What, according to Porter is the starting point of strategy formulation
What, according to Porter is the starting point of strategy formulation? Do you agree, why?
The starting point of a strategy is to ask what is the fundamental or strategic challenge for an organization? Porter believes that the starting point of a strategy is not to be the best, but to rather think about being unique and how an organization can create uniqueness for its customers or consumers that they are seeking to serve. He believes if something unique can be served, the company is more likely to succeed as an organization would leverage their strategy of uniqueness to achieve their goals or aspirations rather than profitability.
He believes that that most companies are creating strategies to become the best (best product, service, customer support model etc) rather than how they can be unique and differentiate themselves from others. Personally, I agree with his position on both what the starting point of strategy is and how too frequently companies focus on being the best rather than differentiating themselves. Specifically, I agree with his position because in most cases when developing a new product, companies who leverage an IDEO or Ideate business model will have their potential consumers at the core of their product, where the product is able to uniquely serve and meet the demands of their client/s. In addition, when firms are interested in creating strategic objectives of uniqueness, they often become closer with their consumers and clientele thereby indicating the power of a consumer.
What determines economic performance of firms? Do you agree with Porter\’s position?
Porter indicated that the economic performance of firms is dictated by: Threats of substitutes, Bargaining power of buyers, Threats of new entrants, Rivalry among existing competitors and Barging power of suppliers. These five factors are indeed very important when it comes to economic performance of firms and should always be considered (similar to that of a SWOT) when trying to expand a business or looking for growth opportunities. For example, if you have an over saturated market from say too easy of access of creating your business (let’s say for example in the industry of selling coffee in a cold environment), then profits are going to be limited because it would suggest that there will be a lot of competition due to the ease of entry; therefore, there would be less opportunity to increase prices since consumers would have more choices for their products and they would often become more price sensitive. This in turn, can also create the situation of inferior vs superior goods where your product may become synonymous with being inferior to others. All of these factors directly impact economic performance and profits of a firm.
Comment on Porter\’s take on the importance of making trade-offs, and creating alignment. How does this relate to success in strategic performance?
Creating alignment and making tradeoffs was exemplified through his example of IKEA. Overall, both tradeoffs and creating alignment are relatively dependent on one another and they play a large role in the success of strategic performance. Tradeoff is done by doing one thing really well, and by directly choosing not to do another such as, what specific demographics that you will not target and focus on. For example, IKEAs demographics are for those looking for products that you build yourself, come at a low cost and are ideal for more compact areas. They do not focus on individuals looking for customization or those who require a great deal of assistance and or customer service. Therefore, the alignment would be to create simplified products that are made, stored, and marketed in house for the DIY clients. In addition, tradeoffs make a strategy sustainable against being imitated by rivals thereby making companies with successful tradeoffs remain dominate in their field for many years.
When looking at alignment on its own, it is how your product/service meets the tradeoff and how the tradeoffs is aligned with your unique value proposition (essentially, alignment is the ability to ensure that all aspects of your business from the value proposition to the sales price, to the overall business model is inline with your strategic goal and end demographic). If it is, then performance of the company has a high likelihood of success. Again, IKEA would be a great example of this as their strategic performance has been an industry leader for decades and is next to impossible to replicate and replace as being such a large corporate conglomerate. For example, JYSK is another company similar to IKEA, but its product offering and overall quality of goods are far inferior even though their pricing is relatively the same.
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