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Article Summary Companies are finding it difficult to form competition with rivals due to an inability to distinguish between operational effectiveness and strategy. Rival companies are able to rapidly copy any market position, making competitive advantage only temporary. A large number of management tools have been created to better productivity, quality, and speed, but these tools have taken over the place of strategy. As managers set out to improve all aspects of the business, they shy away from practical competitive positions.

Improvement in operational effectiveness is necessary, but very few companies have been able to compete on the basis of operational effectiveness due to the ease of rival companies imitating management techniques and the more that rivals begin to look like one another. As a result, there is no competition and prices are static or declining. Competitive strategy is about being different from competing businesses and companies. It requires purposely picking a different set of activities to offer a unique mix of value.

The majority of managers claim that their strategies are based on the needs and interests of their customers. Everything becomes based on the customer. Many businesses, such as furniture stores, movie stores, and airlines provide services that are uniquely aligned with the needs of its customers. The fundamental quality of strategy is in the activities, such as opting to execute activities differently or execute different activities compared to those of rivals. Even if a business or company picks a unique position, they are still not guaranteed a sustainable advantage.

A valuable position will only attract imitation from rivals; airlines are proof of this. As such, trade-offs are used to make strategic positions more sustainable, which can also prevent companies from becoming imitators. When a trade-off is made, more of one thing necessitates less of another. There are three reasons why a company may decide to execute trade-offs and they are as follows: inconsistencies in image or reputation, activities themselves, and from limits on internal coordination and control.

Trade-offs are essential to competition and strategy, and they prompt a need for choice and purposefully limit what a company has to offer. The nature of strategy is to choose what not to do. Operational effectiveness is about reaching excellence in regard to individual activities, but strategy is about combining activities. The greatest aspect of strategy involves considering a whole system of activities and not just a collection of parts. Competitive advantages come from the seamless way that activities fit and reinforce one another.

Activities complement one another in ways that create economic worth. The importance of fit is that discrete activities affect one another, and fit can create pressures and impulses to improve operational effectiveness, thus making the company harder to imitate. There are three types of fit: first-order fit is simple consistency between each activity and the overall strategy; second-order fit occurs when activities are reinforcing; and third-order fit goes beyond activity reinforcement to optimization of effort.

The greatest threat to strategy comes from within the company. Managers have gained an inflated sense of strength that make them feel that doing trade-offs is a sign of weakness. Caught up in the competition for operational effectiveness, managers do not always comprehend the importance of having a strategy. Trade-offs can be intimidating to managers, and they would rather make no choice than risk taking the blame for a bad choice. However, a company’s survival as a rival must be driven by the capacity to find new trade-offs and leverage a new system of complementary activities into a sustainable advantage.