Empirical Approach • Intensity of sales by customer type / product type • Product / customer profitability Analytical Approach • Creative segmentation of product varieties and customer groups • Building off activities with true uniqueness • Finding tradeoffs in the value chain • Looking for new configuration choices for activities • Finding new combinations of activity choices • Migrate toward the chosen strategic position • Focus incremental efforts on reinforcing the chosen position
34 Copyright 2002 © Professor Michael E. Porter FEI Conference Halifax – 06-06-02 AF Profitable Growth - I 1. Introduce new technologies, features, products or services tailored to the strategy 2. Deepen the strategic position rather than broadening and compromising it – Raise market penetration of the chosen position – Communicate the strategy better to other customers who should value it – Make the company’s activities more distinctive – Strengthen fit 3. Expand geographically / globally to tap new markets using the same positioning – Leverage and reinforce company’s unique advantages and identity 4. Expand the market for what the company can uniquely deliver – Extend the same positioning to new segments – Find adjacent segments that involve no/minimal tradeoffs – Seek ways to minimize the tradeoffs of serving a wider market • It is an illusion that growth (and profitability) are easier to achieve in untapped or growth segments
35 Copyright 2002 © Professor Michael E. Porter FEI Conference Halifax – 06-06-02 AF Profitable Growth - II • When broadening the strategy is unavoidable , the risks are best contained by creating stand alone units , each with its own brand name and tailored system of activities – Positioning determines whether acquisitions should be “integrated”
36 Copyright 2002 © Professor Michael E. Porter FEI Conference Halifax – 06-06-02 AF Strategy • The right goal • Unique value proposition • Tailored activities • Clear tradeoffs • Activities fit together in an integrated system • Continuity of position but consistent improvement What Is a Strategy? What is Not a Strategy? • Best practice improvement • A vision • Learning • Agility • Flexibility • Innovation • Restructuring • Mergers / Consolidation • Alliances / Partnering • Customer relationship management • The Internet
37 Copyright 2002 © Professor Michael E. Porter FEI Conference Halifax – 06-06-02 AF The Role of Financial Executives in Strategy • Define and institutionalize the proper goal for the company • Institute accurate financial reporting – “Pro forma” income, write-offs, etc. are misleading for strategy • Manage the tight linkage between financial performance and strategy – Bring economic rigor to the strategic planning process • Distinguish between operational effectiveness and strategy in financial planning and budgeting • Create cost accounting systems that inform strategic choices –
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