T O T H F

The editor wckoim:.'. letters from all readers wi^hm^ to comment true; in fact, collectively, they may
tm articles m this issue. Enily responses have the best chance of being hold true only half the time. First,
published. Please be concise, double space your letter, and include Porter's model assumes that the in-
your title and company affiliation. Send letters to The Editor. Harvard
Business Review, 60 Harvard Way. Boston. MA 02163-, fax (o 6/ 7-495- dustry consists of a set of unrelated
9933; E-Mail to hbr_editmial@hbsp.harvard.edu: or uae our Internet buyers, sellers, substitutes, and
site fhttp://www.hbsp.harvard.edu/groups/hbT/misc/]etter.html). competitors who all compete for
HBR reserves the right lo solicit and edit letters and to republish control of the economic rents. But
letters as reprints. in many industries - such as those
is the major driver of growth. In emerging in developing countries -
WHAT IS STRATEGY? "Breaking Compromises, Break- the players do not behave as predict-
away Growth" (HBR September- ed by this model. Second, his model
George Stalk, Jr. October 1996), David K, Pecaut, assumes that wealth will accrue to
Senior Vice President Benjamin Burnett, and I descrihed the players who are ahle to erect mo-
The Boston Consulting Group one approach that a number of high- bility barriers against competitors.
of Canada growth companies have used to Implicitly, it assumes that value is
Toronto, Canada identify such positions: breaking the created by locking into a particular
fundamental compromises that an positioning. But in some industries,
In "What Is Strategy?" (Novem- the basis of competition is not posi-
ber-December 1996), Michael E. industry imposes on its customers.
To use terms from Porter's article, tioning but frontline skills or con-
Porter criticizes managers and con- tinuous streams of insights. Third,
sultants (but, curiously, not academ- these eompanies have staked out
a unique position on the productiv- Porter assumes that the strategist
ics) for using and abusing current can accurately predict the future be-
management tools and techniques. ity frontier.
havior of an industry and therefore
He believes that too many busi- In closing, let me echo Porter's choose the right positioning.
nesses have made the fatal error of call for a strategic agenda that re-
confusing operational effectiveness flects discipline and continuity. He There are approaches to strategy
with strategy. When management is right to reject change for the sake that deal with those issues. They
tools take the place of strategy, com- of change. And, ahove all, he is right simply lie beyond the scope of
panies are led down the patb of mu- to remind us of one fundamental fact Porter's article. Readers should rec-
tually destructive, undifferentiated of strategy: at the end of the day, ognize that choosing to define strat-
competitiveness. strategie leadership means making egy as positioning is in itself an out-
Porter is right to distinguish he- the right choices. Those of us who come-determining assumption.
tween strategy and operational effec- work with companies every day see Those observations are not meant
tiveness. Operational effectiveness that as our greatest challenge. to belittle Porter's acbievement. He
will never carry a company to great- succeeds under the conditions for
ness. It will only carry it to same- Kevin P. Coyne which he writes. Many of the other
ness. Moreover, as Porter also makes Somu Subramaniam strategy models proposed in recent
clear, strategy and operational effec- Senior Partners years (core competencies, time-based
tiveness are easily confused, Con- McKinsey &. Company competition, and "white spaces,"
sider time-hased competition and New York, New York for example) make implicit assump-
cycle-time reduction: companies that tions that restrict their range of
erroneously confuse the two pro- Porter makes some powerful applicability even more severely.
duce nothmg more than the profit- points in his article "What Is Strate- Strategists must he familiar with
less wasteland that is Tokyo's Aki- gy?" The distinction between opera- the full range of strategy models but
hahara district ["japan's Dark Side tional effectiveness and strategy has not overly biased toward any one of
of Time," HBR July-August 1993). indeed heen blurred in business lit- them. Only hy understanding diverse
In fact, successful applications of erature in recent years, inadvertent- industry structures and bases of
time-based eompetition always start ly encouraging companies to avoid competition can strategists et)rrectly
with the basics of strategy. Compa- making necessary choices. Further, choose the best analytical approach
nies such as Wausau Paper, USAA, Porter articulates well the thought to a strategy problem and the form of
Square D, and Dell Computer all op- process behind choosing where to the prescription. That is strategy.
erate at substantially faster cycle compete and how to compete-in his
times than their competitors. But it words, "choosing to perform differ- Roger E. Levien
is their value proposition to eustom- ent activities than rivals or choosing Vice President of
ers, including their ability to deliver to perform activities differently." Strategy and Innovation
on it, that drives their profitability. Xerox Corporation
As Porter himself notes, the arti-
Like all good theorists, Porter cle is an extension of his original Stamford, Connecticut
helps us to understand the conceptu- framework. It makes the same as-
al underpinnings of successful prac- sumptions about the nature of in- Toiling in the field of corporate
tice. Strategy is about positioning. dustry and competition. But those strategy for 15 years has taught me
And finding valuable new positions assumptions do not always hold that the greatest practical benefit

