Summary

In Michael Porter’s 1996 article, "What is Strategy?", he differentiates between operational

effectiveness and strategy, arguing that many companies conflate the two. Porter emphasizes
that operational effectiveness—improving processes, maximizing productivity, and cutting
costs—is essential but not the same as strategy. Relying on operational effectiveness alone can
lead to competitive convergence, where companies become indistinguishable in their offerings.
Key Concepts
1. Strategy as Unique Positioning: Strategy, Porter argues, is about creating a unique and
valuable market position by performing different activities or performing similar activities
differently. This positioning helps a company serve specific customer needs in ways that
competitors do not.
2. Trade-offs in Strategy: Effective strategy requires making trade-offs—choosing what not
to do. By focusing on certain activities or markets and deliberately forgoing others,
companies can create a distinct identity. For example, Southwest Airlines focuses on low-
cost, point-to-point flights rather than competing on full-service routes.
3. Fit Among Activities: Strategy is also about ensuring that a company’s activities
reinforce each other, creating a network of competencies that strengthens competitive
positioning. Porter illustrates this with examples of how successful firms, such as IKEA,
integrate various activities to build a consistent and competitive system.
4. Sustainability of Competitive Advantage: A strong strategy creates sustainable
competitive advantage, which is harder for competitors to imitate. This sustainability is
due to the fit among activities and the trade-offs that define what the company uniquely
provides.
Porter argues that true strategy requires long-term commitment and a focus on uniqueness,
rather than simply striving for operational excellence. For students of strategic management,
understanding the difference between effectiveness and strategic positioning is crucial, as well
as learning to make trade-offs that align with an organization's core purpose and distinctive
strengths.
In "What is Strategy?" Michael Porter explores the essential components of strategy,
distinguishing it sharply from operational effectiveness, and uses real-world examples to clarify
the distinctions and strategic choices companies face.
Key Concepts and Examples
1. Operational Effectiveness vs. Strategy:
o Operational Effectiveness: Porter defines operational effectiveness as performing
similar activities better than rivals. This can include practices like cost reduction,
quality improvement, or process optimization. While operational effectiveness is
crucial for competitive performance, Porter notes that it’s not sufficient for long-
term success.
o Strategic Differentiation: Strategy, in contrast, involves choosing to perform
activities differently or performing different activities to create a unique market
position. For example, Japanese companies in the 1980s excelled in operational
effectiveness by adopting practices like quality control and lean manufacturing,
allowing them to produce goods at lower costs. However, Porter points out that as
Western companies adopted similar practices, the advantages diminished, and
 companies found it harder to distinguish themselves solely on operational
improvements.
2. Unique Positioning and Competitive Advantage:
o Porter argues that strategy is about unique positioning. To establish a sustainable
competitive advantage, companies must deliver value in ways that competitors
cannot easily replicate. He describes three types of positioning:
 Variety-Based Positioning: Focusing on a subset of industry products or
services. Jiffy Lube, for instance, provides only oil changes and related
services rather than full car maintenance. This specialization allows them to
refine their operations, lower costs, and deliver quick service.
 Needs-Based Positioning: Targeting a specific customer segment with
tailored products or services. IKEA exemplifies this by serving young, cost-
conscious customers who seek stylish furniture at affordable prices. IKEA’s
model includes designing furniture that customers assemble themselves,
allowing for low pricing and broad appeal to a specific consumer need.
 Access-Based Positioning: Serving customers in a specific geographic area
or in a way that makes the company’s services accessible to them. For
instance, Carmike Cinemas operates in smaller towns and rural areas,
focusing on markets that are often underserved by larger cinema chains.
3. The Importance of Trade-offs:
o Porter emphasizes that strategy requires making trade-offs, which means deciding
what not to do to maintain a focused and distinct position. He argues that without
trade-offs, companies risk trying to serve multiple needs and lose their strategic
direction.
o Example of Southwest Airlines: Southwest makes deliberate trade-offs, such as
offering point-to-point service instead of using hubs, avoiding seat classes, and
focusing only on short-haul routes. These choices support a low-cost model but
mean Southwest cannot compete directly with full-service airlines on amenities or
long-haul flights. By forgoing some customer segments and service options,
Southwest can streamline its operations and keep costs low, sustaining its
competitive position in the market.
4. Creating Fit Among Activities:
o Strategy, Porter argues, involves integrating activities in ways that reinforce each
other. He describes how companies that align their operations to support a central
strategy are harder for competitors to copy because the whole system becomes a
source of competitive advantage.
o Example of IKEA: IKEA's activities—from self-service warehousing to flat-pack
products and in-store childcare—are tightly aligned to serve its cost-conscious
customer base effectively. These choices support the company’s low-cost model,
and competitors would need to replicate IKEA’s entire operational system, not just
individual activities, to compete effectively.
o Example of Neutrogena: Neutrogena, which markets itself as a dermatologist-
recommended skin care brand, has designed its product manufacturing, marketing,
and distribution to target the specific needs of a health-conscious consumer. By
aligning its activities around a medical and clinical image, it limits its advertising to
 medical journals and builds partnerships with dermatologists rather than general
media, reinforcing its distinct brand positioning.
5. Sustainable Competitive Advantage:
o Porter notes that sustainable competitive advantage is achieved when rivals cannot
easily replicate a company’s integrated system of activities and when the
company’s positioning withstands pressures to conform to industry norms.
o Example of Vanguard: Vanguard’s strategy focuses on low-cost investment
options for long-term investors, offering indexed mutual funds instead of actively
managed funds. This positioning aligns with Vanguard’s commitment to reduce
costs by avoiding high marketing expenses and maintaining a low-cost structure.
