July 3, 2005

Porter's discussion of strategy

Read the next chapter of the book - 'on competiton' . This chapter talks about strategy. Porter has detailed the difference between operational excellence and strategy.

Operational excellence to put it simplistically is doing the various operationally activities as efficiently as possible. For example , a company like Gujarat ambuja uses sea transport to move raw material and finished good and has thus reduced its transportation cost. This is operational excellence.

Strategy, according to porter is the specific choice of activities which a firm decides to perform to create a distinctive position or enduring low cost position and thus achieve competitive advantage. for example , blue star has chosen to focus on the commercial airconditioning market and has built its value chain accordingly (although they are still trying to tap the home a/c market)

In addition, by choosing specific activities and performing them differently and ensuring a fit between them, a firm is able to derive a distinct position and a competitive advantage. Such a position is difficult to replicate as a competitor can duplicate some or all the activities but may not be able to manage the fit between the activities and the tradeoffs between the activities (like blue star may focus more R&D v/s carrier would have to focus on a dealer network )

This book is good to get a deep understanding of strategy and how it can create a sustainable competitive advantage

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