For the first article that we were assigned to review for this semester, I read and comprehended the article What is Strategy? By Michael E. Porter. While reading this article I was able to gain a better understanding of what strategy is by looking at different areas of strategy including tradeoffs, strategic positioning vs operational effectiveness, and straddling. These three areas of strategy play a major role in understanding what strategy is and how companies use strategy in order to be successful in the market. Throughout this article review I will thoroughly explain what I have learned by studying this article and in specific my opinion on how I can relate the topics highlighted in the article to my world, area of interest, and industry.
The basic definition of strategy is a plan of action or policy that is constructed in order to achieve something. Before reading this article if someone asked me what I thought strategy meant I would have said the way someone or a group of people go about doing something in order to achieve an end goal. While this isn’t entirely wrong, it makes more sense when Porter describes what strategy is in the beginning of this article. I believe the most important part of this article is understanding what Porter believes strategy is and knowing how to relate it to your world, area of interest and industry. He states that “strategy is the creation of a unique and valuable position, involving a different set of activities” (Porter).
I believe this definition provided to us by Porter can be seen throughout many companies involved in different types of business. When a company involves itself in different sets of activities and has a strategy that drives a unique and valuable position they set themselves up for success due to standing out and differing themselves from other companies in the market. If every company had the same strategy there would be no competition in the market and no variety of offerings to customers and clients. During the beginning of this semester throughout the BSG I have been able to see how strategy effects the performance of a company.
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While in class we are competing with different companies in our market, all companies poses a different strategy that they believe will make them the most successful in the market. While playing this game my group and I have been able to develop a strategy of our own that we follow every week when making business decisions and we believe our strategy will allow us to be successful and outperform our competition in our market.
Almost all businesses with a strategy and a goal to succeed as a business they will have trade-offs. Porter stresses that in order for a company to succeed in a competitive market, they need to make trade-offs which will allow them to decided what they want to do differently than their competition. A trade-off is a balance between two things, when one increases the other must decrease, the act of the decision that one must make can be referred to as a compromise. Throughout the BSG this semester my partners and I have needed to make trade-offs in order to make certain decisions that we believed would set us apart from our fellow competitors.
Each week my team and I make a set of decisions that force us to make trade-offs especially when it comes to making decisions that will affect our EPS, ROE, and ending cash. Trade-offs can be both negative and positive. There is one decision that we make every week under Corporate Citizenship that we feel is important which is spending money for ethics training/enforcement. In the player’s guide in is stated that all of the other decisions that can be made under Corporate Citizenship may not be beneficial to the company. We chose to make a trade-off by not putting our money towards things like recycled boxing/ packing, improved working conditions, and other areas under Corporate Citizenship.
Our trade-off by not investing in many areas of Corporate Citizenship allows us to put money towards other areas of our company that we believe will allow us to make money and increase our scoring measures in order to stand out from our competitors. “Gains in one areas can be achieved only at the expense of another area.” (Porter). This quote by Porter relates directly to one decision that my team and I make during decision rounds. One way for our company to increase sales we need to make trade-off by spending money both on celebrities and advertising in order to make a profit from our endorsements.
Within this article Porter stresses operational effectiveness and how it is not strategy. Operational effectiveness can be described by a business extending their inputs by creating products at a faster rate than their competitors. Porter says that operational effectiveness is when a company performs similar activities better than their competitors who are performing the same activities. Trade-offs and operational effectiveness are not the same but can be related and easily confused. Trade-offs can be misunderstood when it comes to defects and cost as stated by Porter which he says is just a lack of operational effectiveness. How I believe trade-offs and operational effectiveness are related is that a company makes certain decisions and trade-offs, and after these decisions and trade-offs are made a company must improve their operational effectiveness in order to be successful as a company in a competitive market.
During the BSG my team and I have had to make many decisions and trade-offs that we felt would and will continue to make us a profitable company. We have had to continuously make decisions in order to remain operationally effective compared to our competition throughout the weeks of the game. Remaining operationally effective along with other aspects has allowed us to separate ourselves from the other companies that we are competing against in the game.
Throughout this article Porter highlights on strategic positioning and as stated above operational effectiveness. Strategic positioning as stated by Porter tries to achieve competitive advantage by protecting what makes the company different and stand out. Porter believes that a company can do this by doing different things than its rivals and or doing similar things than its rivals but in different ways. Operational effectiveness is the act of performing things in a more effective way than a company’s rivals in ways such as being faster, using less inputs, and having fewer defects. Strategic positioning is a company’s choice making and operational effectiveness is a company’s validating and executing, which is the main difference between the two.
It is important that a company possesses the qualities of strategic positioning and operational effectiveness in order to be a successful company. Strategic positioning and operational effectiveness might look different for companies but it structures the company’s performance. Operational effectiveness can be considered and internal aspect of a company meaning what the company needs to work on in the inside and figuring out how to be faster, use less inputs, and producing fewer defects. Strategic positioning can be considered and external aspect of a company by being a sustainable company and by doing things differently in order to stand out and compete with the other companies in your industry. Companies will ask themselves different questions for both strategic positioning and operational effectiveness in order to make sure they are performing above and beyond their competition in their industry of focus.
While strategic positioning and operational effectiveness are different in many ways, they’re both important to a company’s success. A company’s strategy is something that a company plans in order to achieve a desired result, while the company may know what they want to achieve, they need to have strategic positioning in order to make sure they can achieve their desired goals and results while faced with competition from their rivals within their industry. Without operational effectiveness in a company it would be difficult to remain efficient, driving them away from their desired goals and results. It is also important for a company to have constant improvement in their operational effectiveness in order to achieve profitability. Therefore, both strategic positioning and operational effectiveness are both important to a company that is trying to succeed in a competitive market.
Another major area of strategy is straddling. Straddling as stated by Porter is when company’s think that they can use both a focused differentiation and focused low cost strategy. He expresses that it is not good for companies to use both because different strategies have different procedures, and that it is important for a company to pick one strategy and to do that strategy the very best. Having to many strategies can lead to more costs and ultimately lower profitability. Porter also states that positioning trade-offs deter straddling. I believe that Porter makes a good point, that if a company is trying to use multiple strategies, they can in fact lose sight of the differing procedures that the individual strategies require. This can lead to a comoany falling and not being successful in a competitive market.
All of the topics that we were required to cover in this article review have allowed me to realize how strategy relates to my area of studies which are, finance and operations supply chain management. I believe that strategy is crucial for a company to have in order to succeed in their industry. Within the field of finance it is important to have a strategy in order to understand how to finance certain areas of operations in order to maximize the company’s profits.
It is also vital for an operations supply chain management company to have strategy so they can have a plan as to how to operate in a effective and efficient way. I had the opportunity to have an operations supply chain management internship with the Cleveland Indians and can say that there was in fact a strategy within the company. The strategy allowed everyone to be on the same page and to know what need to get done, when, and how. Having a strategy allowed us to be able to flow as a distribution center and allowed us to be successful in the areas we were responsible for. important to have
While reading this article I gained a better understanding of what strategy is by looking at different areas of strategy including tradeoffs, strategic positioning vs operational effectiveness, and straddling. These three areas of strategy play a major role in understanding what strategy is and how companies use strategy in order to be successful in the market. Learning more about strategy and the different aspects if strategy has allowed me to relate what I have learned in this article to my areas of study and the positions that I have held. I believe that knowing and understanding the substantial importance of having strategy within a business will allow me to stand out against my peers and allow me to be the best I can be in a position in order to contribute as much as I can to a company’s success in the market.