152 HARVARD BUSINESS REVIEW January-February 1997

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Strategic thought can deliver is use- of the article, I am happy to he or services) to serve them. It corre-
ful ways for thinking about and orga- breathing easily once more. For, sponds to Porter's positioning. But
nizing complex business problems. truth be told, an answer that too pre- unlike Porter, we specify the chan-
Some insights are generated-retail- cisely and narrowly defined our craft nel through which the offerings are
by those of us who attend to the prob- could pen strategy in a very small to reach the customers at this point.
lems of one company at a time. But corral. Happily, Porter's definition is Thus external design specifies three
most are launched and promoted- anything but narrow. things: offerings, channel, and cus-
wholesale - by strategic thinkers in If I have properly understood him, tomers. We also want the answer to
academia and consultancies who then translated his ideas into my the question What unique value is
have been engaged with the prob- realm of practice, strategy is the de- being delivered?
lems of several companies during sign of integrated business systems The internal design, which con-
their consulting careers. Practition- that efficiently serve a carefully cerns the parts of the business not
ers then have the opportunity to chosen set of the needs of a carefully generally visible to the customer, is
adopt and evaluate those ideas - chosen set of customers. That's the design of the value-added chain
often with the encouragement and broad enough for me. And it's not so that carries out the business speci-
compensated support of their au- different from what we have been at- fied in the external design. It should
thors - in contexts that differ from tempting in our longer-term strategy be detailed, and the links that con-
those in which the ideas originated. tribute to competitive advantage hy,
Of the many ideas that regularly for example, embodying core compe-
pass through the strategy functions tencies should be distinguished from
of business, only a few prove so those that reflect industry-level
valuable that they settle in the tool achievement or below and that are,
kits of successful strategists and therefore, candidates for outsourc-
are incorporated into the viewpoints ing or partnering. Internal design
of managers. Porter has been the corresponds to Porter's concept of
wholesaler of a disproportionate fit; links in the value-added chain
number of such ideas. Entire genera- correspond to Porter's activities. He
tions of strategists and managers correctly points out that for proper
perceive the world of competitive fit, the activities - hnks - must be
business through lenses he has pre- recognized as the integrated whole
scribed. In viewing a competitive they form.
market, they see five competitive Around this core idea. Porter has
forces. In contemplating the activi- arrayed a series of illustrative exam-
ties of their businesses, they per- exercises - Xerox '95, Xerox 2000, ples and some cogent heuristic de-
ceive value-added chains. Even and Xerox 2005. sign rules ("don't straddle," for ex-
Porter's competitors' insights have That definition captures and in- ample) that enrich it and expand its
become appendages to his frame- corporates hy implication a point usefulness.
work. So at Xerox we string Hamel- that Hamel and Prahalad have been
Prahaladian core competeneies How will this package be re-
making: that true strategy is an act ceived? Of course, it will receive
along the links of our Porterian of synthesis-an act of design, not of
value-added chain. And we use out- the respectful attention it warrants,
analysis. In essence. Porter is saying given Porter's reputation. It cannot
sourcing for those links that give us that strategy is business design, not
no competencies conferring compet- help but accelerate the recognition
business operations. His article elab- among strategists that synthesis is
itive advantage. orates on that point and uses the more the issue than analysis. But the
Thus we practitioners carefully sharpened Porterian razor to divide reality of the practice of strategy is
scrutinize each new way of seeing positioning into three different shaped by the expectations of gener-
prescribed by Porter as a promising methods of selecting offerings or al managers who have been trained
potential addition to our tool kit. customers for the business and to di- to expect portfolio analysis and criti-
In that light, how are the ideas we vide fit into three orders of integra- cal examination of business-unit
see in "What Is Strategy?" likely to tion among the husiness's activities proposals. This article will help
be received? (or among the links in its value- practicing strategists to he hetter
The title itself is promising, for it added chain). critics of husiness ideas, hut it does
echoes the most generally asked and I enthusiastically endorse the no- not emphasize strategists' role in the
least satisfactorily answered ques- tion of strategy as husiness design. In active synthesis of successful busi-
tion in the strategist-manager dia- our applications, we conceive of nesses enough to convince bosses to
logue. To be able to answer it clearly, strategy as having two parts-exter- increase the strategists' writ. For
definitively, and to the satisfaction nal design and internal design. that to happen, we need to develop
of most managers would appear to be The external design determines further the tools and rules that
a boon for practicing strategists. the customer segment and needs to strategists can deploy to synthesize
Having held my breath through most be served and the offerings [products winning business designs and to

