THE STRATEGY FOR BUSINESS PRODUCTIVITY
Operational effectiveness is not strategy
According to Porter, several management tools, such as total quality management, comparative evaluation, time -based competition, subcontracting, association, reengineering, which are used today, improve and drastically improve the operational effectiveness ofA company, but do not provide the company with sustainable profitability. . Therefore, the root cause of the problem seems to be the inability of the administration to distinguish between operational effectiveness and strategy: administration tools have taken the place of strategy.
Operational effectiveness: necessary but not sufficient
Although both operational and strategy effectiveness are necessary for the superior performance of an organization, operate in different ways.
- Operational effectiveness: perform similar activities better than those of its rivals. Operational effectiveness includes but is not limited to efficiency. It refers to many practices that allow a company to better use its supplies.
- Strategy: perform different activities of the rivals or carry out similar activities in different ways.
Porter states that a company can overcome its rivals only if you can establish a difference that you can preserve. You must deliver greater value to customers or create a value comparable at a lower cost, or do both. However, Porter argues that most of today’s companies compete on the basis of operational effectiveness. This concept of competition based on operational effectiveness is illustrated through the productivity border, shown in the figure below.
The border of productivity is the sum of all existing best practices at a given time or the maximum value that a company can create at a given cost, using the best technologies, skills, management techniques and supplies purchased available. Therefore, when a company improves its operational effectiveness, it moves to the border. The border constantly moves to the outside as new technologies and management approaches develop and as there are new tickets available.
To keep up with the continuous changes in the border of productivity, managers have adopted techniques such as continuous improvement, empowerment, learning organization, etc. Although companies improve in multiple performance dimensions while advancing towards the border, most of them fail to compete successfully on the basis of operational effectiveness for a prolonged period. The reason for this is that competitors can quickly imitate best practices such as management techniques, new technologies, supplies improvements, etc. Therefore, competition based on operational effectiveness displaces the border out and effectively elevates the bar for all. But such competition only produces an absolute improvement in operational effectiveness and no relative improvement for anyone.
This competition can be observed in Japanese companies, which began the world revolution in operational effectiveness in the seventies and eighties. However, now companies (including Japanese) that compete only for operational effectiveness face decreasing returns, zero sum competition, static or decreasing prices and pressures on the costs that compromise the capacity of companies to invest in the businesslong-term.
The strategy is based on unique activities
In addition, according to Porter, the essence of the strategy is to choose to carry out activities differently from its rivals. The strategy is the creation of a unique and valuable position, which involves a different set of activities.
- The origins of strategic positions
- Strategic positions arise from three sources, which are not mutually exclusive and often overlap.
Variety -based positioning: producing a subset of products or services of an industry. It is based on the choice of varieties of products or services instead of customer segments. Therefore, for most customers, this type of positioning will only satisfy a subset of their needs. It is economically feasible only when a company can produce better products or services using distinctive sets of activities.
Positioning based on needs: satisfies the majority or all the needs of a particular group of clients. It is based on aiming a client segment. It arises when there is a group of clients with different needs, and when a set of custom activities can better meet those needs.
Positioning based on access: segmentation of customers who are accessible in different ways. Although their needs are similar to those of other clients, the best configuration of activities to reach them is different. Access can be a function of the geography or the client scale or of anything that requires a different set of activities to reach customers in the best way.
Whatever the base (variety, needs, access or some combination of the three), the positioning requires a set of personalized activities because it is always a function of the differences in the activities (or differences on the supply side). The positioning, in addition, is not always a difference in the side of the demand (or of the client). For example, variety and access positions do not depend on customer differences.
A sustainable strategic position requires compensation
According to Porter, a sustainable advantage cannot be guaranteed simply by choosing a unique position, since competitors will imitate a valuable position in one of the following two ways:
- A competitor can choose to reposition so that it coincides with higher performance.
- A competitor can seek to match the benefits of a successful position while maintaining its existing position (known as Horcajadas).
- Compensations occur when activities are incompatible and arise for several reasons such as:
A company known for delivering a type of value can lack credibility and confuse customers or undermine their own reputation when delivering another type of value or trying to deliver two inconsistent things at the same time.
Compensations arise from the activities themselves. Different positions require different product configurations, different equipment, different employee behaviors
Rediscovering the strategy
Do not choose
According to Porter, although external changes can represent a threat to the strategy of a company, a greater threat to the strategy often comes from the company. In addition, the fundamental problem lies in the mentality of ‘best practice’ of managers, who believe in not making concessions, incessantly seeking operational effectiveness and imitating competitors to catch up on the race for operational effectiveness. Therefore, managers simply do not understand the need to have a strategy.
The growth trap
Companies often grow by expanding their product lines, adding new features, imitating popular competition services, matching processes and acquiring. However, most companies begin with a unique strategic position that implies clear compensation. However, with the passage of time and growth pressures, companies are forced to make commitments, which at first were almost imperceptible. Therefore, through a succession of incremental changes, which seemed reasonable at that time, companies have committed their way to homogeneity with their rivals.
The commitments and inconsistencies in the search for growth eventually erode the competitive advantage of a company and its singularity. The rivals continue to coincide with each other until the despair breaks this vicious circle and results in a fusion or reduction to original positioning.
According to Porter, efforts to increase blurry uniqueness, create commitments, reduce adjustment and, ultimately, undermine the competitive advantage.
Profitable growth
An approach to persevering growth and reinforcement strategy is to concentrate on deepening a strategic position instead of expanding and compromising it. A company can do so taking advantage of the existing activity system by offering characteristics or services that the rivals would find impossible or expensive to match independently. Therefore, deepen a position means making the company’s activities more distinctive, strengthening the adjustment and communicating the strategy better to those customers who value it. But currently many companies try to grow by adding features, products or fashion services without adapting them to their strategy.
Globalization often allows growth that is consistent with a company’s strategy, since it opens larger markets for a focused strategy. Therefore, expanding globally is more likely to reinforce the unique position of a company than national extension.
The role of leadership
Strong leaders, who are willing to make decisions, are essential. General management must do more than just the administration of individual functions. They must define and communicate the unique position of the main company, make compensation and forge the adjustment between the various activities of the company. In addition, the leader must decide what changes in industry and customer demands will respond to the company. The leader should be able to teach others in the organization about the strategy and say no.
The strategy consists in choosing what to do and what not to do. Decide which client, varieties and needs group must meet the company is essential to develop a strategy. However, the strategy also consists in deciding not to meet other customers or needs and not offer certain characteristics or services. Therefore, the strategy requires continuous discipline and clear communication. The strategy must guide employees in decision making that arise due to compensation in their individual activities and everyday decisions.
In addition, managers must understand that operational effectiveness, although it is a necessary part of management, is not a strategy. Managers must be able to clearly distinguish between the two.
In conclusion, a company must continue to improve its effectiveness and try to change the border of productivity, make a continuous effort to be original and innovative as well as adjust to current times. In addition to searching how to take advantage and compensate for the new complementary activities systems to obtain a sustainable advantage.
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