Harvard Business Review is the premier business magazine in the world. We are proud to present a new issue of the HBR: Top 10 Articles series dedicated to the problems of strategic business planning. If your company spends a lot of energy on strategic planning, the results of which you are unhappy with, then this is the book for you. From hundreds of HBR articles on planning, we have selected the most useful from a practical point of view. From them you will learn what competitive forces should be considered when developing a company strategy; which indicators are important to take into account, and which are not; Who should delegate decision making? And most importantly: how to translate a great strategy into brilliant results.

• What is a strategy?. Michael Porter

* * *

by the LitRes company.

Project Manager M. Shalunova

Corrector N. Vitko

Computer layout K. Svishchev

Cover design Y. Buga

© 2011 Harvard Business School Publishing Corporation

Published by arrangement with Harvard Business Review Press (USA) via Alexander Korzhenevski Agency (Russia)

© Edition in Russian, translation, design. Alpina Publisher LLC, 2016

All rights reserved. The work is intended solely for private use. No part of the electronic copy of this book may be reproduced in any form or by any means, including posting on the Internet and in corporate networks, for public or collective use without the written permission of the copyright owner. For copyright infringement, the legislation provides for the payment of compensation to the copyright holder in the amount of up to 5 million rubles (Article 49 of the LOAP), as well as criminal liability in the form of imprisonment for up to 6 years (Article 146 of the Criminal Code of the Russian Federation).

What is a strategy?

Michael Porter

I. Operational efficiency is not a strategy

For nearly twenty years, managers have been learning to play by the new rules. Companies must be flexible in order to quickly respond to changes in the competitive and market situation. They must constantly evaluate their performance in order to achieve the best performance. They must aggressively attract external resources in order to increase efficiency. And they must carefully guard their core competitive characteristics and areas of expertise in order to stay ahead of the competition.

Positioning, once at the heart of strategy, is now dismissed as too static for today's dynamic markets and ever-changing technologies. The new dogma says that competitors can copy your market position very quickly and any competitive advantage is temporary at best.

However, these new beliefs are only a half-truth, and a dangerous one, because they are causing more and more companies to move down the path of mutually destructive competition. Yes, some barriers to competition are indeed falling due to the relaxation of regulations and the globalization of markets. Yes, companies that channel energy the right way are becoming leaner and more agile. However, in many industries, so-called hypercompetition is not the inevitable result of a paradigm shift, but an ever-festering sore.

The crux of the problem lies in the inability to distinguish operational efficiency from strategy. The pursuit of productivity, quality and speed has given rise to a huge number of management tools and methods: total quality control, benchmarking, time-based competition, outsourcing, partnerships, reengineering, change management. Often, these approaches provide significant operational improvements, but many companies fail to convert these gains into sustainable profit improvements. And gradually, almost imperceptibly, management tools take the place of strategy. In an attempt to make progress on all fronts, managers are pushing their companies further and further away from viable competitive positions.

Operational Efficiency: Necessary but Not Enough

Both operational efficiency and strategy are indispensable conditions for successful work, which, in general, is the main goal of any enterprise. But they operate in completely different ways.

A company can only outperform competitors when it has some advantageous differentiating feature that it can retain. It can deliver more value to the consumer, create comparable value at a lower cost, or do both. The arithmetic of the greatest benefit follows: greater customer value gives the company the opportunity to charge higher average unit prices; higher efficiency leads to lower average unit costs.

Idea in a nutshell

The multiple activities that make up the development, production, sale, and delivery of a product or service are the building blocks of competitive advantage. Operational efficiency is the best (cheaper, faster, fewer defects) performance of these activities compared to competitors. Companies can reap enormous benefits from operational efficiency, as demonstrated in the 1970s and 1980s by Japanese firms using techniques such as total quality control and continuous improvement. However, from a competitive perspective, the main problem with operational efficiency is that the most successful practices are easy to copy. When they are used by all players in a particular industry, there is an expansion productivity limits- the maximum value that a company can create for a given cost using the best possible technology, skills and management practices - resulting in both cost reduction and value increase. Such competition provides an absolute increase in operational efficiency, but no one gains a relative advantage. And the more companies do benchmarking, the more competitive convergence they achieve, that is, the less companies differ from each other.

Strategic positioning strives to achieve a sustainable competitive advantage by maintaining the company's advantageous distinctive features. This includes carrying out activities that are different from those of competitors, or performing the same activities in other ways.

Ultimately, the difference in costs or prices between companies depends on the many activities required to develop, manufacture, sell and deliver their goods or services, such as customer acquisition, assembly of the final product, employee training, etc. Costs is the result of activity, and cost advantages over competitors can be achieved by conducting certain activities more efficiently than them. In addition, differences between companies are due to both the choice of activities and how these activities are carried out. Thus, activities are the main building blocks of competitive advantage. The overall advantage or disadvantage of a company depends on all the activities that it carries out, and not just on some of them.

Idea in practice

Strategic positioning is based on three main principles.

1. Strategy is the creation of a unique and valuable position through a set of activities that is different from competitors. The strategic position can be determined by three different sources:

meeting the few needs of a large group of consumers (Jiffy Lube only produces automotive lubricants);

meeting the broad needs of a small group of consumers (Bessemer Trust services are aimed exclusively at very wealthy clients);

meeting the broad needs of a large group of consumers in a narrow market segment (Carmike Cinema operates only in cities with a population of less than 200,000 people).

2. The strategy requires making compromises in competition - choosing what not to do. Some competitive activities are incompatible with each other, that is, advantages in one area can only be achieved at the expense of another. For example, Neutrogena soap is positioned primarily not as a cleanser, but as a medical product. The company is saying no to fragrance-based sales, ditching large volumes, and sacrificing operational efficiency. Conversely, Maytag's decision to expand its product line to include other brands demonstrates an inability to make a difficult compromise: increasing profits comes at the expense of profitability.

3. The strategy requires the achievement of "consistency" of the activities of the company. Alignment occurs when a company's activities interact and reinforce each other. For example, in the Vanguard Group, all activities are subject to a cost minimization strategy; funds are distributed directly to consumers, and portfolio turnover is minimized. Alignment contributes to both competitive advantage and company sustainability: when different activities reinforce each other, competitors cannot easily copy them. Continental Lite's attempt to mimic just a few of the activities—rather than the entire interconnected system—of Southwest Airlines led to disastrous results.

Employees of the company must learn to deepen strategic positions, and not expand them or sacrifice them. Learn to reinforce the uniqueness of the company, while at the same time maximizing the alignment of its activities. Deciding which target groups of consumers and their needs to target requires discipline, the ability to clearly define boundaries, and direct, open communication. Undoubtedly, strategy is inextricably linked with leadership.

Operational efficiency (OE) is the performance of certain activities better than competitors. Productivity is just one of its components. OE can refer to any number of activities that enable a company to make better use of invested resources, such as reducing product defects or developing new products faster. In contrast, strategic positioning is the pursuit of activities that are different from those of competitors, or the conduct of the same activities in other ways.

Each company has its own operational efficiency. Some are able to get more out of their invested resources than others because they don't waste effort, use more advanced technologies, motivate employees better, or better understand the processes of managing certain activities. Such differences in operating efficiency are an important source of differences in profitability between competitors because they directly affect the relative level of costs.

Differences in operational efficiency became the foundation of the Japanese offensive against Western companies in the 1980s. The Japanese were so ahead of the competition in terms of operational efficiency that they could offer both lower cost and higher quality at the same time. It is worth dwelling on this, because it is the basis of much of today's discussion of competition. Imagine a productivity frontier that captures all the best practices that exist at a given point in time. This can be thought of as the maximum value that a company providing a product or service can create at a given cost, using the best available technology, employee skills, management methods, and purchased capital goods. The concept of a productivity frontier can be applied to individual activities; to groups of related activities, such as order processing and manufacturing, and to all company activities as a whole. By increasing its operational efficiency, the company is approaching the frontier of productivity. This may require capital investment, recruitment of new employees, or simply new management methods.

