Porters Perspective on Strategic Positioning - Essay Example

Lecturer: Presentation: Introduction A sound strategy in business enhances a smooth progress of actions within an organization, as well as facilitating the realization of the desired outcome, which may otherwise be complex. Operational effectiveness of an organization is about offering consumers with similar products as those of competitors, but in a better way that increases the organizational competitive advantage. In contrast, strategy aims at changing the manner in which activities are performed, in order for them to be different from those of competitors (Porter 1996 p. 62). Through it, a business can also offer similar services as those of competitors, but in a different approach. Porter argues that strategy is about ‘positioning’ – not about ‘operational effectiveness’. This essay is a critical discussion of this view. It also offers a comparison between Porter’s views and other perspectives such as those of Mazzucato’s, Mintzberg, Waters and Grant. Porter’s Perspective on Strategic Positioning Porter (1996 p. 62) attributes lack of sustainable profitability in an organization to the inability of management to differentiate between strategy and operational effectiveness. Under such circumstances, the tools for management such as benchmarking, outsourcing, and total quality management among others usually displace strategy, which lowers the chances of improving organizational performance through strategy. The operational effectiveness and strategy are significant for the organizational performance, but according to Porter, they are supposed to be treated differently as they operate in diverse ways. In his view, position accompanied by pattern, plan and standpoint are core to strategy. Fig 1. Operational Effectiveness versus Strategic Positioning: What is a strategy? Harvard Business Review (Porter 1996, p. 62) Porter’s dissatisfaction with the management that focuses on operational effectiveness rather than strategic positioning is represented in figure 1.0, whereby the total of all the available best practices within the organization or the value generated by the organization at a certain charge, available machinery, expertise, management practices, and procured inputs is represented by the productivity frontier (p. 63). This curve indicates that an improvement in the operational effectiveness leads to the advancement of the organization in the direction of the frontier. The frontier on the other hand is continuously budges outward as the company acquires new skills and machinery. In order to maintain this shift of the frontier, managers largely invest in organizational learning, career development and such activities that enhance organizational improvement. Organizational competitiveness is not always sustained due to the fact that despite maintaining the movement towards the frontier, there are chances that competing organizations will emulate the same activities thereby requiring the organization to input more resources to keep ahead of the rest (p 64). However, this will involve extra costs, and it may affect the profits since there is no limitation for the competitors in imitating the organization’s advancement. Porter argues that basing competition on operational effectiveness is destructive to the business in the sense that it may lead to movement of skilled workers who aim at moving to other organizations that may offer better packages in order to acquire the knowledge possessed by competing companies. Companies may face the problem of diminishing returns. Japanese companies are an example of organizations that went global, investing highly on operational effectiveness. According to him, they have been faced with problems that are hindering their ability to maintain long term profitability (p 64). In Porter’s views, positioning strategy focuses on the benefits that consumers derive from the organization’s products, which are mainly acquired through adjusting the product features in order for them to satisfy the customer’s needs (p 70). In doing so, the management compares the organization’s products with similar products from competitors in order to ensure that the additional features make them unique and more appealing to consumers. More over, prices are also significant for a business that aims at expanding its consumer base, and therefore positioning strategy gives a basis for pricing strategy. Porter identified certain generic competitive positioning strategies that are significant in the improvement of organizational competitiveness (p 64). One of these positioning strategies is the Cost Leadership Strategy that is important in improving an organization’s competitiveness through adjusting the prices of the organization’s products, while maintaining profitability. This is a strategy aimed at attracting consumers to the organization in the sense that they will realize that the products offered are of superior quality and similar to those of competing organizations, but the cost is lower, making them preferable to the competitors products. Porter also noted that there are particular risks associated with this positioning strategy. These arise especially in case the competitors are using the same strategy, whereby they reduce the prices even further. Another positioning strategy as identified by Porter is the differentiation strategy. The main difference between this strategy and the former one is that it focuses on the product rather than the price. The management tries to introduce goods that have the same utility to the consumers, but are more attractive and appealing to them. This improves the organizational competitiveness without the business having to forego some profit through price reduction (p 64). This strategy is usually demanding in terms of the market research needed, but the benefits attached suppress the costs involved. It succeeds when consumers understand that there are particular characteristics that are in these products, and not in those of competitors. It corresponds to the fact that the consumer decision making process is largely influenced by the desire to get some extra benefits from the products they purchase. Any additional aspect in a product that makes it look unique and more satisfying will therefore make it more marketable to the consumers, thereby improving the organization’s competitiveness. Porter also identified the positioning strategy of focus which aims at investigating the needs of the consumers. This is one significant aspect in marketing since the products that an organization offers are created with the consumer in mind (p 64). For example, during the winter season, people will require warm clothing and warm beverages. An organization dealing with such commodities needs to use the focus strategy in order to ensure that the products offered are what the consumers need. It requires such producers to be flexible in order for them to change with the changing demands of consumers. Porter further argued that in order for strategic position to be sustainable, trade-offs are needed. In his view, organizations should not focus on a unique position which is easy for competitors to imitate. They protect the organization in situations whereby the competitors may decide to change their position in order to match with the changes that have occurred in an organization. In