According to Michael Porter, a competitive strategy is concerned with how a company can gain a competitive advantage through a distinct way of competing. Porter suggests that all of the activities of the firm can be designed in a way that gives a company a unique competitive strategy. The more a company differentiates both the products and services it offers as well as the system of business activities that best delivers these products and services, the more a company will acquire a sustainable competitive advantage.
Strategic planning involves defining a company’s vision, mission, values and strategy. Strategic planning is used in drawing up the “business plan,” which often includes a vision statement or mission statement, and outlines a company’s goals and plan for reaching those goals (and importantly the resources the company will need to be successful). Performing a business and industry analysis is an important component of strategic planning. This includes using analytics tools such as performing a SWOT analysis, or analyzing the attractiveness of an industry using Porter’s Five Forces framework.
Competitive advantage, or disadvantage, can come from any and all of the different activities a business performs in order to create, produce, sell and deliver their products and services. A company can gain a cost advantage by performing certain activities more efficiently than competitors; or a company can gain an advantage by differentiating the mix of products and services they deliver. Innovation strategies involve delivering new products or services that disrupt existing marketplaces; and advantages from operational effectiveness come from performing the same or similar activities as other companies, but in better ways.
Management Tools and Techniques
In the 1970s and 1980s, Japanese companies pioneered management tools and techniques such as TQM and lean manufacturing that could be implemented to improve operational effectiveness. The revolution changed how managers thought about strategy, pushing managers worldwide to focus on how their companies were going to compete on speed, quality and cost against their rivals. While these dimensions of operational effectiveness are important, best practices are easily copied, and the more that companies used the same management tools, and benchmarked against each other, the more they began to look alike. Competing on operational effectiveness allowed for major absolute productivity gains, but relative gains for now one. Gains were captured by customers or other members of the value chain, rather then retained as increased profitability.
Strategic Positioning and Fit
According to Michael Porter, in order to hold a sustainable competitive advantage, managers need to focus on strategic positioning and fit. They must understand how customers’ needs differ, and have a unique set of activities that satisfy these customers’ needs. If a company has a set of activities that best meet customers’ needs, the more that these activities differ from what other companies are currently doing, the chances that the entire system of activities can be copied are low.
Strategic positioning and the fit of an organization’s activities are what lead to sustainable competitive advantage. The goal of strategic planning is to find a new strategic position (or evaluate a company’s current position), and evaluate the fit between the company's strategic position and its operations. A strategic plan should result in focus: a clear mission, vision, values and strategy that reinforce one another to allow the company to deliver a unique system of activities that best meet customers needs.