Operational efficiency and strategic positioning

The productivity frontier is constantly expanding as new technologies and managerial approaches emerge, and as new resources become available. For example, laptops, mobile phones, the Internet, and software such as Lotus Notes have redefined the productivity frontier for sales and created rich opportunities to link sales to activities such as order processing and after-sales service. Similarly, lean manufacturing, which includes a whole “family” of activities, has significantly improved productivity and resource use.

For at least the past ten years, managers have been preoccupied with the task of improving operational efficiency. Using techniques such as TQM (total quality control), time-based competition, and benchmarking, they tried to change the way they do business in order to eliminate inefficiencies, increase customer satisfaction, and ensure the highest quality of work. Hoping to keep pace with changes in the productivity frontier, managers actively used continuous improvement processes, empowerment, change management, and the principles of the so-called learning organization. The popularity of outsourcing and virtual corporations reflects the growing awareness of the fact that it is very difficult to carry out all activities as productively as specialists do.

Approaching the frontier, many companies manage to improve in different areas of activity at the same time. For example, manufacturers that embraced Japan's rapid change practices of the 1980s were able to both lower costs and increase differentiation from competitors. What was once perceived as a real forced trade-off between defects and costs, for example, has turned out to be an illusion born of poor operational efficiency. Managers have learned to refuse such false compromises.

Continuous improvement in operational efficiency is essential to achieve maximum profitability. However, usually this alone is not enough. Few companies manage to maintain long-term success on the basis of operational efficiency alone, and it is becoming increasingly difficult to stay ahead of the competition every day. The most obvious reason for this is the rapid spread of the most effective methods. Competitors can quickly adopt management approaches, new technologies, manufacturing improvements, and the most successful ways to meet customer needs. The most general solutions - those that can be applied in different situations and circumstances - spread faster than others. The proliferation of MA methods is enhanced by the work of various consultants.

OE competition pushes the frontier of productivity, effectively raising the bar for everyone. But while such competition provides an absolute increase in operational efficiency, no one gains a relative advantage. Take, for example, the more than five billion dollar US commercial printing industry. Major players - R.R. Donnelley & Sons Company, Quebecor, World Color Press, Big Flower Press - go head to head, serving all customer segments, offering similar technology sets, investing heavily in the same new equipment, speeding up work presses and reducing the number of employees in individual enterprises. But the resulting benefits do not provide significant benefits. Even industry leader Donnelley's return on sales, which was consistently above 7% in the 1980s, fell to less than 4.6% in 1995. These patterns are emerging in more and more industries. Even the Japanese, the pioneers of a new stage of competition, are suffering from persistently low profits. (See the sidebar “Japanese Companies Don’t Usually Have a Strategy.”)

The second reason that improving operational efficiency alone is not enough is that competitive convergence is more subtle and insidious. The more benchmarking companies do, the more they start to resemble each other. The more activities competitors outsource, often to the same partners, the more uniform the activity becomes. As competitors copy each other's improvements in quality, cycle times, or partnerships, strategies converge more and more, and the competition turns into a series of races on the same track that no one can win. Competition based solely on operational efficiency is mutually destructive and leads to wars of wear and tear that can only be dealt with by limiting competition.

Japanese companies usually don't have a strategy

In the 1970s and 1980s, Japan made a revolution in operational efficiency, pioneering approaches such as total quality control and continuous improvement. As a result, Japanese manufacturers have enjoyed significant cost and quality benefits over the years.

However, Japanese companies have rarely developed specific strategic positions of the sort that we are discussing in this article. Those who did, such as Sony, Canon, and Sega, were the exception rather than the rule. Most Japanese companies imitated and copied each other's activities. All competitors offered consumers almost all possible variations of goods, features and services; they used all the channels and copied the plans of the plants from each other.

Now the danger of competition in the Japanese spirit is becoming more and more obvious. In the 1980s, when competitors were operating far from the productivity frontier, it seemed possible to win in terms of cost and quality ad infinitum. All Japanese companies could grow both by staying in the developing domestic economy and penetrating the foreign market. It seemed like nothing could stop them. But as the performance gap narrowed, Japanese companies began to fall into a self-imposed trap. To avoid mutually destructive battles that threaten their productivity, Japanese companies needed to learn strategy.

To do this, they had to overcome tough cultural barriers. Japan is known for its focus on consensus, and companies have always sought to smooth differences between individuals rather than accentuate them. The strategy requires difficult decisions. In addition, the Japanese have a deeply rooted tradition of service, following which they are ready to go to great lengths to satisfy any wishes expressed by consumers. Companies entering the competitive arena with this approach ended up losing their unique position, becoming everything to everyone.

This discussion of the characteristics of Japanese companies is based on research conducted by the author in collaboration with Hirotaka Takeshi with the assistance of Mariko Sakakibara.

The latest wave of consolidation through mergers makes sense in the context of OE competition. Under intense pressure and lacking strategic vision, company after company finds nothing better than buying competitors. Those who stay afloat often simply last longer than others, but do not have real advantages.

After a decade of impressive operational efficiency gains, many companies are facing falling profits. Continuous improvement is ingrained in the minds of managers. But his tools unwittingly lead companies towards imitation and homogeneity.

Managers have gradually allowed operational efficiency to take the place of strategy. The result is zero-sum competition, price stagnation or decline, and cost pressures that undermine companies' ability to make long-term investments.

II. Strategy builds on unique activities

Competitive strategy relies on differences. This means deliberately choosing activities that are different from competitors, which allow you to create and disseminate a unique combination of values. For example, Southwest Airlines Company offers low-cost, short-haul flights between mid-sized cities and secondary airports in major cities. Southwest avoids major airports and does not fly long distances. Her clients include business travelers, families and students. The company's frequent flights and low ticket prices attract price-sensitive consumers who would otherwise be forced to travel by bus or car, as well as convenience-loving travelers who opt for full-service airlines on other routes.

Most managers, when talking about strategic positioning, define it from the perspective of the customer. For example: "Southwest Airlines caters to travelers who care about the price and convenience of flights." However, the essence of the strategy is the types of activities: the choice of other ways of their implementation or the choice of other types of activities compared to competitors. Otherwise, the strategy would be nothing more than a marketing slogan, unable to compete.

Full service airlines are designed to take passengers from almost anywhere A to any B. To be able to fly to a large number of destinations and operate connecting flights, they use a "hub and spoke" system centered at major airports. To attract passengers seeking maximum comfort, they offer flights in first or business class. For the convenience of passengers flying with transfers, they coordinate flight schedules and carry out baggage transfer. Since many people have to travel for many hours, full service companies provide meals to their customers.

Southwest has abandoned all these activities in favor of cheap and convenient service on certain types of routes. With fast passenger landing service (as little as fifteen minutes), Southwest aircraft spend more hours in the air than competitors, while achieving greater flight frequency with fewer aircraft. Southwest does not provide passengers with meals, tickets with seats, does not share a baggage screening system with other companies, and does not offer premium services. Automated ticket sales right at the boarding gate gives passengers the opportunity not to contact transport agents and not pay an additional commission. A standardized all-Boeing 737 fleet improves maintenance efficiency.

Southwest has taken a unique and valuable strategic position based on a distinct set of activities. On routes operated by Southwest, full service companies will never be able to offer the same convenience or the same low prices.

Search for new positions: the advantage of enterprising

Strategic competition can be represented as a process of finding new products and services that can force existing consumers to abandon their usual ones or attract new consumers to the market. For example, giant supermarkets that specialize in one category of goods and offer a huge selection in this category, take market share from department stores that offer a limited selection of goods in various categories. Mail-order catalogs appeal to consumers who crave convenience. Essentially, old and new players face the same problem of finding new strategic positions. In practice, the advantage is often on the side of enterprising newcomers.

