The What Is Strategy Management Essay

2562 words (10 pages) Essay

1st Jan 1970 Management Reference this

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In 1996, Porter wrote an academic paper What is Strategy in Harvard Business Review, and has been reviewed and debated from the academic. There are some purposes and motivations of the article.

First of all, after Porter has published Competitive Strategy in 1980, Competitive Advantage in 1985, there are many new theories from the management area and some argued that Porter’s generic strategies have been rejected as too static and challenged, such as the resource-competence-based approach to strategic management gained increasing acceptance (Barney and Grant, 1991) and the core competence of the organization is greater importance (Baden-Fuller and Stopford, 1992). And D’Avani (1994) also put forward a new theory of hypercompetition and disagreed with the continued competitive advantage theory (Porter, 1985). Besides, Mintzberg criticized Porter’s view that Japanese companies would have to “learn strategy” if they were to be able to sustain competitive advantage. He also argued that the strategy will somehow emerge from the learning process (Mintzberg and Waters, 1985). However, Porter believed that they have some misunderstanding. Then, Porter decided to make response to their criticisms in this article of “What is Strategy”. Thus, the main purpose of the article written by Porter is to refuses, response and challenges their theories, thinking and criticisms in order to tell them they are wrong, but also explain and define the meaning about what strategy is.

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Secondly, the other motivation is Porter wants to propose some solutions to the contemporary business issue and environment. Under the pressure by internal and external environment factors, many companies and managers fail to distinguish between operational effectiveness and strategy, only achieving the maximization operational effectiveness and lower cost in the past 10 years, they were still confusing, running into trouble and just want to copy the operational effectiveness of other company or buy other company and merger to increase their competitiveness. As a result, there has increasingly enterprises losing their competitive advantage and the core of strategy easier by the growth trap. Porter (1996) believed that this would lead them actual downing the path of mutually destructive competition, far away from their competitive positions and no one can win at the end. Hence, he wants to use his article to help them clarifying operational effectiveness is not a strategy, what they should do themselves and what they should not to do if they want to become more competitive in the future, such as deepening a position, profitable growth, setting combination activities and trade-off. They are also the important contents of strategy.

Furthermore, Porter writes this article and gives more examples about the importance of strategic position, take-offs and combining activities such as the cost-based focus strategy for Ikea, to help some companies, managers and readers easier understanding and developing the dynamic thinking of generic strategies theory including cost leadership, differentiation and focus in its early book of ‘Competitive Strategy’ in 1985 clearly and specifically.

Contribution to the Subject Area

The article of ‘What is strategy’ makes a great contribution and gets much attention of managers about the essence of competitive strategy once again. The key to sustainable competitive advantage is correct position included cost-leadership, differentiation and focus, and the resource base of the organisation follows the market position in his generic strategies (Porter, 1985). Nevertheless, there are many misunderstandings for position and strategy from different theories. According to Barney and Grant (1991), “The possession of valuable, rare, non-imitable and properly organised resources as source of competitive advantage at the firm level”. The strategy of enterprise is to understand how can improve and optimize these unique resources. This would keep their competitive advantage sustaining in the future. And other strategists (Baden-Fuller and Stopford, 1992) argued that the objective of strategy is identifying and developing the core competence and other key success factors. A core competence and key success factors are difficult for the rivals imitating and they can acquire and have sustainable competitive advantage. The core competence is the way to. Whittington (1993) also introduced including the classical, evolutionary, processual and system perspective on strategy.

In particular, D’Avani, R. (1994) believes that the concept of hypercompetition is intense and dynamic competition. The rivals can imitate and enter into any market position easily. All competitive advantages are relatively short-term and temporal and would be exceeding by rivals or other things. There has no sustainable competitive advantage. They should find and build new and temporary advantages through market disruption and break the status quo all the time. Long term success need a dynamic strategy by come up with, destroy, and create other new temporary advantages again and again. Besides, Mintzberg (1987) suggested that strategy as a plan and a pattern represented by a series of activities of company for getting the better of competitors, by plotting to disrupt, dissuade, discourage, or otherwise influence them. Mintzberg (1988) also believes that focus strategy of Porter is mainly limited by the internal factors but not reflected by the competition of market, thus it is not a strategy. And the competitive strategy by Porter has less detail and guiding (Miller, 1992)

