Many activities go into creating, producing, selling and delivering a service or a product. Operational efficiency is about doing it faster or more cheaply.
Japanese companies started the drive to operational efficiency with Just in Time and Total Quality Management frameworks. Few companies can compete successfully on this basis over time.
Often, the result is ‘competitive convergence’ wherein companies become indistinguishable from each other.
Printing companies are a good example. In Australia, Kwik Kopy, Worldwide Online Print, We Print It, and numerous others. All of them are trying to offer the same services faster and cheaper than the others – offset and digital. There is not much differentiation other than a logo and a streamlined web user experience, which are very similar. It’s a price war. The more benchmarking these companies do, the more the companies end up copying each other.
Competitive strategy is about being different.
Blurb is a great example of a company that broke the printing stalemate. It is also a good example of a ‘blue ocean strategy’ – leaving the red ocean waters of bloody competitive rivalry to enter fresh, unchartered market. Hence Blurb created book printing for the every day person.
Being different means having different activity sets.
One example is Southwest Airlines. Both Michael Porter and many other marketing specialists highlight this company as having a strong strategy.
Southwest Airlines offers:
- short-haul flights
- low cost
- between mid sized cities in the United States’s secondary airports.
- no meals or assigned seats
- automatic ticketing
In comparison, a full service airline such as Qantas offer:
- flights to almost any destination
- first-class and Business Class areas
- co-ordinated scedules for passenger convenience
- check and transfer of luggage
- meals and drinks
Strategy is not only about meeting a customers needs, but it’s about creating the best set of activities to do it.
Strategic Positioning Requires Tradeoffs
Choosing a unique positioning is not enough to sustain advantage. It will attract imitation.
Some companies ‘straddle’. They seek to challenge an existing business by matching their benefits so they graft extra activities and services onto activities they already perform.
Qantas created Jetstar to challenge Virgin’s low cost airline. It continues to run Qantas. You can choose to be full service or you can choose to be low-cost, but you cannot choose to be both without major inefficiencies.
This is because the activity sets of one need to be tightly fit and synergistic. With two separate business units, you cannot share the efficiencies of the activity systems of each other as there are multiple differences.
Each requires different service forms, different aircraft and equipment, different employee behaviour and management systems. Companies that straddle degrade the value of the activity systems and undermine the strategy.
The Importance of Tight Activity Systems
The tightness of fit of your activity systems is what locks out competitors.
IKEA is an excellent example. Furniture is flat-packed, customers self-serve, warehousing costs are minimal, prices are low.
To ask yourself which strategy to pursue, these questions are helpful:
- Which products or services are the most distinctive?
- Which are the most profitable?
- Which of our customer groups are the most satisfied?
- Which activities in our value chain are the most different and effective?
- For a small business, what is your flagship product or service?
- What do you do that nobody else can?
Based on the seminal article ‘What is Strategy’ by Michael E. Porter. Found in Harvard Business Review’s MUST Reads on Strategy.