Strategic positions are often not obvious, and it takes creativity and inspiration to discover them. Newcomers often open unique positions that have always been available, but long-standing competitors simply did not pay attention to them. For example, IKEA found a consumer group that was being ignored or underserved by other retailers. The success of Circuit City Stores' used car dealership, CarMax, is based on a new way of doing things - auto overhaul, product warranties, set price sales, on-site consumer finance - that have in fact always been open to established companies, but were not used by them.

Newcomers can succeed by taking on a position that was once held by a competitor but has been lost through years of imitation and compromise. And newcomers from other industries can create new positions based on specific activities borrowed from those industries. CarMax draws heavily from Circuit City's experience in supply chain management, lending and other activities related to consumer electronics retail.

However, most often new positions are opened due to change. New consumer groups or purchasing opportunities appear, the development of society creates new needs, new distribution channels, new technologies, new equipment or information systems. When such changes occur, it is easier for newcomers who are not shackled by the industry's long history to see the potential of new ways to compete. Unlike long-term players, newcomers have more flexibility as they don't have to compromise with existing activities.

IKEA, a global furniture retailer headquartered in Sweden, also has a clear strategic position. IKEA's target consumer segment is young shoppers who want to create stylish environments for little money. This marketing concept becomes strategic positioning because of the particular set of activities through which it works. Like Southwest, IKEA decided to operate differently than its competitors.

Let's take an ordinary furniture store. The showrooms display samples of the goods sold. There can be 25 sofas in one department; the other has five dining tables. But these items represent only a small part of what is offered to buyers. Dozens of swatch albums, display stands with pieces of wood or alternative styles offer consumers thousands of options to choose from. Sales assistants accompany buyers around the store, answering questions and helping to navigate this maze. When the customer makes a choice, the order is sent to a third party manufacturer and, with any luck, the customer will receive their furniture in six to eight weeks. This value chain maximizes individualization and service quality, but comes at a high cost.

IKEA, on the other hand, is aimed at buyers who are willing to sacrifice service for a low price. Instead of a staff of salespeople guiding shoppers around the store, IKEA is using a self-service model based on informative in-store displays. Instead of relying solely on third parties, IKEA develops its own low cost, modular, easy-to-assemble furniture that matches the company's positioning. In its huge stores, IKEA showcases all of its products in a "home-like" setting, so shoppers don't need a specialist designer to imagine how items fit together. Next to the showrooms is a warehouse where boxed goods are placed on racks. It is up to the buyers to select and transport the goods themselves, and IKEA may even sell or rent you a car trunk that you can return on your next visit.

While most of IKEA's low prices come from self-service, the company offers some extras that competitors don't. One of them is the playground in the store, where you can leave your child under supervision while you shop. Another distinguishing feature is the long working hours. These offerings are uniquely suited to the needs of IKEA consumers – young, low-income people who may have children but usually don't have a babysitter, and who, in order to make a living during the day, are forced to shop at non-standard times.

Origin of strategic positions

Strategic positions may arise from three different sources, which nevertheless are not mutually exclusive and often overlap. First, positioning can be based on the production of a narrow set of goods or services that are generally relevant to the industry in which the company operates. I call it option based positioning because it is based on product or service options rather than customer segment. This positioning makes economic sense when a company can produce better products than its competitors using a specific set of activities.

For example, Jiffy Lube International specializes in automotive oils and does not offer other auto repair or maintenance services. Its value chain provides faster service at a lower cost than workshops offering a wider range of services. This combination is so attractive that many customers choose to do their oil changes at Jiffy Lube and go to competitors for other services.

Vanguard Group, the leading mutual fund, is another example of option-based positioning. Vanguard works with a range of stock, bond and money market investment funds that deliver reliable performance and extremely low costs. The company's investment approach is based on the fact that it does not promise exceptionally high returns in any one year, but guarantees a stable average return over many years. Vanguard, for example, is famous for its index funds. The company does not play on interest rates and avoids narrow groups of securities. Fund managers keep trading volume low to keep costs down; in addition, the company does not encourage customers to make quick purchases and sales, as this leads to increased costs and can force the manager to enter into auctions in order to raise new capital and earn cash to make payments. Vanguard also takes a low cost approach to fund management, customer service and marketing. Many investors include one or more Vanguard funds in their portfolios while buying aggressively managed or specialized funds from competitors.

Relationship with basic strategies

In "Competitive Strategy" I proposed the concept of basic strategies—cost leadership, differentiation, and focus—to represent alternative strategic positions in an industry. The concept of typical strategies is quite possible to apply today to characterize strategic positions at the most simple and general level. Thus, Vanguard follows a cost leadership strategy, IKEA exemplifies cost focus with its narrow customer base, and Neutrogena is a focused differentiator. The various grounds for positioning—options, needs, and availability—take the understanding of basic strategies to a more concrete level. For example, both IKEA and Southwest focus on cost, but IKEA focuses on the needs of a specific group, while Southwest offers a unique service option.

The principle of basic strategies implies the need for choice in order to avoid the trap of internal contradictions of various strategies. These contradictions are explained by the trade-offs between activities inherent in incompatible positions. An example is the Continental Lite, which tried to compete on two fronts at the same time and failed.

People who turn to Vanguard or Jiffy Lube are drawn to a distinct value chain for a particular type of service. Variant-based positioning can be targeted at a wide range of consumers, but typically only serves a subset of their needs.

The second source of positioning is the satisfaction of all or almost all the needs of a certain group of consumers. I call this positioning based on needs, which is close to the traditional understanding of targeting the consumer segment. This positioning occurs when there are groups with different needs and when it is possible to meet those needs better than competitors through a unique set of activities. Some consumer groups are more price sensitive than others, require different product characteristics, and require different levels of information, support and service. IKEA shoppers are a good example of such a group. IKEA strives to satisfy all the needs of its target consumer, and not just some of them.

Another variation of needs-based positioning is possible, where the same consumer may have different needs in different cases or with different types of transactions. For example, the same person may require different services when traveling for business and when traveling with family for pleasure. A buyer of cans—for example, a beverage manufacturer—is likely to have different requirements for their primary supplier and their second-in-command.

Most managers intuitively view their business in terms of the needs of the customers they seek to satisfy. But the critical element of needs-based positioning is far from intuitive and often overlooked. Differences in needs alone do not create a good position unless there is a best set of activities that is also different from the others. Without it, any competitor can satisfy the same needs, and there will be nothing unique or valuable in positioning.

For example, in private banking, Bessemer Trust Company targets families with at least $5 million in investable assets who want to maintain and grow their capital. Bessemer provides a personalized service to its clients by assigning one account manager to manage the affairs of just 14 families. For example, meetings usually take place not at the company's office, but at the client's ranch or yacht. Bessemer offers a wide range of specialty services, including investment and property management, oversight of oil and gas investments, and accounting for racing horses and private jets. Loans, the backbone of many private banks, are rarely required by Bessemer customers and represent a very small proportion of the bank's customer operations and income. Despite the hefty salaries and the highest percentage of transactions that account managers receive, Bessemer's differentiation aimed at a certain group of families gives the company one of the highest return on equity among competitors.

On the other hand, Citibank caters to customers with a minimum of $250,000 in assets who, unlike Bessemer's customers, want easy access to credit, from extra-large mortgages to transaction financing. Citibank account managers are first and foremost loan officers. If the client needs other services, the account manager directs him to other bank specialists, each of which can offer certain ready-made service packages. Citibank's system is not as individualized as Bessemer's and allows one manager to serve 125 clients. Meetings in the office, which take place every six months, are offered only to the largest clients. Bessemer and Citibank organize their activities to meet the needs of different groups of private banking clients. The same value chain cannot meet the needs of both of these groups to the benefit of the company.

