The essence of strategy is toCreate valueCapturevalue
Source: Bureau of Economic Analysis; Bureau of Labor StatisticsValue creation in the economy
Value creation vs. value capture in the economyThe Atlantic, 2/2015
Value creation vs. value capture
“Operational effectiveness is not strategy”•Competition on efficiency or cost alone can lead to profit increases in the short term, but strategic herding and margin erosion over time•“Race to the bottom” – a race no one wins
Core Strategy Principles of “What is Strategy”?1.Establish a valuable position in the marketNew market orSimilar market but different activities2.Support the position with tailored activities and strong fit3.Your position should create trade-offs for imitators (straddling costs/conflicting activities)4.Grow into positions that deepen tailored activities 5.Avoid growth into positions which will create trade-offs (conflicts in activities/straddling costs), especially if there are powerful rivals already in those positions
1. Establish a valuable position in the marketA position has multiple dimensions: product, customers, access, location, suppliersValuable positions are “empty beaches” – new markets, or similar markets with different activitiesValuable positions create added value – top line, bottom line, or bothHow did Ryan Air, Tesla and Walmart’s initial positions in the market affect their initial success, and rivals’ ability to respond to their market entry?
2. Support position with tailored activities and strong fitTailored activities Are designed to reinforce a position (first order fit)Tailored activities don’t function effectively in a new position – value is maximized in the position they are tailored forReinforce eachother (Second order fit)Lead to efficiency over time within the positionHow are Amazon’s fulfillment centers tailored to e-commerce? Could they be efficient in large-volume stores? Amazon is increasingly using third-party vendors: Does this fit with Amazon’s existing logistic system and promise of same-day delivery?
Tailored activitiesDistribution center handle large-scale inflows and outflows of merchandise to 150 discount stores each located 150 miles awayRural marketsMass market productsHigh volume suppliersLarge Stores 1960s-mid 1990s
3. Strong fit creates tradeoffs from imitatorsIf a company achieves a strong position/tailored activities, rivals will face conflicting activities/straddling costs when they try to imitate.
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- Spring '10