This consistent approach not only builds a loyal customer base but also creates a
moat that competitors find hard to breach without making significant structural
changes to their own cost models.
6. Imitation Challenges and Competitive Convergence:
o Porter warns that without distinct strategies, companies often fall into competitive
convergence, where they imitate rivals’ successful practices without differentiating
their core offerings, resulting in industry-wide price wars and reduced profitability.
o Examples of Failure from Imitation: Porter uses examples of grocery and fast-
food industries, where companies imitate popular formats (like the all-purpose
grocery store or fast-food chain model) but lack distinct strategic positioning. This
convergence leads to fierce competition and thin profit margins, as companies
compete on price and similar product offerings rather than unique value.
7. Strategic Coherence and Reinforcement:
o Strategy must be coherent, with every activity reinforcing the company’s unique
positioning. This alignment ensures that the company’s operations, marketing, and
organizational structure all support its strategic objectives.
o Example of Continental Lite vs. Southwest Airlines: When Continental Airlines
attempted to launch Continental Lite to compete with Southwest, it failed because it
didn’t align its activities and resources with the low-cost model. Continental
continued to operate its hub system and served both traditional and low-cost
passengers, creating a confused and inefficient system. Southwest’s activities, by
contrast, are all geared toward efficiency and low cost, which has sustained its
competitive advantage.
Conclusion
Porter’s analysis reveals that true strategy requires making hard choices and aligning all aspects
of a company’s activities toward a clear, unique market position. By focusing on operational
effectiveness without a distinct strategy, companies risk blending in with competitors, leading to
what Porter calls “mutual destruction.” This article underscores that effective strategy is not just
about being efficient but about being distinctive and intentional in serving targeted customer
needs.
For students of strategic management and leadership, this approach emphasizes the importance
of clear positioning, consistent trade-offs, and system coherence. Developing a strategic mindset
involves understanding how to make intentional choices that differentiate an organization and
align all its activities to reinforce a unique competitive advantage.
 Lesson Learnt
As a student of strategic management and leadership, Michael Porter's "What is Strategy?" offers
critical lessons on the essence of strategy and its role in building sustainable competitive
advantage. Here are the main takeaways:
1. Understand the Difference Between Operational Effectiveness and Strategy
 Lesson: Operational effectiveness (performing tasks better than rivals) is essential but not
enough for sustained success. True strategy involves creating unique value that
distinguishes a company from its competitors.
 Application: As future leaders, recognize that while improving processes is crucial, a
competitive edge requires unique positioning—offering something distinctive that others
do not.
2. Embrace Unique Positioning
 Lesson: Strategy is about unique positioning, which means offering a specific mix of
products or services tailored to meet particular customer needs.
 Application: To develop strategic acumen, learn to analyze market opportunities for
segments where your organization can deliver unique value, whether by focusing on
particular needs, product types, or customer access methods.
3. Make Strategic Trade-Offs
 Lesson: Effective strategy requires making trade-offs, which means deciding what not to
do. This focus prevents organizations from trying to do everything, which often leads to
diluted efforts and loss of competitive focus.
 Application: This teaches students to prioritize and concentrate resources on areas that
will strengthen the company’s distinct position in the market. As leaders, making
deliberate choices about what to pursue—and what to avoid—will be essential for
maintaining a clear strategic direction.
4. Develop a System of Activities that Reinforce Each Other
 Lesson: A successful strategy requires activities that fit together and mutually reinforce
one another. This alignment creates a system that competitors find difficult to replicate
because it involves more than copying isolated practices.
 Application: This emphasizes the importance of alignment across an organization. Learn
to view strategy holistically, considering how various functions—marketing, operations,
finance—can reinforce each other to support the company’s unique position. As future
leaders, creating coherence across activities will be key to building a strong, sustainable
strategy.
5. Focus on Sustainability in Strategy
 Lesson: A sustainable competitive advantage requires a strategy that is hard for
competitors to imitate. This sustainability arises from the trade-offs and fit among
activities that make the company’s strategy resilient.
 Application: Instead of constantly changing strategies to keep up with trends, students
should focus on creating durable, distinct value propositions that are less susceptible to
competitor imitation.
6. Avoid Competitive Convergence
 Lesson: Many companies fall into the trap of competitive convergence by imitating their
rivals, which leads to price wars and erodes profitability across the industry. Strategy
should focus on differentiation, not imitation.
 Application: This teaches students to develop strategies that emphasize what makes
their organization different from others. Instead of simply mimicking best practices, look
for ways to innovate and create a unique offering that stands out.
7. Recognize the Long-Term Commitment Needed for Strategy
 Lesson: True strategy requires a long-term commitment to a clear position, rather than
frequent shifts in direction. Porter argues that strategic success comes from staying
focused and resisting the pressure to pursue every new opportunity.
 Application: As a future leader, understand that maintaining a consistent strategic
direction requires resilience and patience. Avoid the temptation to chase short-term gains
at the cost of long-term strategic clarity.
8. Prioritize Fit Over Flexibility for Sustainable Success
 Lesson: While flexibility is valuable, strategy benefits more from fit among activities that
reinforce each other to create a competitive system. The consistency and alignment of
activities can provide a stronger defense against competitors.
 Application: Learn to build organizational systems where each part supports the strategy,
making the company’s position difficult for rivals to replicate without major changes to
their own systems.
Conclusion
Porter’s insights teach strategic management students that lasting success is not merely about
outperforming rivals in efficiency. Instead, true strategy involves creating a unique position,
aligning activities to reinforce this position, and making deliberate trade-offs to maintain focus.
For students, this approach highlights the importance of disciplined, long-term thinking in
leadership and developing the ability to make tough strategic choices that align with an
organization’s core strengths and values.