The contributions of the article are establishing position school and helping other strategists getting rid of the misunderstanding of strategy and makes more clearly convincing about the importance of strategy and what is strategy. Porter corrects their misunderstanding and emphasises that strategy reflect the idea of enterprise and is the core for running business. The strengths and unique of competitive advantage are all reflected by strategy and entire system rather than some individual strengths, core competencies, or critical resources. Without strategy, company will lose business direction. Besides, Porter also corrects and tells the strategists that using a plan or pattern to define the strategy, their activities could be isolated, irrelevant and no unifying goal. Strategy is position, and making it unique and more competitive and deicide what to do and how to do, only this way can make the enterprise become the market leader and achieving their objectives and long-term competitive advantage. Most important, do not only achieving operational effectiveness and market share but ignore the importance of strategic position. “Hypercmpettion is a self inflicted wound” and leading more and more companies down the path of mutually destructive competition. Besides, the article also underpins the idea of Strategy by defining five key elements of strategic decisions (Lynch, 2006). And Johnson, Scholes and Whittingtom (2005) also agreed and defined strategy as being concerned with position, choice and action. Most important, it makes a great contribution on company running business and help them increasing competitive advantage.

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Article’s Findings and Conclusions

According to the article, Porter initial argues that operational effectiveness is necessary for achieving the superior performance, but it is not a strategy. A company’s strategy must rest on performing and preserving some unique and different activities in order to outperform rivals in a long time. And a sustainable strategic position also requires trade-offs and creating fit among the activities of company, they both can drive both competitive advantage and locks out imitators for their sustainability. Then, Porter also suggests that some enterprises and managers should pay more attention to their profitable growth, but not fall into the growth trap and lose their own competitive advantage and the key strategy. Thus, Porter made a conclusion that some theories such as hypercompetition have some mistakes and they are dangerous half-truths, the followers actually do the wrong thing. Hypercompetition is a self-inflicted wound and zero-sum competition is the final result by using operational effectiveness to replace the strategy. Competitive Strategy is about being different and without take-offs, enterprises will never achieve a sustainable advantage. It is misleading about explaining that only have some key success factors, core competencies or critical resources can achieve the success. The success of a strategy depends on doing many things well, not just a few. In addition, the current situation of company, the growth trap and the external environment are all pressures for the managers only catching up in the race of operational effectiveness, avoiding or bluring strategic choices. They must clearly distinguish operational effectiveness from strategy. Only the company and manager do all above things right, they could create and keep their own competitive advantage sustainable in a long-term.

In more details, Porter supported that operational effectiveness is performing similar activities better than rivals, not in different ways of strategic position. He not only used an example with the operational effectiveness advantage of Japanese manufacturing in 1980s, but also introduced the theory of productivity frontier to explain that operational effectiveness can not sustain without a unique strategic position and would be copied and increased easily by some management techniques. Following this, he illustrated that some similar activities were not able to produce all varieties, meet all needs and access all customers, thus company should learn how to position according to three different, overlap origins of strategic positions, variety-based, needs-based and access-based positioning. And give two success position examples of Southwest and Ikea in order to support “real” competitive strategy can only be about being deliver a mix of values and activities in different ways. In addition, Porter also suggested that positioning trade-offs and fits are pervasive in competition, some trade-offs not only can strengthen the position, but also make the rivals giving up to imitate as the inconsistent among reputation, activities and limitations of organisation, such as the failure of Continental Lite. Similarly, when activities complement one another, it would drive the increase of operational effectiveness and rivals will get little benefit from imitation. They are the underpinning of trade-offs and fit both can drive both competitive advantage and locks out imitators for their sustainability (Porter, 1996). At last, some growths are dangerous and do not have any profits, such as Maytag and Neutrogena in 1990s, because they far away from and lose their position.

