What is strategy

Michael Porter, one of the most influential thinkers on competitive strategy, offers a distinct
and rigorous definition of the term. 1 For Porter, strategy is not about striving to be the best,
but about being unique.2 It is about a company's ability to create a sustainable competitive
advantage by performing different activities from its rivals, or performing similar activities in
different ways.3
Here are the key pillars of Porter's view on strategy:
1. Strategy vs. Operational Effectiveness
Porter makes a critical distinction between strategy and operational effectiveness. 4
 Operational effectiveness means performing similar activities better than rivals. 5 This
includes things like improving quality, increasing efficiency, and reducing defects. 6
While these are necessary for a company to survive, they are not sufficient for a
sustainable advantage because they can be easily imitated by competitors.7
 Strategy, on the other hand, is about being different. 8 It is about deliberately
choosing a unique and valuable position in the market.9
2. The Essence of Strategy: Creating a Unique Position
According to Porter, a company's strategy should be built on a unique strategic position that
is difficult for competitors to copy.10 He identifies three sources of strategic positions:11
 Variety-based positioning: Serving a narrow set of product or service needs for a
wide range of customers (e.g., Jiffy Lube, which specializes in auto lubricants).
 Needs-based positioning: Serving all or most of the needs of a particular group of
customers (e.g., Bessemer Trust, which focuses on very high-wealth clients). 12
 Access-based positioning: Segmenting customers who are accessible in different
ways, such as by geography or customer scale (e.g., Carmike Cinemas, which
operates in cities with a population under 200,000).
3. The Importance of Trade-offs
A core component of strategy is making trade-offs.13 This means that a company must
choose what not to do.14 If a company tries to be all things to all people, it risks becoming
"stuck in the middle," lacking a clear competitive advantage. Making trade-offs protects a
company's strategic position from imitators.15 For example, a company focused on low cost
cannot also offer the highest level of customer service without compromising its cost
structure.
4. Fit Among Activities
Strategy is not about a single choice or activity, but about the way a company's entire system
of activities works together to create and deliver value. 16 Porter calls this "fit." The activities
within a company—from R&D to marketing to logistics—should reinforce and complement
each other.17 This creates a powerful, interlocking system that is much more difficult for
competitors to copy than a single best practice.
5. Porter's Generic Strategies
Porter distilled his ideas into three "generic strategies" that a firm can adopt to achieve
competitive advantage:18
 Cost Leadership: A firm aims to be the lowest-cost producer in its industry.19
 Differentiation: A firm seeks to be unique in its industry along some dimension that
is highly valued by buyers.20
  Focus: A firm selects a narrow competitive scope within an industry, either aiming for
cost leadership within that segment (cost focus) or differentiation within that
segment (differentiation focus).21

Core Competency
C.K. Prahalad and Gary Hamel's concept of core competencies focuses on identifying and
leveraging a company's unique strengths to achieve a competitive advantage. Core
competencies are defined as the collective learning within an organization that distinguishes
it from competitors and fuels innovation. These are not simply individual skills or
technologies, but rather the harmonized combination of multiple skills and technologies that
create a unique capability.

Key characteristics of core competencies:

 Customer Value:
A core competency should deliver fundamental benefits to the end customer, making their
product or service more desirable.
 Competitor Differentiation:
It should be difficult for competitors to imitate or replicate, giving the company a unique
advantage in the market.
 Market Application:
A core competency should be applicable to a wide range of products and markets, enabling
the company to diversify and innovate.
In essence, core competencies are the things a company does exceptionally well, that are
difficult for others to copy, and that create value for customers.
Prahalad and Hamel emphasized that companies should focus on building, deploying,
protecting, and defending their core competencies to achieve sustainable competitive
advantage. This involves understanding what the company does best, how well it does it,
and how it can be improved. They also cautioned against over-reliance on outsourcing, as it
can lead to the erosion of core competencies.
Examples of core competencies:
 Sony's miniaturization technology:
This allowed them to create innovative products across various categories like Walkmans,
camcorders, and portable TVs.
 Honda's engine technology:
This has been a driving force behind their success in automobiles, motorcycles, and power
equipment.
 Nike's brand marketing and product innovation:
According to [Link], this has allowed them to dominate the sportswear
market, according to [Link].

