‘What Is Strategy?’ Article by Michael E. Porter

Subject: Strategy
Pages: 8
Words: 2166
Reading time:
8 min
Study level: College

The author emphasizes that organizations are experiencing an increase in pressure to adjust to market changes to achieve long-term survival. One of the main sources of market pressure involves the high rate of globalization due to the increased market liberalization. Therefore, organizations are operating in an intensively competitive environment. The market changes have significantly reduced the effectiveness of organizations’ core competencies and positioning strategies.

Limitation of overemphasizes on operational effectiveness

The author argues that most organizations are focused on improving their productivity and operational effectiveness by adopting diverse management techniques and tools. However, organizations have confused operational effectiveness for strategy. Despite the significance of operational effectiveness in enhancing organizations’ performance, firms have not been in a position to transform their operational effectiveness into financial sustainability through increased profitability.

The article further emphasizes the importance of combining operational effectiveness and customer value proposition to attain financial sustainability. One of the elements that firms should be concerned about within their quest for operational efficiency is cost minimization. Cost minimization increases the likelihood of attaining a competitive advantage. Moreover, operational efficiency increases the level of customer satisfaction due to better pricing as compared to the competing firms. Some of the techniques that organizational managers have emphasized in pursuit of operational efficiency include total quality management, continuous improvement, and change management.

Despite the adoption of best management practices, firms can lose competitiveness based on operational effectiveness due to imitation by competing firms. Furthermore, the productivity frontier is continually shifting because of technological advancement and the emergence of new management approaches. Consequently, the author emphasizes that competition, which is exclusively based on operational efficiency, is mutually destructive for the firms lack uniqueness. Additionally, the author asserts that most organizations that have extensively focused on operational effectiveness are experiencing diminishing returns. According to Porter, most organizations have substituted operational effectiveness as their competitive strategy, thus compromising their competitiveness.

Foundations of strategy

According to the author, strategy entails an organization’s uniqueness in comparison with its competitors. Thus, a strategy is aimed at delivering an inimitable mix of value. The author cites Southwest Airlines as one of the airline companies that have adopted a unique strategy. For example, the firm has integrated a mix of point-to-point flight, short-haul, and low-cost pricing strategy. Moreover, the airline mainly connects midsized cities and small airports.

This mix of strategies has remarkably improved the airline’s appeal to families, business travelers, and students in the US. Furthermore, the airline’s competitiveness has been improved by its unique set of activities such as fast turnarounds of 15 minutes, the elimination of in-flight meals, and automated ticketing. These aspects have enabled the firm to attain valuable and unique strategies.

Similarly, Ikea, which is a renowned global furniture retailer, has adopted a unique strategy that is based on product diversification and customization. The firm has also adopted an effective value chain. The firm is also in a position to minimize cost by adopting the ‘do-it-yourself’ strategy, whereby customers select their choice based on the available models.

Origin of strategic positioning

The author argues that strategic positioning originates from three main distinct sources as illustrated below.

  1. Variety-based positioning; this form involves developing competitiveness from producing a product that fits a subset of its industry. Variety-based positioning is based on an organization’s production competence.
  2. Need-based positioning; this aspect involves targeting a particular customer group based on their needs.
  3. Access-based positioning; this technique involves segmenting the market based on customers’ accessibility.

Requirements of a sustainable strategic position

The author argues that a sustainable strategic position requires an organization to base its strategic position on a trade-off between different aspects. Subsequently, sustainable strategic positioning is achieved through the amalgamation of diverse competitive aspects. The trade-off should be based on an organization’s resources such as financial and human capital coupled with products. The author affirms that the trade-off is necessary to eliminate the limitation associated with overreliance on one source of value.

Significance of fit in achieving competitive advantage and sustainability

The author emphasizes the significance of establishing a high degree of fit amongst the various organizational activities to achieve sustainability and competitive advantage. According to the author, fit minimizes the likelihood of imitation by competitors. Strategic fit fosters competitive advantage and increases the level of profitability.