Critical Appraisal

Definitely, the theory of Porter sounds reasonable. Operational effectives can not be equal to strategy. Only relying on the operational effectiveness can not achieve the excellent performance in long term and probably cause the zero-sum competition. Because operational effectiveness is always increasing and most companies would imitate the leaders easily by the new management techniques. Similarly, if all company only do the same activity, they could become the same finally, no profits can gain. “Competitive advantage means achieving a bigger gap than your competitors between the value your customers see in your product and the costs you incur in providing that product”. (Pietersen, 2010). And Markides (2004) also argues that “a company will be successful if choose a distinctive (that is, different from competitors) strategic position.” Thus, position in different and unique activities could help enterprise finding a new way to compete, such as Southwest Airlines Company. Besides, it would outperform than the rivals and avoid the price war for more profit, like the success of Apple. At the same time, position and take-offs make enterprises specifying the target markets and investing more resources to do it well. This is because any company could not do any things perfect at the same time. Favaro, Rangan and Hirsh (2012) suggest that “strategy is the result of choices executives make, on where to play and how to win, to maximize long-term value”. “Where to play” refers to any origins of position in order to find the target market. “How to win” actually is the same as trade-offs with choosing what not to do and not too much from the capabilities a business already has. In addition, compare with the theory of RBV and core competence and learning, fit and an entire system absolutely making the rivals more difficult to imitate than individual activities by reducing the cost and increase the differentiation. “Creating links that cannot be easily duplicated by competitors” (Lynch, 2006). Now Toyota is a success company by its operational effectiveness and continuous improvement, other learners and imitators still cannot get a great success, this is because they have a service of combination activities to fit among internal and external rather than have a “core” competencies and “critical” resources.

However, it is still very difficult to follow and practices in current specific business environment. Some (Grant, 2005) believed that the theory of Porter is too ideal. Nowadays, with the uncertain and unpredictable development of the industry, fewer companies are operating with no competition. “To date, no single school within the field of strategic management provides a complete or definitive explanation of strategy and strategizing by organisation” (Stonehouse and Snowdon, 2007). Even though some managers know their activities could not create a long-term competitive advantage, they still follow it, because operational effectiveness is still important and necessary to the company. In many industries such as manufacturing in China, the competitive gap between enterprises is mainly the comparison of operational effectiveness. It will also result in different profitability. Without operational effectiveness, company probably lost and cannot survive though they have a strategy. “This is a trap to answer which is a more important about providing unique benefit for customers or achieving superior operational effectiveness” (Pietersen, 2010). Besides, trade-offs and the growth trap are also very difficult for managers to make business decisions. Today’s business mainly focuses on product diversification for getting more return and market share. Most shareholders prefer their return and growth in the short term and worry about the merger and acquisition from external environment. Under these pressures, many managers far away from the advantage and strategy and just achieving the maximum of operational effectiveness rather than take-offs. And in fact, both viewpoints are necessary in the formation of strategy by organizations.

In 1996, Porter wrote an academic paper What is Strategy in Harvard Business Review, and has been reviewed and debated from the academic. There are some purposes and motivations of the article.

First of all, after Porter has published Competitive Strategy in 1980, Competitive Advantage in 1985, there are many new theories from the management area and some argued that Porter’s generic strategies have been rejected as too static and challenged, such as the resource-competence-based approach to strategic management gained increasing acceptance (Barney and Grant, 1991) and the core competence of the organization is greater importance (Baden-Fuller and Stopford, 1992). And D’Avani (1994) also put forward a new theory of hypercompetition and disagreed with the continued competitive advantage theory (Porter, 1985). Besides, Mintzberg criticized Porter’s view that Japanese companies would have to “learn strategy” if they were to be able to sustain competitive advantage. He also argued that the strategy will somehow emerge from the learning process (Mintzberg and Waters, 1985). However, Porter believed that they have some misunderstanding. Then, Porter decided to make response to their criticisms in this article of “What is Strategy”. Thus, the main purpose of the article written by Porter is to refuses, response and challenges their theories, thinking and criticisms in order to tell them they are wrong, but also explain and define the meaning about what strategy is.

Secondly, the other motivation is Porter wants to propose some solutions to the contemporary business issue and environment. Under the pressure by internal and external environment factors, many companies and managers fail to distinguish between operational effectiveness and strategy, only achieving the maximization operational effectiveness and lower cost in the past 10 years, they were still confusing, running into trouble and just want to copy the operational effectiveness of other company or buy other company and merger to increase their competitiveness. As a result, there has increasingly enterprises losing their competitive advantage and the core of strategy easier by the growth trap. Porter (1996) believed that this would lead them actual downing the path of mutually destructive competition, far away from their competitive positions and no one can win at the end. Hence, he wants to use his article to help them clarifying operational effectiveness is not a strategy, what they should do themselves and what they should not to do if they want to become more competitive in the future, such as deepening a position, profitable growth, setting combination activities and trade-off. They are also the important contents of strategy.