Business Model Innovation

Business model innovation (BMI) is the process of fundamentally changing how a company
creates, delivers, and captures value. It involves rethinking and redesigning the core
elements of a business to gain a competitive edge, adapt to market changes, or create new
revenue streams. This can involve changes to the value proposition, value creation, or value
capture mechanisms.
Key aspects of Business Model Innovation:
 Value Proposition:
This involves identifying new ways to offer value to customers, potentially through new
products, services, or customer segments.
 Value Creation:
This focuses on how a company creates value for its customers, which can involve changes to
its internal processes, resource utilization, and collaborations.
 Value Capture:
This refers to how the company generates revenue and manages costs. BMI can involve
finding new ways to monetize the value created, such as through subscription models or
innovative pricing strategies.
Why is BMI important?
 Competitive Advantage:
BMI can help companies differentiate themselves from competitors and gain a stronger
market position.
 Adaptability:
In a rapidly changing environment, BMI allows companies to respond effectively to new
technologies, market trends, and customer expectations.
 Growth and Sustainability:
By finding new ways to create and capture value, BMI can drive revenue growth and improve
long-term sustainability.
Examples of BMI:
 Netflix's shift from DVD rentals to streaming:
This involved a significant change in the value proposition, moving from physical media to
digital content, and a new revenue model based on subscriptions.
 Amazon's platform strategy:
Amazon's marketplace model brings together buyers and sellers, creating a vast ecosystem
and generating revenue through various channels.
 Subscription services:
Many companies are moving to subscription models, offering access to products or services
for a recurring fee, like software or entertainment.
In essence, BMI is about more than just incremental changes; it's about fundamentally
rethinking how a business operates to achieve greater success and relevance in the market,
according to business and technology experts.

Harris, Shaw, and Somers technology

investment framework
Although a specific "Harris, Shaw, Somers technology investment framework" isn't widely
available in public resources, a potential approach can be inferred from their work in
academic contexts.
The framework likely centers on the relationship between a company's technology and its
business strategy. This involves:
 Connecting the technological and business portfolios: This step highlights the
importance of a strong link between a company's technologies and its business
activities. This connection can improve the reliability of investment decisions and
technology priorities.
 Assessing technological support and business activities: This step includes evaluating
the strength of technological support for current business activities. Weak
technological support can undermine a strong competitive position, necessitating
further investment.
  Analyzing technology's relevance for competitive advantage: This step involves
classifying technology based on its importance for competitive advantage and
assessing the company's position relative to competitors.
The framework likely emphasizes a holistic and integrated approach to technology
investments. Technology should be evaluated in the context of its contribution to business
goals, competitive positioning, and long-term sustainability.
Key Considerations for Technology Investments (aligned with the framework):
 Competitive Advantage: Does the technology create a sustainable competitive
advantage that competitors can't easily replicate?
 Market Opportunity: Is there significant market demand for the technology, and does
the company operate in a growing market?
 Management Team: Does the company have a strong leadership and management
team with the expertise to execute on the technology and business vision?
 Innovation Capabilities: Can the company continually innovate and adapt its
technology to evolving market demands and competitive pressures?
 Financial Health: Is the company financially stable, and does it have a sound financial
plan to generate returns?
The underlying principle of strategically aligning technology with business objectives remains
crucial for successful tech investment.

Innovation
Schumpeter theorizes that capitalism is characterized by a constant process of creative
destruction. Newcomers introduce disruptive innovations and technologies that replace
older, less efficient business practices. Thus, established firms must either continually adapt
or perish.

Joseph Schumpeter and Israel Kirzner are two of the most influential economists on the
topic of entrepreneurship. Their theories, while both highlighting the entrepreneur's
importance, offer contrasting views on the entrepreneur's role in the market process.

Schumpeter's Theory: The Disruptive Innovator 💥

Schumpeter saw the entrepreneur as a disruptive force that drives economic development.
His key concept is creative destruction, where entrepreneurs introduce innovations that
fundamentally change the market, making existing products, methods, and industries
obsolete.
 Innovation: Schumpeter defined innovation broadly, including new products,
production methods, markets, sources of supply, and new forms of industrial
organization.
 Disequilibrium: The Schumpeterian entrepreneur intentionally disrupts the existing
state of market equilibrium. By introducing something entirely new, they create an
imbalance that forces other firms to adapt or fail.
 Monopoly Profit: For Schumpeter, entrepreneurial profit is a temporary monopoly
profit that comes from being the first to introduce a successful innovation. Once
imitators enter the market, this profit is eroded, and the market tends toward a new
equilibrium.
  Motive: Schumpeter believed entrepreneurs aren't just motivated by profit, but also
by the desire for power, the joy of creating, and the will to conquer.