The third source of positioning is the segmentation of consumers by differences in access to them. Although the needs of one segment may overlap with those of another, the best configuration of activities to attract them is different. I call this type of positioning based on customer access. Access may depend on geographic, quantitative or any other factors that require different types of activities in order to most effectively work with the consumer.

Access segmentation is rarer than the other two positioning bases and is not as well known. For example, Carmike Cinema opens its cinemas exclusively in cities with less than 200,000 inhabitants. How does the company manage to make money in a market that is not only limited in size, but also does not support the pricing policy of large cities? This is due to a set of activities that provides a lean cost structure. The needs of Carmike customers in smaller towns can be met with standardized, low-cost cinemas that do not require as many screens and sophisticated screening technologies as large cities. The company's own information system and management organization does not require the presence of local staff, with the exception of a single cinema manager. Carmike also benefits from centralized purchasing, low rents and staffing costs (due to its location) and has the industry's lowest corporate overhead rate of just 2% versus 5% on average. Operating within small residential areas also allows Carmike to take a personal approach to management, where the theater manager knows all patrons and ensures attendance through personal contacts. As the main, if not the only source of entertainment in its market - often the high school football team is the main competitor - Carmike is also able to offer viewers a special selection of films and negotiate better deals with distributors.

Serving consumers from rural areas and large cities is one example of a difference in activities based on differences in access. Other examples are servicing large or small clients, or clients that are densely or sparsely seated. In all these cases, the best methods of marketing, order processing, logistics and after-sales service for different groups will differ.

Positioning is not just about defining your niche. The position arising from any of the sources can be wide or narrow. A focused competitor, such as IKEA, thrives at the expense of consumer groups to which broader competitors offer too much service (and therefore too high service costs) or, conversely, insufficient service. Broader-focused competitors such as Vanguard or Delta Air Lines serve a wide variety of customers with activities that address their common needs. At the same time, they ignore or only partially satisfy the unique needs of individual groups.

Whatever the basis - options, needs, access, or some combination of any of these - positioning requires a specific set of activities, as it always depends on differences on the part of the supplier, that is, differences in activities. However, positioning does not have to be driven by differences on the demand or consumer side. Positioning based on options and access does not depend on consumer differences at all. In practice, however, differences in access are often associated with differences in needs. For example, the tastes—that is, the needs—of Carmike's small-town customers lean more toward comedies, westerns, action films, and family films. Carmike does not show films rated NC-17 (which children under the age of 17 are not allowed to see).

Now that we have defined what positioning is, we can begin to look for the answer to the question of what is strategy. Strategy is the creation of a unique and valuable position involving a specific set of activities. If there was only one ideal position, there would be no need for strategy. Companies would need only one thing - to be the first to find and use it. The essence of strategic positioning is the choice of activities that differ from those of competitors. If all options, needs and access required the same set of activities, companies could easily switch from one to another, and success would be determined only by operational efficiency.

III. A sustainable strategic position requires compromises

However, choosing a unique position is not enough to guarantee a sustainable advantage. Competitors will inevitably try to copy a successful position found by someone in one of two ways.

First, a competitor may change its position to get closer to the most successful player. For example, J.C. Penny has repositioned itself from a Sears clone to a more upscale and fashionable consumer goods retailer. The second and much more common type of imitation is the addition. Companies that choose this path complement existing activities with some features that ensure the success of a competitor - new features, services or technologies.

There is an opinion that competitors can copy any market position. The airline industry is a perfect example of the opposite. It may seem that any carrier can copy any of the activities related to this service sector. Any airline can buy the same planes, lease the same lanes, and offer the same food, ticketing, and baggage services as other carriers.

Continental Airlines saw how well Southwest was doing and decided to learn from Southwest. While maintaining its position as a full-service carrier, Continental also attempted to compete with Southwest on some local routes. The company has launched a new venture, Continental Lite. It eliminated premium food and service, increased flight frequency, lowered ticket prices and shortened boarding times. Since Continental remained a full-service airline on other routes, the company continued to use the services of ticketing agents, retained a mixed fleet, as well as baggage transfers and tickets with seats.

However, a strategic position cannot be sustainable without compromises with other positions. Such compromises are the inevitable consequence of incompatible activities. To put it simply, if something has arrived somewhere, then something has inevitably gone away somewhere. An airline can decide to feed passengers – which will increase the cost of flights and flight preparation times – or choose not to, but it is impossible to do both while maintaining operational efficiency.

Compromises create choices and protect against imitators of any kind. Take, for example, Neutrogena soap. Neutrogena Corporation's variant-based positioning is built around producing "skin-friendly" bare soaps with a special formula that maintains pH balance. Neutrogena's marketing strategy for hiring dermatological research is more like that of a pharmaceutical company than a soap manufacturer. The company advertises in medical journals, sends letters to doctors, attends medical conferences, and conducts its own scientific research at the Skincare Institute. To strengthen its position, Neutrogena initially focused its distribution on pharmacies and avoided promotions. The company uses a slower and more costly process to produce its specialty soaps. By choosing this position, Neutrogena has said no to fragrances and softeners that appeal to many soap buyers. She donated large volumes of sales that would have been possible with distribution through supermarkets and promotions. In order to preserve the special properties of its soap, the company abandoned efficient production. Neutrogena's unique position required a number of such compromises, but it protected the company from imitators.

Compromises are due to three reasons. The first is the risk of damaging your image or reputation. A company known for delivering a certain kind of value can lose some of its credibility and confuse consumers—or even seriously damage its reputation—if it suddenly delivers a different kind of value or tries to offer incompatible things at the same time. For example, soap maker Ivory, marketed as a simple, inexpensive everyday product, would be in serious trouble if it tried to change its image and copy Neutrogena's special "medical" reputation. Attempts to create a new image usually cost companies tens or even hundreds of millions of dollars, which creates a significant barrier to imitation.

The second, and more important, reason for trade-offs is the activities themselves. Different positions (each with its own specific set of activities) require different product configurations, different equipment, different worker behaviors, skills and management systems. Many trade-offs reflect the inflexibility of means of production, people, or systems. The more IKEA subordinates its operations to cost reduction through customer assembly and delivery, the less it can satisfy those who desire a higher level of service.

However, trade-offs can also occur at an even more fundamental level. In general terms, value is destroyed if an activity is too complex or too simple. For example, even if a salesperson can provide one customer with the maximum level of assistance in making a purchase, and not provide another at all, his talent (and part of the cost of it) will be spent on the second buyer. Moreover, productivity can be increased by limiting activity options. By consistently providing all buyers with a high level of assistance, an individual salesperson can often become more efficient in terms of training and scale (as well as the entire sales process).

Finally, the need for compromise may arise from a lack of internal coordination and control. By making a well-defined choice in favor of only one path of competition, the management of the company clearly indicates its priorities. Companies that try to be everything to everyone, on the contrary, run the risk of confusing their own employees, who will try to make day-to-day decisions without a clear prioritization scheme.

Positioning trade-offs are ubiquitous in the competitive field and essential to strategy. They create a need to select and deliberately limit the company's offerings. They interfere with any type of imitation, as competitors attempting to reposition or supplement their position undermine their own strategies and destroy the value of existing activities.

Compromises ultimately killed the Continental Lite. The airline lost hundreds of millions of dollars, and its CEO lost his post. The departure of her flights was often delayed at major airports due to their congestion or problems with the transfer of luggage. Such delays or cancellations generated thousands of complaints per day. Continental Lite could not afford to compete on price and continue to pay the standard commission to agents, and at the same time could not provide a complete service without them. In an attempt to solve this problem, the company has reduced the commission for all international flights Continental. Likewise, it could not deliver the standard loyalty benefits to passengers using cheap Lite flights. All Continental frequent flyer rewards had to be reduced. Result? Angry transport agents and full service customers.