Types of fit

The article highlights different types of fit that organizational leaders can establish.

  1. First-order fit; this fit underscores the importance of establishing fit between the various activities [functions] and the overall organizational strategy. This type of fit minimizes the probability of an organization’s activities being counterproductive.
  2. Second-order fit; this type refers to the extent to which the various organizational activities reinforce each other, hence improving the firm’s competitiveness.
  3. Third-order fit; this type of fit is focused on optimization of the efforts made at different points within the supply chain.

The three types of fit underscore the significance of an organization operating as a unit, hence eliminating disintegration of the organizational processes.

Fit and sustainability

Sustainability and strategic fit go hand in hand and thus organizational leaders should seek to position their operation based on a myriad of activities rather than on individual activities. Such an approach is essential in establishing a barrier to entry. The author argues that the second and third orders of strategic fit are the most effective in attaining sustainability. Furthermore, fit enhances an organization’s operational effectiveness due to the interconnection amongst the various operational activities. Therefore, various organizational activities should complement each other.

Rediscovering strategy

The article cites several issues that organizational leaders should appreciate in their strategy formulation process. These aspects include

  1. Making an effective choice – the article highlights the significance of establishing a strong organizational vision to be successful in establishing an effective strategy. Furthermore, organizations should desist from basing their strategy on industry trends; on the contrary, they should be focused on making strategic choices.
  2. Growth trap – organizational leaders should ensure that their growth objective does not blur the organizational strategy. Furthermore, organizational leaders should ensure that their growth path does not blur the organizational strategy.
  3. Profitable growth – the author argues that strategy is also affected by the pursuit of high profitability.
  4. Organizational leadership – the article further asserts that the effectiveness with which an organization formulates and implements strategy is highly dependent on organizational leadership.

What is strategy?

Early definitions of strategy

There have been numerous attempts to define the term ‘strategy’ by scholars and management practitioners. This aspect has led to variations in the conceptualization of the term strategy. However, the definition of the term strategy is analogous in different settings. Some of the definitions that have been proposed are illustrated below.

One of the early definitions of strategy came from Alfred D. Chandler, who argued that strategy involves the process of determining an entity’s long-term objectives and goals, adopting the best course of action, and ensuring optimal resource allocation to attain the predetermined goal. In his view, Chandler-based his definition of the term strategy on planning and formulation of goals and objectives (Nickols, 2011).

Peter F. Drucker defined strategy as the process of analyzing the current situation and making the necessary adjustments. Igor Ansoff defined strategy as the rule that an organization adopts in making the decision, which is determined by the market scope, the need for synergy, and growth vector. Kenneth J. Hatten and Dan E. Schendel define strategy as the organizational goals, objectives, and the action program designed to attain the goals (Karami, 2007).

Alternatively, according to Karami (2007, p. 3), the term strategy was defined ‘as a fundamental pattern of present and planned resource deployment and environmental interactions that indicates how the organisation will achieve its objectives’. In an attempt to improve this definition, Kenneth Andrews, a renowned Harvard Professor, argues that strategy involves the various organizational decisions that indicate an organization’s objectives, goals, and the policies intended at achieving the set goals. In his definition, Andrews argued that strategy should clearly illustrate the business that an organization intends to pursue and its contribution to internal and external stakeholders such as shareholders, customers, society, and employees.

Michael Porter defined strategy as the broad formula that outlines how an organization intends to compete, its overall goal, and the policies to be adopted to execute the predetermined goals (Nickols, 2011). Moreover, Michael Porter defines strategy as position, which entails the various actions that an organization undertakes to progress through the desired direction.

Henry Mintzberg and Brian Quinn suggested one of the most comprehensive definitions of strategy. In their operation, a strategy is comprised of different interrelated elements as illustrated herein.

