What Is Strategy?

Is operational effectiveness a strategy?

In general, operational effectiveness and strategy are both essential to superior performance and are an organisation’s primary goals. Constant improvement in operational effectiveness is necessary to achieve superior profitability, however, it is not usually sufficient.

What operational effectiveness is defined…

Operational effectiveness means performing similar activities better than rivals perform them. As at the core of any business, the organisation seeks to maximise the efficient use of inputs and resources to either develop products at a faster pace than competitors or to improve quality, productivity or competitive positioning in markets in which they participate.

In order to respond rapidly to ever-changing customer demands and external factors, organisations are urged to establish formal governance, total quality management and process improvement functions, which have spawned a remarkable number of management tools and techniques taking place of strategy. Driven by performance pressures, company after company has had no better idea than buying up its rivals.

While operational effectiveness can help improve a business’s operations, it does not create a sustainable competitive advantage. Managers are preoccupied with delivering best practices, keeping up with continuous improvement, empowerment, change management and the so-called learning organisation, those best practices are rarely stable themselves as rivals can easily imitate one another’s improvement in quality and competition becomes a series of races that no one can win.   

So, what is strategy?

Strategy is doing things differently, not simply doing better than the rivals. It means deliberately choosing to perform activities differently to deliver a unique mix of value.

A good strategy will make a business stand out from the ground, providing it a competitive advantage by:

• Do what everyone else is doing (but spend less money doing it) or;

• Do something no one else can do

That advantage helps explain why customers would choose to buy a company’s products or services above all alternatives and how internal activities must be aligned with the strategy so that only the company can deliver the value proposition to the targeted customers.

Elements of a good strategy statement

In an article published in Harvard Business Review, Michael (2008) identified three simple, yet critical elements of a good strategy statement as follows:

• Objective = Ends

• Scope = Domain

• Advantage = Means

Defining the objective

Unfortunately, companies often confuse the statement of values (What we believe in and How we will behave), mission (Why we exist) or vision (What we want to be) with their strategic objectives. Rather, a strategic objective is a single precise statement that outlines which objective will most likely drive the business value over the next several years.

It is vague to say, ‘We seek to grow profitably’. Instead, the company may say, for instance, that it seeks to have at least 10% organic growth per year. The strategic goal here should be a single SMART statement. There could be a set of subordinate goals under each strategic objective that act as metrics on a balanced scorecard to track progress for which individuals will be held accountable.

The choice of objective has a profound impact on the firm itself. Take Boeing’s case as an example – since the company shifted its primary goal from the largest player in the aircraft industry to the most profitable, for years Boeing has pursued an outsourcing strategy to reduce costs, which has resulted in quality issues with the production of its 737 models.

Defining the scope

Fundamentally, a firm’s scope comprises three dimensions:

• Customers or offerings

• Geographic location

• Vertical integration

By clearly defining the boundaries of those areas, managers would be able to decide which activities they should prioritise and which to avoid.

In an example of Edward Jones, a U.S.-based financial services firm, the definition of its customers is neither based on net worth nor income, but those long-term investors who are conservative and uncomfortable making investments without the support of trusted advisers. The clarity about who the customers are has kept Edward Jones from wasting money and time to pursue online trading because it had set clear boundaries.

Defining the advantage

It is no surprise that advantage is the most critical aspect of a strategy statement. A firm’s competitive advantage consists of two parts:

• The customer value proposition

• The unique activities allow firms to deliver the customer value proposition

Seeing the exhibit “Wal-Mart’s Value Proposition” against those rivals can be an extremely helpful way of identifying what makes Wal-Mart distinctive.

The three basics of strategic positioning

If there was only one ideal position, there would be no need for strategy. Establishing a strategic positioning is crucial if the company wants to gain a competitive advantage. It is all about tailoring a set of activities that can create differences on the supply side and not always on the customer side.

According to Porter (1996), strategic positioning emerges from the following three distinct sources:

Variety-based positioning

It’s when a company can produce specific products or services and perform them really well.