Continental tried to compete on two fronts at the same time. It paid dearly for its efforts to be a low-cost carrier on some routes and full service on others. If she didn't have to compromise between the two positions, she would have succeeded. However, the lack of compromise is a dangerous half-truth that managers should not get used to. Quality doesn't always come for free. Southwest's ease of use, one measure of high quality, was consistent with low ticket prices, because frequent departures were supported by a range of low-cost practices, such as quick turnaround and automated ticketing. However, other dimensions of the quality of flights - tickets with seats, meals, luggage transfer - are more expensive.

In general, false trade-offs between price and quality arise predominantly from an excess or waste of effort, poor control and accuracy, or poor coordination. Simultaneous improvement in cost and differentiation is possible either when a company starts far from the productivity frontier or when the frontier expands. At the frontier, where companies have already achieved their current best performance, trade-offs between price and quality are extremely rare.

After reaping the benefits of productivity for a decade, Honda Motor Company and Toyota Motor Company have finally reached the frontier. In 1995, faced with growing consumer resistance to rising car prices, Honda found that the only way to produce cheaper cars was to save on bundling. In the United States, she replaced the Civic's expensive disc brakes with drum brakes and began using cheaper upholstery for the rear seats, hoping buyers wouldn't notice. Toyota in Japan tried to sell its most popular Corolla with unpainted bumpers and cheaper seats. Toyota buyers rebelled, and the company quickly abandoned innovations.

In the past ten years, with significant improvements in operational efficiency, managers have become accustomed to the idea that it's good to avoid trade-offs. But without compromise, no company would achieve sustainable advantage. They would have to run faster and faster just to stay in place.

Returning to the question of what is strategy, we see that trade-offs add new dimensions to the answer. Strategy is about compromises in competition. The point of strategy is to choose what not to do. If compromises were not needed, there would be no need to choose, and therefore no need for strategy. Any successful idea could be (and would be) quickly copied. And then the success of the activity would depend solely on operational efficiency.

IV. Alignment is needed for strategic advantage and sustainability

The choice of position determines not only the set of activities that the company must carry out and the configuration of individual activities, but also how these activities relate to each other. If operational efficiency is the achievement of excellence in individual activities, then strategy is the right combination of these types.

End of introductory segment.

* * *

The following excerpt from the book Strategy (Elizabeth Powers, 2011) provided by our book partner -

Michael Porter was born on May 23, 1947 in Michigan in the family of an American army officer. He graduated from Princeton University, then received an MBA and a Ph.D. from Harvard University, completing each stage of his studies with honors. From 1973 to the present he has been working at the Harvard Business School, since 1981 as a professor. Lives in Brooklyn, Massachusetts.

Throughout his scientific career, M. Porter has been studying competition. He has been a consultant to many leading companies such as T&T, DuPont, Procter&Gmble and Royl Dutch/Shell, rendered services to the directorate lph-Bet Technologies, Prmetric Technology Corp., R&B Flcon Corp. And ThermoQuest Corp. In addition, Porter has served as a consultant and advisor to the governments of India, New Zealand, Canada and Portugal, and is currently the lead regional strategy development specialist for the presidents of several Central American countries.

Being one of the most influential specialists in the field of management, Porter largely determined the main directions of competition research (primarily in a global context), proposed models and methods for such research. He managed to link the development of enterprise strategy and applied microeconomics, which were previously considered independently of each other.

He has written 17 books and over 60 articles. Among the most famous: "Competitive strategy: a methodology for analyzing industries and competitors" ( Competitive Strtegy: Techniques for nlyzing Competitors) (1980), "Competitive advantage: how to achieve a high result and ensure its sustainability" ( Competitive dvntge: Creting nd Sustining Superior Performance) (1985) and Competitive Advantages of Countries ( Competitive dvntge of Ntions) (1990).

In his main book, Competitive Strategy, Porter proposed revolutionary approaches to developing the strategy of an enterprise and individual sectors of the economy. This book is based on a thorough study of hundreds of companies in various business areas. According to Porter, the development of a competitive strategy comes down to a clear statement of what the goals of the enterprise should be, what means and actions will be needed to achieve these goals, what methods the company will compete with. When talking about strategy, managers and consultants often use different terminology. Some speak of "mission" or "task" when referring to "goal"; others speak of "tactics" when referring to "current operations" or "productive activities." However, in any terms the main condition in the development of a competitive strategy is the distinction between goals and means.

On figure 1 competitive strategy is presented in the form of a diagram called by Porter "The Wheel of Competitive Strategy":

• wheel axle is goals companies, including a general definition of its competitive intentions, specific economic and non-economic objectives, the results that it plans to achieve;
• wheel spokes are facilities(methods) by which the company seeks to achieve its main goals, key areas of business policy.

For each point of the scheme, the key points of the business policy are briefly defined (depending on the nature of the business, the wording may be more or less specific). Together, goals and directions represent the concept of strategy, which acts as a guide for the company, determining its development and behavior in the market. As in a wheel, the spokes (methods) emanate from the center (goals) and are connected to each other; otherwise the wheel will not roll.

In general terms, the development of a competitive strategy is associated with the consideration of key factors that determine the boundaries of the organization's capabilities ( rice. 2). The advantages and weaknesses of the company are in the structure of its assets and competencies compared to competitors, including financial resources, technological state, brand awareness, etc. The individual values ​​of the organization include the motivation and demands of both top managers and other employees of the company implementing the chosen strategy. Strengths and weaknesses, combined with individual values, determine the inherent limitations of the choice of strategy.

It is equally important when developing a competitive strategy to take into account factors external to the company, given by its environment. The concept of "environment" is understood by Porter very broadly, it includes the action of both economic and social forces. The key element of the company's external environment is the industry(s) in which it competes: the structure of the industry largely determines the rules of the game, as well as the acceptable options for competitive strategies. Since external factors tend to affect all companies in an industry simultaneously, taking into account forces outside the industry is relatively less important in developing a successful competitive strategy, more important than the ability of a particular company to interact with these forces.

The intensity of competition in the industry is far from accidental. It is determined by the economic structure of the industry, and not by subjective factors (for example, luck or the behavior of existing competitors). According to Porter, the state of competition in an industry depends on the action of five major competitive forces (rice. 3). The combined effect of these forces determines the industry's ultimate profitability potential, measured as a long-term measure of return on investment. Industries differ significantly in their potential for profitability because the competitive forces operating within them are different. With their intensive impact (for example, in industries such as the production of car tires, paper industry, iron and steel industry), companies do not receive impressive profits. With a relatively moderate impact, high profits are common (in the production of oil production equipment, cosmetics and toiletries; in the service sector).

Michael Porter proposed a revolutionary approach to the development of enterprise strategy - using the laws of microeconomics. He began to consider strategy as a basic principle that can be applied not only to individual companies, but also to entire sectors of the economy. Analysis of strategic requirements in various industries allowed the researcher to develop five forces model (rice. 3), taking into account the action of five competitive factors:

1. The emergence of new competitors. Competitors inevitably bring new resources, which requires other market participants to attract additional funds; accordingly, the profit decreases.
2. The threat of substitutes. The presence in the market of competitive analogues of products or services forces companies to limit prices, which reduces revenue and reduces profitability.
3. The ability of buyers to defend their own interests. This entails additional costs.
4. The ability of suppliers to defend their own interests. Leads to higher costs and higher prices.
5. Rivalry between existing companies. Competition requires additional investment in marketing, research, new product development, or price changes, which also reduces profitability.

The influence of each of these forces varies from industry to industry, but together they determine the profitability of a company in the long run.

