![[citation.base|no-toolbar]] >[!abstract] >The myriad activities that go into creating, producing, selling, and delivering a product or service are the basic units of competitive advantage. **Operational effectiveness** means performing these activities better — that is, faster, or with fewer inputs and defects — than rivals. Companies can reap enormous advantages from operational effectiveness, as Japanese firms demonstrated in the 1970s and 1980s with such practices as total quality management and continuous improvement. But from a competitive standpoint, the problem with operational effectiveness is that best practices are easily emulated. As all competitors in an industry adopt them, the **productivity frontier** — the maximum value a company can deliver at a given cost, given the best available technology, skills, and management techniques — shifts outwards, lowering costs and improving value at the same time. Such competition produces absolute improvement in operational effectiveness, but relative improvement for no one. And the more benchmarking that companies do, the more **competitive convergence** you have — that is, the more indistinguishable companies are from one another. **Strategic positioning** attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company. It means performing *different* activities from rivals, or performing *similar* activities in different ways. ## Notes - Operational effectiveness is [[table stakes]]: a necessary but insufficient condition to compete. It eventually leads to competitive convergence (all competitors being on a roughly equal footing in terms of cost to serve). - Strategy is what procures the sustainable competitive advantage. - Strategy is the creation of a unique and valuable position. A strategic position emerges from: - Doing one thing well for many customers; - Doing many things well for few customers; - Doing many things well for many customers, but in a narrow market. - Strategy requires tradeoffs between activities that are not compatible (for example, low-cost and bespoke services) and knowing what *not* to pursue. Tradeoffs are necessary to strategy (I think of that relationship as aerodynamic drag is to lift). - Strategy also requires creating “fit” among a company’s activities. Fit types are: - Simple consistency between each activity and the strategy (first-order fit). - Activities that reinforce each other (second-order fit). - Optimization of effort (third-order fit). - Strategy, in that sense, is about creating fit among the company’s activities. - The desire to grow has a perverse effect on strategy because companies pursue the growth trap — trying to capture revenue beyond their strategic fit in order to meet the growth target. Revenue may grow but profitability usually shrinks. - The response should be to focus on deepening the competitive position rather than try to broaden and compromise it.