Wednesday, June 6, 2007

Strategy as Defined by Michael Porter

Earlier, it was believed that operational effectiveness is the best way to develop a strategy for the business. It is the only way to survive in the competitive world. It was believed that creating a positioning in the market will actually hamper the competitive growth and adaptation to the modern techniques. It will very soon be outdated and then we will be out of the market. It is only about the best practices adopted by the company that makes the world leader.
Michael Porter had a different view in this regard which proved to be more appropriate in the present context. Here are some of the excerpts of his ideas:
v Operational effectiveness is a necessary but not a sufficient measure to sustain in the market. Through best practices, we can definitely create a mark but on account of high technological developments, all the companies will sooner or later achieve the same. Hence our value proposition will not be sustainable.
v Different set of activities carried out by the companies helps it achieve a distinct positioning in the market which is quite important for a company to sustain world leadership.
v Our strategy must be to chose an entirely different set of activities than that of our rivals according to our company’s strengths and develop a strategic positioning in the market keeping a greater horizon in mind and not a single planning cycle.
v Strategic positioning is of three types:
1. Access based positioning-locality
2. Need based positioning- value for money
3. Variety based positioning-offerings
v Tradeoffs are a very important part of making a strategy. A company cannot go for more than one position. One cannot provide cost cutting and premium quality at the same time. The company which wants to have all the things at the same time ultimately fails due to fallacy of implementation in the whole process. Hence tradeoffs are quite necessary for any company.
v Fit must be developed among various activities to make then inimitable for the rival companies. It gives the companies a sustainable competitive advantage over the competitors.
v There are three degrees of fit:
1. First order fit allows various activities to be interlinked.
2. Second order fit has all the activities reinforcing each other to create an inimitable set of activities.
3. Third order fit has an optimization of efforts i.e. how all the activities have been interlinked to give the most optimized set where we can have the maximum output.

v Hence a company management has to perform three core activities:
1. defining strategic positioning
2. making tradeoffs
3. forging fit among various activities


Anonymous said...

Good summary. Great read!

Anonymous said...

What new insight or value are you bringing into Strategic Management with this blog of yours?

Nonetheless even Porter's idealistic world of fit is a passe, because increasingly it has been realised that inculcate a fit into an organization is not a strategic process but involves much more complex social interlinks.

Prabal Aggarwal said...

HI buddy
thanks for ur healthy criticism. We are still students of MBA and its just a start. I agree that lot of things taught in B Schools are already obsolete but still they stimulate to think in new direction. Its just a summary of Michael Porter's classic article "What is Strategy?". We will in short time add new stuff on strategic management, which is not a summary but analysis of hands on experience. It seems that u r already having good knowlege abt the subject. Y don't you share your knowledge with us. It will be really helpful for all the audience. As the sole purpose of this blog is to share and multiply our knowledge. I invite you to co author this blog with us. Kindly gimme ur confirmation and id at
Once again thanks for ur critical comment :)

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