Porter suggests three basic strategies: absolute leadership in costs; differentiation; focusing. By using these strategies, companies will be able to counteract competitive forces and achieve success. For the effective implementation of the chosen basic strategy, it is necessary to develop targeted strategic plans (organizational measures), coordinate the actions of all departments of the company, and coordinate the work of the team. Based on the basic strategy, each company develops its own version of the strategy. The achievement by particular companies of superior results compared to competitors in some industries can lead to an overall increase in the level of profitability for all. In other industries, the very possibility of a company receiving an acceptable profit depends on the success of the implementation of a competitive strategy.

Porter makes it clear that there is no single "best" strategy in any industry: different companies use different strategies, and the same five competitive forces operate in every industry, albeit in different combinations.

Another significant contribution of Michael Porter to management theory is the development value chain concepts. It takes into account all the actions of the company, leading to an increase in the value of a product or service. The researcher highlights main activities related to the production of goods and their delivery to the consumer, and auxiliary that either directly add value (such as technological development) or enable the company to operate more efficiently (through the creation of new lines of business, new procedures, new technologies, or new input materials). Understanding the value chain is extremely important: it allows you to understand that the company is more than a collection of different activities, since all activities in the organization are interconnected. In order to ensure the achievement of competitive goals and successfully respond to external influences from the industry, the company must decide which of these activities should be optimized, what trade-offs are possible.

In the work "Competitive Advantages" Porter moved from the analysis of the phenomenon of competition to the problem of creating strong competitive advantages. Later, he concentrated his efforts on applying the developed principles of competitive strategy analysis on a global scale.

In Competing in Global Industries (1986), Porter and colleagues applied these principles to companies operating in international markets. Based on industry analysis, Porter identified two types of international competition. According to his classification, there are multi-internal industries in which there is internal competition in each individual country (for example, private banking), and global industries. A global industry is “an industry in which a firm's competitive position in one country largely depends on its position in other countries, and vice versa” (for example, automotive and semiconductor manufacturing). According to Porter, the key difference between the two types of industries is that international competition in multi-domestic industries is optional (companies can decide whether or not to compete in foreign markets), while competition in global industries is inevitable.

International competition is characterized by the distribution of activities that form a value chain among several countries. Therefore, in addition to choosing the space for competition and the type of competitive advantage, companies should develop their strategy options also taking into account the characteristics included in the value chain of activities:

• geography of distribution and concentration (where they are carried out);
• coordination (how closely they are related to each other).

There are four possible combinations of these factors:

1. High concentration - high coordination (simple global strategy: all activities are carried out in one region/country and are highly centralized).
2. High concentration - low coordination (a strategy based on export and decentralization of marketing activities).
3. Low concentration - high coordination (strategy of large-scale foreign investment in geographically dispersed, but well-coordinated operations).
4. Low concentration - low coordination (strategy targeting countries where decentralized subsidiaries focus on their own markets).

When competing in international markets, there is also no single correct, “best” strategy for companies. Each time the strategy is chosen depending on the nature of competition in the industry and the five main competitive forces. Porter points out that there may be cases where there is a "scattering" of some activities that define the value chain, and a "concentration" of others. It is important to remember that competitive advantage is determined primarily by How some type of activity is carried out, and not Where .

In the book Competitive Advantages of Countries (1990), Porter deepens his analysis of the phenomenon of competition: he reveals determinants that determine the action of competitive forces at the national level:

• working conditions (the presence in the country of such factors necessary for the production of products as a skilled workforce or industrial infrastructure);
• demand conditions (features of the market for a particular product or service);
• presence of supporting or related industries (internationally competitive suppliers or distributors);
• the nature of the company's strategy (features of competition with other companies, including factors such as the organizational and management climate, as well as the level and nature of internal competition).

The influence of these determinants can be found in every country and in every industry. They define the forces of competition within industries: "Determinants of national advantage reinforce each other and grow over time, favoring an increase in competitive advantage in an industry." The emergence of such a competitive advantage often leads to an increase in concentration both in individual industries (engineering in Germany, the electronics industry in Japan) and in geographical areas (in northern Italy, in the Rhine regions in Bavaria).

Porter emphasizes the importance of national competitive advantage often occurs under the influence initially unfavorable conditions when nations or industries are forced to actively respond to a challenge. “Individual factor deficiencies, powerful local buyers, early market saturation, skilled international suppliers, and intense domestic competition can be critical to creating and maintaining advantage. Pressure and adversity are powerful drivers of change and innovation.” When new industrial forces try to change the existing order, nations experience ups and downs in terms of having a competitive advantage. The author makes an optimistic forecast: “In the end, nations will succeed in certain industries, since their internal environment is the most dynamic and most active, and also stimulates and pushes companies to increase and expand their advantages.”

The significance of Porter's contribution to management theory is not disputed by anyone. At the same time, some of the shortcomings of his work caused a number of fair criticisms. For example, the distinction he introduced between multi-domestic and global industries may disappear when demands for free trade and growing exports bring elements of international competition into the domestic markets of virtually all industries.

The main advantage and attraction of Porter's models is their simplicity. He encourages readers to use the proposed models as starting points for their own analysis of the relationships between various elements. These models provide extremely flexible opportunities for choosing the direction of movement, developing a strategy (especially international).

Michael Porter proposed effective methods for analyzing the phenomenon of competition and for developing a company's strategy (both in domestic and international markets). He demonstrated the benefits of collaborative exploration of strategic and economic challenges, thus making an important contribution to the development of understanding of strategy and competition.

Article provided to our portal
the editors of the journal

Michael Porter is Professor of Business Administration at Harvard Business School; a leading specialist in the field of competitive strategy and competition in international markets. He joined Harvard Business School in 1973 and was the youngest professor in the history of that college. His ideas formed the basis of one of the popular college courses. Along with other top faculty at Harvard Business School, Professor Porter teaches strategy. He is the author of a course for top executives of large corporations who have recently been appointed to their new position. Often, government organizations and private corporations from around the world invite M. Porter to speak on competitive strategy. M. Porter is the author of 15 books and more than 50 articles. Published in 1980, his book "Competitive Strategy: Techniques for Analyzing Industries and Competitors" is widely recognized as one of the pioneering works in this field. His next two books, "Competitive Advantage: Creating and Sustaining Superior Performance" and "The Competitive Advantage of Nations", published in 1985 and 1990 respectively, offer a new theory developed by him of the competition of nations, states and regions. In his latest research, he returns to where he started - to the strategy of the company.

In the mid 70s. In the 20th century, Harvard Business School professor Michael Porter, later the school's youngest lifetime professor, studied some of the most advanced approaches to competitive strategy at the time and remained dissatisfied. He knew that competitive strategy is a top priority for managers because it raises fundamental questions that all business leaders must answer, such as: What drives competition in my industry or in the industries in which I intend to expand? What are the likely actions of my competitors and how best to respond to these actions? How will my industry develop? What position can my firm take to compete in the long run?

Despite the importance of these questions, Porter found that the top strategists of the time offered few or no competitive analysis methods that managers could use to answer such questions. Instead of genuinely analytical techniques, the gurus recommended what Porter considered to be weak and primitive models lacking breadth and comprehensiveness. Porter had particular doubts about the value of the most popular growth/market share matrix at the time.

The share of the growth market in the industry is a high low high “stars” “interrogative signs” low “dairy cows” “dogs” to determine his strategy with the help of the “growth/share of the market” matrix, the manager must evaluate the positions occupied by the divisions of his company in two. PARAMETERS - GROWTH RATE OF THE INDUSTRY AND RELATIVE MARKET SHARE.

The STARS own a large share of the fast-growing markets and need funding to grow further because they are competitively strong, have high profit margins and generate significant cash. provide for their own financial needs if they need funds, they must be provided. Under equal conditions, you cannot pump money out of such units, since this will necessarily harm them.

CASH COWS, are very competitive, have large shares of slow-growing markets, generate significant amounts of money, but have very modest needs.