Kirzner's Theory: The Alert Arbitrageur 👀

Kirzner, a prominent figure in the Austrian School of Economics, viewed the entrepreneur as
an equilibrating force. His theory focuses on the entrepreneur's alertness to existing, but
unnoticed, profit opportunities.
 Arbitrage: Kirzner's entrepreneur discovers opportunities to buy low and sell high,
essentially performing an act of arbitrage. This is not about creating new markets but
rather about coordinating existing ones more efficiently.
 Equilibrium: The Kirznerian entrepreneur helps the market move toward equilibrium
by correcting errors and filling in knowledge gaps. By exploiting a profit opportunity,
they bring a mispriced good to its correct price, thus bringing supply and demand
into better balance.
 Knowledge and Alertness: The core of Kirzner's theory is the entrepreneur's
"alertness" to previously unseen opportunities. It's a special kind of knowledge, not
something that can be learned or searched for, but a spontaneous discovery.
 Motive: The Kirznerian entrepreneur is primarily motivated by the pure profit that
arises from their discovery of a market discrepancy.

Key Differences Summarized 🔄

SCHUMPETER KIRZNER
ROLE Disruptive Innovator Alert Arbitrageur
MARKET IMPACT Creates disequilibrium through Moves the market toward
innovation. equilibrium by noticing and
correcting errors.
PROFIT SOURCE Temporary monopoly from a Pure profit from a discovered
new innovation. price discrepancy.
NATURE OF ACTION A proactive, revolutionary act A passive, observant act of
of "creative destruction." "discovery."
MOTIVE Driven by a desire for power, Driven by the opportunity for
achievement, and creation, not pure profit from a discovered
just profit. gap.
EXAMPLE Introducing the smartphone, Noticing that a product is selling
which completely changed the for a low price in one store and a
mobile phone industry. high price in another, then
buying it in the first store to sell
in the second.

In essence, Schumpeter's entrepreneur is the pioneer who creates new territory, while
Kirzner's entrepreneur is the scout who finds the best path through the existing landscape.
While their theories may seem to be in opposition, many economists view them as
complementary, representing different aspects of the entrepreneurial process.

What is The Diffusion of Innovation?

This model helps a business to understand how a buyer adopts and engages with new
products or technologies over time. Companies will use it when launching a new product or
service, adapting it or introducing an existing product into a new market.
It shows how the product can be adopted by five different categories/customer types and
how to engage as a business with these types of people:

Of course, the emergence of new digital technologies and marketing techniques means that
the diffusion of innovation model is particularly relevant to digital marketers. Analysts
Gartner have a long standing report showing the stages of adoption of new technologies
that is useful for digital strategists to follow. See our post on the Latest Gartner Digital
Technology Hype Cycle.
Returning to the DOI, what characterises each of the groups of adopters, in general they
have these characteristics, see the original work by Everett M. Rogers for more details.
 1. Innovator. They are a small group of people exploring new ideas and technologies.
It includes "gadget fetishists!" In an online marketing context there are a lot of
specialist blogs and media sites to engage them, Engadget and Gizmodo for
examples.
 2. Early Adopters. Considered to be Opinion Leaders who may share positive
testimonials about new products and services, seeking improvements and efficiency.
Engagement requires little persuasion as they're receptive to change. Provide guides
on how to use the product/service.
 3. Early Majority. These are Followers who will read reviews by earlier adopters
about new products before purchasing. They can be engaged with reviews and via
YouTube, where they will look for your products.
 4. Late Majority. To generalise, these are sceptics who are not keen on change and
will only adopt a new product or service if there is a strong feeling of being left
behind or missing out. They can be engaged with providing marketing material,
evidence, reviews from Opinion Leaders and case studies to show how it works.
 5. Laggards. The descriptor says it all! Typically they prefer traditional
communications and will adopt new products when there are no alternatives.
Laggards will come on board when 'others' have written about your
products/services, they have research evidence, statistics or felt pressure from
others.
How to use the Diffusion of Innovation?
If you are launching a new tech product, such as software, you can use this model which will
help with identifying the marketing materials needed for each group.
The Adoption theory is most useful when looking at new product launches, but it can be
useful when taking existing products or services into a new market.
Examples of how it can be applied to digital marketing strategies?
This is an example based on launching new software to the different groups.
 Innovator: Show the software on key software sites such as Techcrunch, or
Mashable. Providing marketing material on the website, with relevant information
and lead to potential sales with downloads.
 Early Adoptor: Create guides and add to the major software sites, providing
marketing material such as case studies, Guides and FAQs.
 Early Majority: Blogger outreach with guest blog posts and provide links to social
media pages, key facts and figures, and 'how to' YouTube videos.
 Late Majority: Encourage reviews, comparisons and share press commentary on your
website. Provide a press section and social proof with information and links to
reviews, testimonials, third party review sites etc
 Laggards: It's probably not worth trying to appeal to this group!
What to watch for?
The Adoption theory is mainly useful when developing new products. If you’re in FMCG and
launch many new products or lines a year, it may be less effective as it’s not practical to
create individuals strategies for hundreds of products.