What is Strategy?

According to Michael Porter, strategy is the creation of a unique and valuable position, involving a different set of activities (HBS Nov-Dec 1996); in other words, doing things differently than competitors do. Strategy is not simply doing things better, cheaper, or faster. Instead, it can be a combination of those three attributes and other ways in which a company can differentiate itself from the rest. And, by differentiating from the rest, tradeoffs are required to maintain a sustainable strategic position.  What is critical is to identify and implement a number of unique activities that are consistent with the overall strategy.

For instance, a large retailer performed several key activities that are consistent with their strategy, which has been to sell brand products at low costs. Some of these activities include buying in bulk to obtain discounts, using cross-docking to reduce inventory costs, using satellites to link their POS (Point of Sale) systems directly with vendors to manage inventory more efficiently, and requiring consultants to share corporate apartments to reduce travel expenses.  In summary, everything this retailer does is generally consistent with their low cost strategy.

It is also important to note that tradeoffs are required in order to maintain a sustainable strategic position. This retailer saves costs by buying in bulk from few suppliers, but the tradeoff is that it can't offer a broad product selection as a gourmet supermarket does. Even though this strategy was successful in the U.S., results were not as favorable in China where customers longed for fresh local products.  For the retailer, this meant lost economies of scale because offering local products required buying products at low volumes from nearby vendors.  It is important to keep in mind that a strategy that works in one market does not necessary work in another market.

A company can attain a competitive advantage simply by doing a few things differently than competitors do, but tradeoffs are required in order to accomplish it.