“QUESTION MARKS” – need huge funds as they need to finance their growth these divisions are unlikely to generate large amounts of capital as they seek market share and do not yet benefit from the savings achieved through manufacturing experience create problems , because in the future, as the market matures, they may become either "stars" or "dogs" forever tormented by money hunger, the model suggests that promising "question marks" should be given a short-term monetary pump and see if they can turn into "stars" if such enterprises become "dogs", they need an eye and an eye.

"DOGS" operate at a loss and sometimes even turn into financial traps. These include businesses that hold small shares of slow-growing markets with little or no profit they have little or no ability to refocus the “dog” on a small market niche and transform it into a “star” or “cash cow” in a changed market it is unlikely that attempts will not be successful they should be avoided. According to the Boston consultants' model, the best thing to do is not to feed the "dogs" money and let them die. It is even better to sell or liquidate unprofitable enterprises.

WHY IS THE GROWTH/MARKET SHARE MATRIX REALLY USELESS? you need to define the market, and this requires a lot of analytical work. The model does not provide any tools for such an analysis. the model assumes that market share is a good indicator of likely cash flows, and growth is an equally good indicator of funding needs. However, neither is as reliable as the model implies. the growth/market share matrix is ​​not very useful for determining the strategy of a particular enterprise. Simplified recommendations - to starve a "dog" to death or grow a "star" from a "question mark" - are far from sufficient to serve as pointers for managers. Managers need to move to an adult analysis of competition.

KEY CONCEPT #1: KEY COMPETITIVE FORCES Identifies the five core competitive forces that determine the intensity of competition in any industry. “The goal of competitive strategy for an enterprise operating in an industry is to find a position in this industry in which the company can best protect itself from the action of competitive forces or influence them to its advantage” . 1. The threat of new competitors entering the industry. 2. The ability of your customers to negotiate price cuts. 3. The ability of your suppliers to raise prices for their products. 4. The threat of substitutes for your products and services entering the market. 5. The degree of fierceness of the struggle between existing competitors in the industry.

THE THREAT OF NEW COMPETITORS The first of the forces Porter identified concerns the ease or difficulty that a new competitor can face when it enters an industry. The harder it is to enter an industry, the less competition there is and the more likely it is to generate revenue in the long run. Porter identifies seven barriers that make it difficult for new competitors to enter the market: Economies of scale. Product differentiation Need for investment. Switching costs. Access to distribution channels. Costs that arise regardless of the scale of activity. government policy.

SUBSTITUTE PRESSURE Porter's second competitive strength concerns the ease with which a customer can substitute one type of product or service for another.

DIFFERENT CAPABILITIES OF BUYERS TO DRIVE PRICES Buyers are not created equal. Buyers become much more powerful when they: buy in large quantities, which allows them to demand lower unit prices have a significant interest in cost savings, since the product they buy is a significant part of their total costs. buy standard products or items that include delivery and service charges face low switching costs have low incomes produce the product they are purchasing are extremely concerned about the quality of the product they are purchasing have complete information

SUPPLIERS' CAPABILITY TO INCREASE PRICES The ability of suppliers to achieve price increases is similar to the ability of buyers to achieve price reductions. According to Porter, suppliers united in associations have significant power in the following cases. When the supplier industry is dominated by a few companies and there is a higher level of production concentration than the buyer industry. When suppliers don't have to fight the substitute products their industry sells. When a significant part of the sales of a particular supplier does not depend on a particular buyer. When the supplier's product is unique in some way, or when the buyer's attempts to find a substitute product are associated with high costs and difficulties. When vendors pose a real threat to "forward integration"

COMPETITION BETWEEN CURRENT COMPETITORS Competition is fiercer in industries where the following conditions dominate: There are many firms competing in the industry, or competing firms are approximately equal in size and (or) volume of resources that are available The industry grows slowly Firms have high fixed costs Firms incur high storage costs Firms have to deal with the time it takes to sell the product The product or service is perceived by customers as being available in abundance and variety, and the cost of switching between product types or from one manufacturer to another is low Capacity has to be increased in leaps and bounds Competitors have different strategies, different backgrounds, different people, etc. Competitive stakes are high Serious barriers to exiting the industry.

KEY CONCEPT #2: TYPICAL COMPETITION STRATEGIES “Competitive strategy is the defensive or offensive action to achieve a strong position in an industry, to successfully overcome the five competitive forces, and thereby generate higher returns on investment. » You can outperform other firms with just three internally consistent and successful strategies: Cost minimization. Differentiation. Concentration.

COST MINIMIZATION “The position that such a firm occupies in terms of its costs provides it with protection from the rivalry of competitors, since lower costs mean that the firm can earn profits after its competitors have already exhausted their profits in the course of rivalry. Low costs protect the firm from powerful buyers, because buyers can only use their power to drive its prices down to the level of a rival that is as efficient as the firm. Low costs protect the firm from suppliers by providing greater flexibility to counter them as input costs rise. Factors that lead to low costs usually create high barriers to entry of competitors into the industry - these are economies of scale or cost advantages. Finally, low costs usually put the firm in an advantageous position with respect to substitute products. Thus, the low-cost position protects the firm from all five competitive forces, because the struggle for favorable terms of the transaction can reduce its profits only until the profits of its next most efficient competitor are destroyed. Less efficient firms in the face of increased competition will be the first to suffer.

The minimum cost strategy is not suitable for every company. Porter argued that companies wishing to pursue such a strategy must control large market shares relative to competitors or have other advantages, such as the most favorable access to raw materials. Products should be designed to be easy to manufacture; in addition, it is reasonable to produce a wide range of interconnected products in order to evenly distribute costs and reduce them for each individual product.

DIFFERENTIATION A firm pursuing a differentiation strategy is less concerned about costs and more eager to be seen as something unique within the industry. allows several leaders to exist within the same industry, each of which retains some distinctive feature of its product. Differentiation requires a certain increase in costs: one must have better designed products, one must invest heavily in customer service, and be prepared to give up some market share.

RISKS OF DIFFERENTIATION 1. 2. 3. If the price of a product from firms that minimize costs is much lower than that of firms pursuing a differentiation strategy, consumers may prefer the first to what distinguishes a company today, it may not work tomorrow. And the tastes of buyers are changeable. Competitors following cost minimization strategies are able to quite successfully imitate the products of firms pursuing a differentiation strategy in order to lure consumers and switch them to themselves.

CONCENTRATION A company pursuing such a strategy focuses its efforts on the satisfaction of a particular customer, on a particular range of products, or in a market in a particular geographic region. The main difference between this strategy and the previous two is that a company that chooses a concentration strategy decides to compete only in a narrow market segment. In doing so, it faces the same benefits and losses as cost leaders and unique product companies.

THE DANGER OF STOPPING IN THE MIDWAY Porter cautions that it's best to take only one of these approaches. Failure to follow just one of them will leave the company stuck somewhere in between with no coherent, sound strategy. there will be no "market share, investment, and determination to play cost-minimization or differentiation within the industry necessary to avoid this in a narrower market segment". will lose both customers who buy products in large volumes and demand low prices, and customers who demand the uniqueness of products and services. will have low profits, a blurred corporate culture, conflicting organizational structures, a weak motivation system, etc.

CONCEPT #3: THE VALUE CREATION SHAFT “Competitive advantage cannot be understood by looking at the firm as a whole.” When conducting a detailed strategic analysis and choosing a strategy, Porter suggests referring specifically to the value chain. He identifies five primary and four secondary activities that make up such a chain in any firm.

FIVE PRIMARY ACTIONS 1. 2. 3. 4. 5. Logistics of the enterprise Operations Production processes Logistics of sales Marketing and sales Service.

