Operational Effectiveness is not Strategy.

Operational effectiveness and strategy are both essential to superior performance, but
they work in different way.

what is strategic positioning?

strategic positioning is to study and analyze the way a business distinguishes itself in a
valuable way from its competitors. The main objective is to achieve competitive
advantage. According to Michael Potter there are three strategies to create competitive
advantage. Which are cost leadership, differentiation, and focus. One of the benefits of
applying these strategies in the company is the direction of the company can be
established and a key review of the company's goal can be seen.
Therefore, if active decision-making can also be achieved the first strategy is cost
leadership. Cost leadership strategy focuses on creating the lowest cost of producing
a product or service in an industry in order to establish competitive advantage. If the
company is the lowest cost producer in the industry the company can bring down the
price of a product or service and gain a market share in the industry. This means that
the company will try to find ways to reduce cost so they can offer a product at lower
price than the other competitors. However, the company can also be the lowest cost
producer in the industry but not offer the lowest price so that the company can gain
higher average profit. This means that the company can set their price at the level of
competitors price and maintain profitability. Cost leadership might be affected in the
business by offering the lowest prices provided that the quality satisfies the customers,
and enough customers are attracted to be profit the bone. There are several benefits on
implementing cost leadership strategy. The first one is it creates barriers to enter
industry this is because the new firms are discouraged to enter the industry and be
competitive as the new firms will try to figure out efficient way to lower operation cost.
Another benefit is it increases efficiency in the operation companies become good at
making the most efficient operation in order to save cost. Meanwhile the challenges to
apply cost leadership strategy is customers might have a bad perception due to the low
price as they might assume that the product or service provided has lower quality than
other competitors. Besides that, cost leadership is also a difficult strategy to achieve at
the markets as it involves a lot of brand loyalty. Therefore, the need of high sales
volume is a critical disadvantage. For example, AirAsia is one of the companies that
uses cost leadership strategy.
The next strategy is differentiation. Differentiation means creating high value for the
customer for a higher price the goal is to create a premium position for customers who
are willing to pay more. This can be done by ensuring high satisfaction of the customers
the attraction can be from its function which is to have different types of functions that
can ease everyday lives next the product durability may become one of the attractions.
This is because people opt to use expensive things for a longer time. The next one is
features. Features is the product design and its additional interesting ability. Last but
not least is support. A product is considered valuable if the seller or manufacturer can
provide a guarantee and after sell service in a period.
How exactly the companies achieve this?
Firstly, by having good research and development to make people crave for its next
innovation and then companies must make sure that they have high quality products.
This is to ensure that their products are always on the top of people's satisfaction.
Finally is the effective strategy of sales and marketing. Sales strategy can be in the form
of gaining competitive advantage by focusing on target market customers. Meanwhile
marketing is an important tool to attract the market to create for the products. Without
marketing the sales will be suffering. Now what are the benefits of differentiation? Of
course, to reduce competition. The competition can be reduced when the products
offered are something that is unique, and no other competitors can follow. This can
create barrier of new entry. Next by applying this strategy companies will have a better
reach. Water-rich means when a cheap product offer a certain area of features to match
its cost. Meanwhile differentiation insurance product satisfaction making in the needs
and wants of the people fulfilled. There are many challenges when applying this
strategy. One of them is brand loyalty. Brand loyalty can actually be considered as
benefit if the product have met customer satisfaction. However, if their loyalty is to
other products then it will be a waste as they already considered other products for
their needs. Another challenge is premium products are always being imitated for
customers who look for fame than quality. It will be a real problem when the real
customer is being deceived making both loss for them and the pioneer. Think different.
The third approach of generic strategies by Michael Porter is focused strategy. This
strategy concentrates on developing products or services for niche market. The firm
that uses this strategy chooses small parts of market segments and focus only on those
parts. In focused strategy the key to success is choosing a market niche where buyers
have distinctive preferences special requirements or unique needs. However, they will
have to decide whether to pursue cost leadership or differentiation. The term costs
focus means emphasizing cost minimization within a focused market. meanwhile
differentiation focus means pursuing strategic differentiation within a focused market.
One of the benefits of using focus strategy is the firm can contribute to reduce costs
through the knowledge of specialist suppliers and they can increase differentiation
through deep understanding of customers’ needs. The challenges are consumer
preferences and needs may shift and a competitor may find a smaller segment and fast
up focus the focuser.

sustainable strategic position requires tradeoffs.

According to Michael Porter, strategic trade-offs force you to focus your business’s
strategy by making certain things incompatible. In sum, you can have it one way or the
other, but not both. Trade-offs are strategic forks in the road. If you take one path, you
cannot simultaneously take the other. The choices are incompatible. Trade-offs force
you to limit your value proposition. With trade-offs, your activities can be
tailored/optimized to your value proposition. Without tailoring, your value chain will
have inefficiencies that more focused competitors will exploit.
Trade-offs also make it difficult for competitors to copy what you do without
compromising their own strategies. In a situation with strong trade-offs, your
competitors’ activities, tailored to their value proposition, are incompatible with your
activities.

Trade-offs arise in three ways:

1. Product trade-offs: Tailoring a product to suit one need makes it less capable of
servicing another need.
2. Operational trade-offs: Activities that deliver one kind of value are less efficient at
producing another kind of value. If an activity is over- or under-designed for its
use, value will be destroyed.
3. Brand trade-offs: Muddling the brand identity compromises why fans support the
brand.

Fit drives both operational effectiveness and sustainability

Fit has to do with how the activities in the value chain interact and reinforce one
another. Fit drives both competitive advantage and sustainability: when activities
mutually reinforce each other, competitors can't easily imitate them.
Michael Porter then describes how a strategy builds a competitive advantage that is
sustainable or termed as a sustainable competitive advantage. He uses the term ‘fit’ to
describe this. Essentially, fit is the interweaving of the unique activities to form a far
more powerful moat against competitors. Fit is essential to defend against competitors
from easily reposition into your market (positioners) and/or also offering your
service/targeting your customers efficiently (straddlers).

He says fit works at three levels.

1. First-order fit is the bare essential requirement for a strategy to be effective. It is the
consistency between all the chosen activities. To have a first-order fit, there must be
zero non-essential function or activity that detracts from or dilutes the overall
 strategy. I think of it as a puzzle where the pieces neatly insert itself into one and
another with no ill-fitting edges.
2. Second-order fit goes further than simple consistency. Second-order fit happens
when chosen activities strengthen and reinforce each other. I like Michael Porter’s
analogy of the strength of a chain to explain the concept of fit in strategy. Unlike the
truth of the chain or the fact that a chain is only as strong as its weakest link, in this
analogy i.e. when there is second-order fit, the chain becomes as strong as its
strongest link! The unique activities reinforce each other and support the weakest
link as they are all intertwined.
3. Third-order fit takes you far above the first two. Michael Porter calls it the
“optimization of effort”. I like to akin to a puzzle that is now glued together! This
gives your strategy a competitive strength that is difficult for competitors to attack,
copy or even understand.
Second and third-order fit are not easy to obtain. It often requires clarity in decision
making and focus over many years to obtain the benefits of the second and third-order
of fit.