Furthermore, Porter writes this article and gives more examples about the importance of strategic position, take-offs and combining activities such as the cost-based focus strategy for Ikea, to help some companies, managers and readers easier understanding and developing the dynamic thinking of generic strategies theory including cost leadership, differentiation and focus in its early book of ‘Competitive Strategy’ in 1985 clearly and specifically.

Contribution to the Subject Area

The article of ‘What is strategy’ makes a great contribution and gets much attention of managers about the essence of competitive strategy once again. The key to sustainable competitive advantage is correct position included cost-leadership, differentiation and focus, and the resource base of the organisation follows the market position in his generic strategies (Porter, 1985). Nevertheless, there are many misunderstandings for position and strategy from different theories. According to Barney and Grant (1991), “The possession of valuable, rare, non-imitable and properly organised resources as source of competitive advantage at the firm level”. The strategy of enterprise is to understand how can improve and optimize these unique resources. This would keep their competitive advantage sustaining in the future. And other strategists (Baden-Fuller and Stopford, 1992) argued that the objective of strategy is identifying and developing the core competence and other key success factors. A core competence and key success factors are difficult for the rivals imitating and they can acquire and have sustainable competitive advantage. The core competence is the way to. Whittington (1993) also introduced including the classical, evolutionary, processual and system perspective on strategy.

In particular, D’Avani, R. (1994) believes that the concept of hypercompetition is intense and dynamic competition. The rivals can imitate and enter into any market position easily. All competitive advantages are relatively short-term and temporal and would be exceeding by rivals or other things. There has no sustainable competitive advantage. They should find and build new and temporary advantages through market disruption and break the status quo all the time. Long term success need a dynamic strategy by come up with, destroy, and create other new temporary advantages again and again. Besides, Mintzberg (1987) suggested that strategy as a plan and a pattern represented by a series of activities of company for getting the better of competitors, by plotting to disrupt, dissuade, discourage, or otherwise influence them. Mintzberg (1988) also believes that focus strategy of Porter is mainly limited by the internal factors but not reflected by the competition of market, thus it is not a strategy. And the competitive strategy by Porter has less detail and guiding (Miller, 1992)

The contributions of the article are establishing position school and helping other strategists getting rid of the misunderstanding of strategy and makes more clearly convincing about the importance of strategy and what is strategy. Porter corrects their misunderstanding and emphasises that strategy reflect the idea of enterprise and is the core for running business. The strengths and unique of competitive advantage are all reflected by strategy and entire system rather than some individual strengths, core competencies, or critical resources. Without strategy, company will lose business direction. Besides, Porter also corrects and tells the strategists that using a plan or pattern to define the strategy, their activities could be isolated, irrelevant and no unifying goal. Strategy is position, and making it unique and more competitive and deicide what to do and how to do, only this way can make the enterprise become the market leader and achieving their objectives and long-term competitive advantage. Most important, do not only achieving operational effectiveness and market share but ignore the importance of strategic position. “Hypercmpettion is a self inflicted wound” and leading more and more companies down the path of mutually destructive competition. Besides, the article also underpins the idea of Strategy by defining five key elements of strategic decisions (Lynch, 2006). And Johnson, Scholes and Whittingtom (2005) also agreed and defined strategy as being concerned with position, choice and action. Most important, it makes a great contribution on company running business and help them increasing competitive advantage.

Article’s Findings and Conclusions

According to the article, Porter initial argues that operational effectiveness is necessary for achieving the superior performance, but it is not a strategy. A company’s strategy must rest on performing and preserving some unique and different activities in order to outperform rivals in a long time. And a sustainable strategic position also requires trade-offs and creating fit among the activities of company, they both can drive both competitive advantage and locks out imitators for their sustainability. Then, Porter also suggests that some enterprises and managers should pay more attention to their profitable growth, but not fall into the growth trap and lose their own competitive advantage and the key strategy. Thus, Porter made a conclusion that some theories such as hypercompetition have some mistakes and they are dangerous half-truths, the followers actually do the wrong thing. Hypercompetition is a self-inflicted wound and zero-sum competition is the final result by using operational effectiveness to replace the strategy. Competitive Strategy is about being different and without take-offs, enterprises will never achieve a sustainable advantage. It is misleading about explaining that only have some key success factors, core competencies or critical resources can achieve the success. The success of a strategy depends on doing many things well, not just a few. In addition, the current situation of company, the growth trap and the external environment are all pressures for the managers only catching up in the race of operational effectiveness, avoiding or bluring strategic choices. They must clearly distinguish operational effectiveness from strategy. Only the company and manager do all above things right, they could create and keep their own competitive advantage sustainable in a long-term.