FOUR SECONDARY ACTIONS 1. 2. 3. 4. Purchasing Technology development Human resource management Maintaining firm infrastructure

Each standard category can and should be broken down into unique actions specific only to this particular company. The purpose of this breakdown is to help companies choose one of three typical strategies. It is necessary to highlight the areas of potential competitive advantage that a company can gain by countering the five competitive forces that are unique to each industry and particular company. Such an analysis should be carried out by all company leaders, and this should be done in stages. It is useful for managers to draw diagrams, analyze the value of their costs

CONCLUSION The main reason Porter's ideas didn't work is because some companies simply refused to play by his rules. Many Japanese and some American upstart companies simultaneously minimized costs and differentiated. In Porter's terminology, they were stuck somewhere in the middle, yet not only survived, they thrived, flourished. It became clear to American corporations that Porter's theory no longer corresponded to reality. But, despite everything, Porter made a huge contribution to the development of the economy, for which many say many thanks to him.

How to compete in the market according to Michael Porter?

In this article, we will consider the concept of competitive strategy according to M. Porter.

Almost all marketers say that Competitive Strategy: A Method for Analyzing Industries and Competitors, written by Harvard Business School professor Michael Eugene Porter back in 1980, is still relevant today. What strategies are offered? What is their essence? Can they be combined?

1) leadership in costs (it is also cost minimization);

2) differentiation (previously this concept was associated with the term USP - a unique selling proposition);

3) concentration (otherwise - focusing). It is not applied independently, but according to Porter, it acts as an integral element of strategy 1 or 2.

Giving a general definition of competitive strategy, Porter mentions "five competitive forces" that a company must overcome on the way to get a higher return on investment and a sustainable position in its industry. We list these forces, they can act both together and separately:

1) market competition - the rivalry of sellers operating in this market;

2) the influence of potential competitors, that is, the threat of other sellers entering the market who will offer a similar product (service);

3) commodity competition - the impact of substitute goods (analogues);

4) the influence of consumers (buyers) - the possibility of economic impact on the company on their part (demand, changes in purchasing power, etc.);

5) the influence of suppliers - the possibility of pressure on the company from suppliers with economic levers.

The basic strategies proposed by Porter are aimed precisely at minimizing the negative impact of these five forces and providing a company with sustainable income through leadership in any area: price, product or "niche".

Consider how this looks in practice in the context of each of the three competitive strategies.

1. Cost minimization (cost leadership): price competition

The lower the costs, the lower the cost of production, and ultimately the profit from its sale. According to Porter, companies that have adopted a strategy of minimizing costs compared to the costs of competitors secure market leadership by protecting themselves from the negative impact of all five competitive forces, because low costs:

• protect the company from competitors: the struggle for the most favorable terms of the transaction will reduce its profits, but only until the profits of the competitor occupying the next most effective position in the market are depleted. It is clear that the less efficient companies in the conditions of the "war of costs" will be the first to leave the game;
• protect the company from the most powerful buyers: all that remains for them is to bring down the price of the company's goods to the level of the prices of the nearest competitor;
• protect the company from suppliers: when prices for purchased resources rise, it can flexibly change measures to counter suppliers;
• generate a high "entrance threshold" for the entry of new competitors into the industry, which consists of cost advantages and / or economies of scale;
• as a rule, put the company's products in a more favorable position relative to analogues-substitutes.

2. Differentiation strategy: competition by product

A company working with this strategy, first of all, strives to ensure that its product is unique in some way (technical characteristics, the highest reliability, exclusive material, the absence of controversial ingredients used by competitors, etc.).

And since different products may have different unique characteristics, several companies working according to this strategy can coexist at the narrow top of the competitive "pyramid". Note that it automatically excludes the first strategy, because differentiation requires an increase in the costs of R&D, production technology itself, service, marketing, etc.

How does this strategy help counter the five forces?

• protection from competitors: consumers loyal to this particular brand are unlikely to “leave for another” (a classic example is the “fans” of the Apple brand);
• uniqueness is often protected by patents, but even if this is not the case, a “differentiated” product raises serious barriers to new players;
• protection from suppliers: differentiation means higher profitability, which, in turn, allows you to accumulate financial reserves in search of other sources of supply of resources;
• protection from analogues: it is difficult or almost impossible to find a replacement for a unique product;
• and, consequently, the choice of consumers is compressed, and they are deprived of the opportunity to bring down the prices of this product.

3. Concentration strategy: competition in a "niche"

This is work in a very narrow segment, not to be confused with a “small group of consumers”: a certain assortment, market, a specific group of buyers, etc. For example, everyone loves to take pictures, but company X produces exclusively professional photographic equipment, which costs accordingly. Thus, without attracting buyers with a low price or uniqueness of the product, the company works with a narrow range of extremely specific needs, satisfying the needs of buyers of a certain narrow group.

The concentration strategy, it is important to note, is combined with one of the previous ones: in its niche, a company can become either a leader in cost reduction, or in terms of product characteristics that have no analogues and therefore (unambiguously) preferred by consumers in this narrow segment.

“The purpose of a competitive strategy for an enterprise is to position itself in such a way that the company can best defend itself against

competitive forces or influence them to your advantage. Michael Porter

Porter's first key concept identifies five major competitive forces that,

in his opinion, determine the intensity of competition in any industry.

Five Competitive Forces look like this:

The threat of new competitors entering the industry.

The ability of your customers to negotiate price reductions.

The ability of your suppliers to secure higher prices for their products.

The threat of substitutes for your products and services entering the market.

The degree of fierceness of the struggle between existing competitors in the industry.

Typical competitive strategies according to Michael Porter

“Competitive strategy is a defensive or offensive action aimed at achieving a strong position in the industry, successfully overcoming the five competitive forces and thereby obtaining higher returns on investment.” Michael Porter.

Porter acknowledges that companies have demonstrated many different ways to achieve a goal, but he insists that the only way to outperform other firms is through three internally consistent and successful strategies:

Cost minimization.

Differentiation.

Concentration.

First Typical Strategy: Cost Minimization

In some companies, managers pay great attention to cost management. Although they do not neglect quality, service and other necessary things, the main strategy of these companies is to reduce costs compared to those of competitors in the industry. Low costs protect these companies from the five competitive forces.

Once a company becomes a cost leader, it is able to maintain a high level of profitability, and if it wisely reinvests its profits into equipment upgrades, it can hold the lead for some time.

Cost leadership can be an effective response to competitive forces, but it provides no guarantee against defeat.

Second Typical Strategy: Differentiation

As an alternative to cost leadership, Porter proposes product differentiation, i.e. differentiating it from the rest in the industry. A firm pursuing a differentiation strategy is less concerned about costs and more eager to be seen as something unique within the industry.

For example, Caterpillar emphasizes the durability of its tractors, the availability of service and spare parts, and an excellent dealer network to stand out from the competition.

The differentiation strategy allows several leaders to exist within the same industry, each of which retains some distinctive feature of its product.

At the same time, differentiation carries with it certain risks, as does the strategy of leadership in minimizing costs. Competitors pursuing cost minimization strategies are able to imitate the products of firms pursuing a differentiation strategy quite well in order to lure consumers and switch them to themselves.

The third typical strategy: concentration

The last sample strategy is the concentration strategy.

A company pursuing such a strategy focuses its efforts on satisfying a specific customer, on a specific range of products, or in a market in a specific geographic region.

While cost minimization and differentiation strategies aim to achieve industry-wide goals, a total concentration strategy is based on very good service to a particular customer.

The main difference between this strategy and the previous two is that a company that chooses a concentration strategy decides to compete only in a narrow market segment. Instead of attracting all customers by offering them either cheap or unique products and services, a concentration strategy company serves a specific type of customer.

Operating in a narrow market, such a company may attempt to become a leader in minimizing costs or pursue a strategy of differentiation in its segment. In doing so, it faces the same benefits and losses as cost leaders and unique product companies.