It’s been a while since I last read What is strategy? from Michael E. Porter. Although the paper was published in 1996 in the Harvard Business Review and things changed in the meantime, especially in digital business, the paper is still true and a really valuable reading. It points out the core elements of strategic thinking and defines what strategy is. Everybody involved in product or strategy development should read thoughtfully and embrace this paper. Sometimes it helps the read things again. Here are my short notes about it. Enjoy!
Running after is not strategy – Strategic positioning
In our fast changing, digital part of the world, we copy and paste everything. That’s just the nature of the digital beast. So it is really tempting to just take the activities of your competitors as a blueprint for your own doing, tweak it a bit and you are all set. Known from the non-digital product and service design, this leads to management driven operational effectiveness, where everything that counts is performing activities better and faster than your rivals. There’s nothing wrong with that, but it is simply not enough over an extended period of time and it gets harder to succeed everyday. Competitors can easily imitate this strategy and they just look alike. It usually results in declining prices and pressures on costs, limiting the companies business investments.
Competitive strategy is about being different.
For being successful and unique in the long run, you need a different strategic positioning. That is, to perform activities differently or to perform different activities than your rivals. There are three strategic positionings.
1. Variety-Based Positioning – Do what you do best
If you can serve your customers with a specific product or service extremely well, then it makes sense to follow a variety-based positioning strategy. So it is based on choice of product or service rather than customer segments. You can serve a wide array of customers, but for most you will meet only a subset of their needs. At Staples for example, you can find everything you could ever need in the office. It doesn’t matter if you are a freelancer, a secretary or the boss of a company. Staples is about office equipment, not about household articles and not about car parts. Not to overlook is, that what you are doing also has to differ. It doesn’t help to only focus on what you do best, but that you gain a differentiation advantage through it.
2. Needs-Based Positioning – Do everything, but only for a particular group of customers
If you identify different groups of customers – customer segments – with differing needs, the needs of those segments are best met with tailored activities resulting in a tailored product. IKEA is still the perfect example for such a positioning. The furnishing company serves all needs, not just a few, of it’s target group of customers which are primarily young furniture buyers who want style at low cost. Of course not only young people are buying there. But it is essential to have a core customer segment in mind when designing products and services.
3. Access-Based Positioning – Go where your customers are
It might be that your (potential) customers have the same needs, as for example the ones you could reach best with a needs-based positioning. But the difference is that those customers a reachable in a very specific way. In that case focussing your business on activities tailored to reach that customer segment is a promising positioning.
Porter writes that also a combination of the three positionings could be reasonable. But key is, that you define a valuable and unique position, involving a different set of activities to make you distinct from your rivals. That means: focus.
For me it could make sense to combine access-based positioning with a needs-based positioning, for example. But if you try to do variety-based positioning and needs-based positioning you try to be everything for everyone. That means your product or service proposition is weak and of less value for most of your customers.
The essence of strategic positioning is to choose activities that are different from your rivals’. Companies that try to be all things to all customers … [also] risk confusion in the trenches as employees attempt to make day-to-day operating decisions without a clear framework. […] Deciding which target group of customers, varieties, and needs the company should serve is fundamental to developing a strategy.