  1. Strategy as a plan – this definition asserts that strategy is comprised of two main characteristics. First, the strategy involves a predetermined set of actions that are developed purposefully and consciously. Additionally, strategy interconnects the various organizational elements, hence making an organization to operate as a unit. Furthermore, these authors emphasize that strategy is a plan that enhances compatibility and fit amongst diverse organizational components such as its capabilities and opportunities. Additionally, the authors are of the view that the plan can be either general or specific. Therefore, as a plan, a strategy should establish a high degree of cohesiveness amongst organizational policies, goals, and objectives. Additionally, according to Karami (2007, p. 4), the authors assert that a ‘well formulated strategy helps to marshal and allocate an organisation’s resources into a unique and viable posture based on its relative internal competencies, shortcomings and anticipated environmental changes’.
  2. Strategy as a position – this element argues that strategy refers to a mediating force that is aimed at balancing internal and external environmental forces. Thus, the strategy is aimed at ensuring that an organization attains an optimal position. According to this view, a strategy can be derived from either the competitors’ mistakes or coincidental events.
  3. Strategy as a perspective; in their opinion, the two scholars asserted that strategy involves an organization’s internal perception. Subsequently, strategy entails the concept shared by the internal stakeholders, which is evidenced by their actions and intentions (Karami, 2007).
  4. Strategy as a pattern – Mintzberg and Quinn argued that strategy comprises a stream of actions. This definition points out a strategy to include consistent behavior, which is developed over time. Furthermore, a strategy can be intended, realised, or emergent. Despite its nature, strategy originates from coincidental behavior.
  5. Strategy as a ploy – Quinn, and Mintzberg assert that strategy entails a scheme that an organization adopts to attain a higher competitive edge against its competitors. Thus, strategies are comprised of tactical and spontaneous measures.

A study conducted by Johnson Gerry and Scholes Kevan in 1993 to define the term argued that strategy is an amalgamation of different elements. First, these scholars argued that a strategy involves all the organizational activities. Additionally, the strategy involves the processes of establishing fit between organizational activities and its environment by linking activities to its resource potential, beliefs, and organizational values fostered by the organization’s leadership (Karami, 2007).

According to Johnson Gerry and Scholes Kevan, a strategy should outline how an organization intends to adapt to rapid environmental changes. Thus, strategy entails a natural selection process through which an organization is pressurized to align its operations with the prevailing environmental changes. This definition suggests that strategy is an evolutionary process, which is driven by environmental changes.

Additionally, these scholars are of the view that strategy is formulated through an extensive and systematic planning process. Moreover, a strategy should be incorporated into an organization’s culture to enhance its permeation throughout an organization. The above definitions illustrate the existence of variations in the views and opinions regarding the definition of the term strategy.

The working definition of strategy

The definitions above show that different aspects are intertwined in the definition of the term strategy. Some of the authors have argued that strategy involves an organization’s purpose, objectives, and goals. Several issues can be deduced from the above definitions of strategy. First, a strategy is comprised of the environment and the organization. Secondly, a strategy is characterized by a high degree of complexity and it affects the overall organizational performance. Thirdly, a strategy is comprised of organizational processes and content. The above definitions also show that strategy may be either deliberate or emergent. Finally, a strategy is formulated through an extensive thought process.

However, in the contemporary business environment, a strategy cannot be defined based on an organization’s goals, objectives, or purposes. On the contrary, strategy refers to how an organization intends to achieve its desired operational, competitive, and sustainability aspects. Thus, the strategy involves the organizational plan as adopted by an organization. The strategy promotes the likelihood of an organization attaining its mission.

At the generic level, strategy entails an outline of the game plan, a series of actions, or methods that a firm intends to implement to achieve the desired results. Within the business context, the strategy is complex as it involves diverse elements. First, the strategy must be formulated, implemented, and managed. Additionally, organizational leaders must ensure that the process of its implementation is monitored similar to other business processes.

Reference List

Karami, A. (2007). Strategy formulation in entrepreneurial firms. Aldershot, UK: Ashgate.

Nickols, F. (2011). Strategy, strategic management, strategic planning and strategic thinking. New York, NY: Distance Consulting LLC.