other words, porter refers this to as straddling (p 68). This necessitates trade-offs with extra positions in order to enhance the sustainability of a strategic position. Incompatibility of activities leads to trade-offs. According to porter, this incompatibility may arise from inconsistency in the kind of goods or value that an organization offers, leading to confusion of consumers. Other trade-offs may arise from the organizational activities such as the designing of products due to the fact that varied positions would require different activities such as product development, behavioral change of employees; all which may affect the final product. Porter further argues that “trade-offs call for choice and protection against repositioners and straddlers” (p 69). It is therefore correct to say that strategy is a way of generating trade-offs in competition. Porter also identified the need for fit in the enhancement of the sustainability and competitive advantage of an organization. This involves positioning choices in order to establish the activities that need to be undertaken in the organization, and the manner in which they will be performed, as well as how they correspond to each other. This is different from operational effectiveness which according to Porter, is concerned with individual activities. Positioning strategy focuses on combining all the activities (p 70). Fit is significant in barring competitors through the strong links in activities. It generates competitive advantage due to the linkage that exists in the activities. Porter notes that “strategy specific fit is the most important since it leads to the enhancement of the uniqueness of an organization’s strategic position, which in turn enhances trade-offs (p 71). Three types of fit were identified by porter. The first order fit focuses on the consistency of the organizational strategy and all the activities. The second order is mainly focused on when activities are meant for reinforcement of strategy while the third order fit is about optimizing the organizational efforts towards achievement of strategy. Fit helps in cost reduction as well as product differentiation. According to Porter, strategic fit is significant in the enhancement of the organizational competitive advantage. It also enhances building up of an array of activities that creates sustainable positions (p 73). More over, incentives are generated in the system, thereby improving the operational effectiveness. Some activities may also supplement others, thereby improving the competitive advantage (p 74). Henry Mintzberg and Waters are some of the authors who focused on the manner in which people use strategy. He focused on strategy as a means of moving from one stage to the other through a particular path referred to as a strategic plan. This is similar to Porter’s positioning strategies in the sense that there is a common focus on the strategic plan, which integrates time, actions and the techniques to be used to get to a particular destination, or to acquire a particular objective. As defined by Porter, Mintzberg views strategy as a pattern which incorporates several actions over a particular period of time. He views the “high end” strategy as one of the significant aspects of improving organizational competitiveness (Mintzberg & Waters 1985 p. 255-256). This view of strategy is similar to the positioning strategies defined by Porter due to the fact that they focus on improving the appeal of the organization’s products in the eyes of the consumers, thereby improving the organization’s competitive advantage. Similarly, Porter views strategy as the guide towards realization of organizational goals. In his view, strategy originates over time depending on the changes that an organization encounters in its operations. The “emergent strategy” arises from the system of decisions, where as the procedures reflects these decisions. According to Mintzberg and Waters, this is the strategy that develops from within the business through its operations (p 260). Mintzberg and Waters argue that the convectional way of defining strategy is more idealistic than it is realistic. He believes that the process of strategy formulation is far from being practical, and may not be effective in improving an organization’s profitability. Grant (1996 p 81) views positioning strategy as one of the major aspects of generating competitive advantage in a business. According to him, it originates from economies of scale, economies of learning, managing the production capacity and input costs amongst other management techniques that are focused on improving efficiency (p 262). Operational effectiveness is viewed to improve the overall functions of the organization, but on the other hand it does not promote cost effectiveness in the business. It is therefore necessary to focus on positioning. Grant further argues that competitive advantage can also be brought about by the differentiation strategy, similar to Porter’s argument whereby both the concrete and intangible characteristics of products are seen as major factors that attract consumers towards purchasing products from an organization. Consumers may even be ready to pay an extra cost if they feel that a product will give them more satisfaction than similar but inferior products from other competitors (p 264). The concrete aspects that Grant refers to are those that consumers can see and make out a difference between a company’s products and those of competitors. The intangible characteristics are those that affect the feelings, and other aspects such as aesthetic reflections. They are significant in the consumer decision making process. Other authors such as Andrews (1987 p 114) have the view that positioning strategy is an indicator of the organizational objectives, principles on which policies are based to assist in realization of business goals. It is seen as a significant factor that defines the manner in which the business competes in a particular field. Positioning Strategy is seen as a source of the reflection that the management in an organization wants to bring in to the minds of consumers, as well as the imagination that the organization wants to be generated in the customer’s minds (p 121). Conclusion In comparison with the views of other authors, Porter’s argument that strategy is about positioning and not about operational effectiveness is true. Operational effectiveness improves the overall performance of the organization, while on the other hand it requires extra inputs which may be imitated by competitors. Positioning is mainly aimed at enhancement of consumer satisfaction, thereby improving the competitive advantage of the business. However, both aspects of marketing are essential for an organization in sustaining its profitability. The common mistake that needs to be avoided is the assumption that operational effectiveness alone is enough for strategy. Bibliography 1. Andrews K. 1987. The Concept of Corporate Strategy, 3RD edition, Richard D Irwin. 2. Grant, R. M. (1991). The Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation. California Management Review, vol. 33, 3, pp. 114-136. 3. Mintzberg, H., & Waters, J. (1985). Of Strategies, Deliberate and Emergent. Strategic Management Journal, vol. 6, pp. 257-272. 4. Porter, M. E. 1996. What is a strategy? Harvard Business Review, vol. 74, 6, pp. 61-78. Read More