes from focusing, not expanding product offerings unnecessarily.

Conclusion

• Strategy involves creating sustainable competitive advantage.
• Follow Porter's three strategies and avoid pitfalls.
• Differentiate and position in ways that limit competition.
• Encouragement to explore further lectures in the strategy series.