Published in: Harvard Business Review, November-December 1996
Main Thesis: Operational effectiveness is not strategy. Competitive strategy involves creating a unique value position with activities that differ from rivals.
I. Operational Effectiveness Is Not Strategy
Definition: Operational effectiveness (OE) means performing similar activities better than rivals.
Problem: OE is necessary but not sufficient for superior performance.
Competitive Convergence: Companies imitate each other, leading to homogeneity and zero-sum competition.
Productivity Frontier: Represents the best practices at a given time; OE moves companies toward this frontier but doesn't guarantee strategic advantage.
II. Strategy Rests on Unique Activities
Essence of Strategy: Choosing a different set of activities to provide a unique mix of value.
Example: Southwest Airlines and Ikea, which focus on unique activities tailored to their strategic positioning.
Strategic Positioning: Involves variety-based, needs-based, and access-based strategies.
III. A Sustainable Strategic Position Requires Trade-offs
Importance of Trade-offs: Necessary for maintaining distinctiveness; prevent companies from straddling or imitating rivals.
Examples: Neutrogena's focus on a specific market segment and product.
Consequences of Ignoring Trade-offs: Leads to strategic failures, e.g., Continental Lite.
IV. Fit Drives Both Competitive Advantage and Sustainability
Fit: How activities relate and reinforce one another, creating a system that is hard to imitate.
Types of Fit:
First-order: Consistency between activities and overall strategy.
Second-order: Activities that reinforce one another.
Third-order: Optimization of effort across activities.
Common Failures: Confusion between OE and strategy; failure to make strategic choices; relentless pursuit of growth leading to strategic blurring.
Growth Trap: Desire for growth can dilute strategy; companies often broaden focus at the expense of strategic clarity.
Leadership in Strategy: Essential for defining and maintaining unique positioning, making trade-offs, and ensuring strategic fit.
Reconnecting with Strategy: Involves focusing on distinctive elements, removing incremental additions, and ensuring alignment with core strategy.
Conclusion
Strategy & Operational Effectiveness: While both are essential, they require different focuses and efforts. Strategy involves choice, trade-offs, and fit among activities, while OE is about improving efficiency and best practices.
Sustainability of Strategy: Depends on maintaining a unique position with a well-integrated system of activities.