HARVARD BUSINESS REVIEW January-February 1997 153

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demonstrate their effectiveness. We stand that for tbem, being different Ikea could have blamed it on the
look forward to Porter's future work was not an option. weak dollar. It could have cut its
on the subject. Take Ikea.' It hegan when changes losses and run. It could have aban-
in taste and postwar pent-up de- doned its strategic position and tried
Ian C. MacMillan mand for furniture in Sweden caused to straddle. And it could, of course,
The Wharton School furniture prices to rise 41% faster have hired a consultant to tell it
University of Pennsylvania than the prices of other household what the problem was. Tbe compa-
Philadelphia, Pennsylvania goods between 1935 and 1946. What ny did none of those things.
made that situation an entrepre- Instead, Ikea reacted entrepre-
Rita Gunther McGrath neurial opportunity? Primarily the neuriatly. Managers reexamined
Columbia Business School fact that incumbents' oligopolistic their initial assumptions about the
New York, New York positioning, which limited produc- U.S. market, gathered evidence, and
tion, kept prices high and made it redirected their efforts hased on
One can hardly blame managers difficult for new entrants. what they learned. Products were
for their confusion about strategy. When Ingvar Kamprad, Ikea's changed. Larger glasses suitable for
On the one hand, they are told to founder, tried to crack this market, an ice-loving public replaced the
emphasize industry and positioning. he was shut out at every turn. Barred small ones that didn't sell. Ameri-
On the other, they hear that tradi- from selling directly at trade fairs, can-sized beds replaced the nar-
tional positioning is irrelevant and he resorted to taking orders there. row metric ones initially offered.
that they will succeed by outmaneu- When that was forhidden, he con- Kitchen cupboards were redesigned
vering, outinnovating, and being tacted customers directly (initiating to accommodate a pizza-loving na-
more efficient than rivals. It makes a profitable mail-order business, tion and meals no longer made from
considerable sense to try to sort out which necessitated that the furni- scratch. The processes, too, were
these disparate views, so we applaud ture be easy to ship). When Swedish changed. Because more products
Porter's efforts to do so. manufacturers refused his business, were sourced locally, stockouts de-
Kamprad sourced from Poland, get- creased. More checkouts meant that
We would like to reinforce his the impatient could speed through
argument by suggesting a paradigm ting even better prices than hefore.
Locked out of traditional outlets, 20% faster. A next-day delivery ser-
of strategy that has entrepreneur- vice was added. But most important,
ial thinking at its core. Consider Kamprad converted a factory into a
warehouse and showroom, where the company's perspective on its po-
Porter's emphasis on distinctive- sition changed forever, Gone were
ness, or outperforming competitors explanatory tags, self-service, a col-
orful catalog, and the lure of instant assumptions of globally undifferen-
by doing things differently where it tiated consumer tastes. Gone was
counts. This is fundamental to the availability-thanks to on-site stock-
ing - were deliberately distinctive. the concept of long-distance produc-
principles of entrepreneurial think- tion. What replaced those attitudes
ing. It would he suicidal for entrepre- In every instance, the strategy was
driven as much hy necessity as it was were some useful lessons on how to
neurs to run with the herd, because adapt positioning for the company's
incumbents have deeper pockets, es- by choice.
next foray.
tablished reputations, and the ad- This is not to disagree with Porter.
vantages of size and scale. In hindsight, Ikea's positioning is in- Bringing entrepreneurial thinking
Instead, entrepreneurs are forced deed brilliant and is indeed a source into the strategy picture thus forces
to rethink competition. They must of real and sustainable differentia- us not only to understand positions
spend the imagination they have in tion. The position, however, was as that work and why, but also to ac-
lieu of the money they lack and much a consequence of adaptability knowledge that few attempts at
be ahle to adapt rapidly and innova- as it was of strategy. It was persis- "cross-grain" positioning will suc-
tively to any obstacles. Sometimes, tence - and experimentation under ceed. It is one thing to admire a com-
their solutions reveal weaknesses the strict discipline imposed by con- pany's positioning ex post facto. It is
and rigidities that have crept into strained resources - that allowed another to recognize it as one of a
the positions created by older, suc- Ikea to build its furniture franchise. whole population of positions, in-
cessful players, but such insights To understand why that is impor- cluding those that never made it.
are often unexpectedly discovered tant, let us consider a situation not Sure, Bic has an enviable position in
rather than planned. touched on by Porter: Ikea's nearly inexpensive plastic products such as
Consider Porter's examples. Jiffy disastrous entry into the U.S. mar- pens, shavers, and lighters, What of
Lube, Southwest Airlines Com- ket. In 1989, the company had six Parfum Bic, then, a positioning ex-
pany, and Ikea were all begun hy U.S. stores hut poor sales: Ikea was tension ploy that lost the company
mavericks-resourceful, adaptive en- hemorrhaging money. Its marketing $11 million? Yes, Southwest Air-
trepreneurial thinkers who forged efforts were benefiting a horde of lines has been remarkable, but what
strategic opportunities that incum- new entrants in Scandinavian-de- of similar brash, courageous, and
hents overlooked. Their unique posi- signed furniture, and companies well-managed airlines, such as Laker
tions are partly a matter of strategy, such as California-based Stbr were Airways, PeoplExpress, and Kiwi
to be sure, yet it is vital to under- directly imitating Ikea's formula. International Airlines? What are we

154 HARVARD BUSINESS REVIEW lanuary-February 1997

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