A typical example of a company with variety-based positioning is Jiffy Lube. Founded in 1972, Jiffy Lube focuses on a specific subset of automotive services, such as drive-through oil changes, tyre rotations, and other basic maintenance tasks in less than 10 minutes and without an appointment. By specializing in these routines, and high-frequency services, Jiffy Lube can deliver fast, convenient, and affordable maintenance for customers who prioritize quick service and competitive pricing.

Adopted image from Link

Need-based positioning

It involves serving the unique needs of a specific market segment by an organisation. To effectively address these needs, a company must engage in distinct activities tailored to this segment, which differ from those used to meet the needs of other market segments.

Nike is an excellent example of a company that excels in need-based positioning. Nike caters to various customer segments—such as professional athletes, fitness enthusiasts, and casual wearers—each with distinct needs, and it tailors its offerings and activities to address these groups differently.

Adopted image from Link

Access-based positioning

Access here can be customer geography or anything that prompts the company to reach customers in the best way. Rural versus urban-based customers are one example of an access-based positioning. Companies need to configure marketing, order processing, logistics and after-sale service to best serve these distinct groups.

Carmike Cinemas is a great example of access-based positioning within the movie theatre industry. The company strategically opened theatres in smaller, underserved towns, often becoming the only major cinema option in the area. By positioning itself in less competitive, rural markets, Carmike was able to offer more affordable ticket pricing compared to theatres in larger cities, while still providing a quality experience.

Adopted image from Link

Trade-offs in strategic positioning

Choosing a unique positioning does not guarantee a sustainable advantage. New entrants or existing competitors can still imitate in many ways. They can reposition themselves to match the superior performer. Another more common type of imitation is straddling. A straddler is like putting their feet in both the current operating position and a successful position by the rival firms.

Meanwhile, a strategic position is not sustainable unless there are trade-offs with other positions. Simply put, a trade-off means that more of one thing necessitates less of another, but it cannot do both without bearing major inefficiencies.

However, false trade-offs between cost and quality are real and occur primarily. In 1995, Honda and Toyota faced a severe customer crisis when both attempted to produce less expensive cars by skimping on features such as using cheaper fabric for the back seat or unpainted bumpers with the hope that customers would not notice.

Return to the question ‘What is strategy?’, it’s worthwhile to consider trade-offs as a new dimension of the answer. Strategy is about making choices in competing and choosing what not to do. Without trade-offs, there would be no need for strategy and again business performance depends wholly on operational effectiveness.

References

Collis, D.J. and Rukstad, M.G 2008, Can you say what your strategy is?, Harvard Business Review, 86(4), pp.82-90.

Brad, G 2015, Differentiating activities – Jiffy Lube example, Evolution Partners, available at <https://evolutionpartners.com.au/differentiating-activities-jiffy-lube-example/>.

Harvard Business School n.d., Operational effectiveness vs. strategy, Harvard Business School, available at <https://www.isc.hbs.edu/strategy/business-strategy/Pages/operational-effectiveness-vs-strategy.aspx>.

Martin, M 2024, When Profits Create Problems: What can we learn from Boeing?, Your CEO Mentor, available at <When Profits Create Problems: What can we learn from Boeing? – Your CEO Mentor>.

O’Brien, A and Zhang, Y 2023, ‘Hybrid strategy: blending operational effectiveness and strategic differentiation’, European Journal of Innovation Management, available at <https://www.emerald.com/insight/content/doi/10.1108/EJIM-07-2023-0566/full/html#:~:text=A%20hybrid%20strategy%20is%20a,et%20al.%2C%202023>.

Porter, M.E 1996, ‘What is strategy?’, Harvard Business Review, available at <https://hbr.org/1996/11/what-is-strategy>.

Porter, M.E 2015, ‘What is strategy again?’, Harvard Business Review, available at <https://hbr.org/2015/05/what-is-strategy-again?ab=at_art_art_1x4_s04>.

ScienceDirect n.d., Operational effectiveness, ScienceDirect, available at <https://www.sciencedirect.com/topics/computer-science/operational-effectiveness>.