In more details, Porter supported that operational effectiveness is performing similar activities better than rivals, not in different ways of strategic position. He not only used an example with the operational effectiveness advantage of Japanese manufacturing in 1980s, but also introduced the theory of productivity frontier to explain that operational effectiveness can not sustain without a unique strategic position and would be copied and increased easily by some management techniques. Following this, he illustrated that some similar activities were not able to produce all varieties, meet all needs and access all customers, thus company should learn how to position according to three different, overlap origins of strategic positions, variety-based, needs-based and access-based positioning. And give two success position examples of Southwest and Ikea in order to support “real” competitive strategy can only be about being deliver a mix of values and activities in different ways. In addition, Porter also suggested that positioning trade-offs and fits are pervasive in competition, some trade-offs not only can strengthen the position, but also make the rivals giving up to imitate as the inconsistent among reputation, activities and limitations of organisation, such as the failure of Continental Lite. Similarly, when activities complement one another, it would drive the increase of operational effectiveness and rivals will get little benefit from imitation. They are the underpinning of trade-offs and fit both can drive both competitive advantage and locks out imitators for their sustainability (Porter, 1996). At last, some growths are dangerous and do not have any profits, such as Maytag and Neutrogena in 1990s, because they far away from and lose their position.

Critical Appraisal

Definitely, the theory of Porter sounds reasonable. Operational effectives can not be equal to strategy. Only relying on the operational effectiveness can not achieve the excellent performance in long term and probably cause the zero-sum competition. Because operational effectiveness is always increasing and most companies would imitate the leaders easily by the new management techniques. Similarly, if all company only do the same activity, they could become the same finally, no profits can gain. “Competitive advantage means achieving a bigger gap than your competitors between the value your customers see in your product and the costs you incur in providing that product”. (Pietersen, 2010). And Markides (2004) also argues that “a company will be successful if choose a distinctive (that is, different from competitors) strategic position.” Thus, position in different and unique activities could help enterprise finding a new way to compete, such as Southwest Airlines Company. Besides, it would outperform than the rivals and avoid the price war for more profit, like the success of Apple. At the same time, position and take-offs make enterprises specifying the target markets and investing more resources to do it well. This is because any company could not do any things perfect at the same time. Favaro, Rangan and Hirsh (2012) suggest that “strategy is the result of choices executives make, on where to play and how to win, to maximize long-term value”. “Where to play” refers to any origins of position in order to find the target market. “How to win” actually is the same as trade-offs with choosing what not to do and not too much from the capabilities a business already has. In addition, compare with the theory of RBV and core competence and learning, fit and an entire system absolutely making the rivals more difficult to imitate than individual activities by reducing the cost and increase the differentiation. “Creating links that cannot be easily duplicated by competitors” (Lynch, 2006). Now Toyota is a success company by its operational effectiveness and continuous improvement, other learners and imitators still cannot get a great success, this is because they have a service of combination activities to fit among internal and external rather than have a “core” competencies and “critical” resources.

However, it is still very difficult to follow and practices in current specific business environment. Some (Grant, 2005) believed that the theory of Porter is too ideal. Nowadays, with the uncertain and unpredictable development of the industry, fewer companies are operating with no competition. “To date, no single school within the field of strategic management provides a complete or definitive explanation of strategy and strategizing by organisation” (Stonehouse and Snowdon, 2007). Even though some managers know their activities could not create a long-term competitive advantage, they still follow it, because operational effectiveness is still important and necessary to the company. In many industries such as manufacturing in China, the competitive gap between enterprises is mainly the comparison of operational effectiveness. It will also result in different profitability. Without operational effectiveness, company probably lost and cannot survive though they have a strategy. “This is a trap to answer which is a more important about providing unique benefit for customers or achieving superior operational effectiveness” (Pietersen, 2010). Besides, trade-offs and the growth trap are also very difficult for managers to make business decisions. Today’s business mainly focuses on product diversification for getting more return and market share. Most shareholders prefer their return and growth in the short term and worry about the merger and acquisition from external environment. Under these pressures, many managers far away from the advantage and strategy and just achieving the maximum of operational effectiveness rather than take-offs. And in fact, both viewpoints are necessary in the formation of strategy by organizations.

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