Question

1. What are the five tests of a good strategy? (name them)
2. How does a Unique Value Proposition contribute to a good strategy?
3. The same question applies to:
4. Tailored Value Chain
5. Trade-offs
6. Competition

7. What is meant by the term “Fit across the value chain?”

8. What is the benefit of continuity over time?

9. How does continuity promote trade-offs and fit?

10. How does continuity help / assist competitive advantage?

11. How does continuity facilitate innovation?

12. How does continuity contribute to a strong company strategy?

13. How are brands strengthened by continuity?

Answer 1

1.

The following are the five tests of good strategy:

• First, you must choose a distinctive value proposition. Which needs will you serve, which customers, at what relative price? Have you staked out a positioning that’s different from rivals?

• Second, and far less intuitive, you must choose to tailor your activities to that value proposition. Competitive advantage lies in the activities, in choosing to perform activities differently or to perform different activities than rivals. These ultimately are the choices that result in a company’s ability to charge premium prices or to operate at lower cost. (Remember, we’re talking about quantifiable performance.)

• The third test of strategy, making trade-offs, may well be the hardest. It means accepting limits — saying no to some customers, for example, so that you can better serve others. Porter explains why trade-offs are an important source of profitability differences among rivals, and why trade-offs make it difficult for rivals to copy what you do without compromising their own strategies. The essence of strategy, says Porter, is choosing what not to do.

• Fit is the fourth test. Great strategies are like complex systems in which all of the parts fit together seamlessly. Each thing you’ve chosen to do amplifies the value of the other things you do. That’s how fit improves the bottom line. It also enhances sustainability. Says Porter, “Fit locks out imitators by creating a chain that is as strong as its strongest link.”

• Continuity is strategy’s fifth test. While managers are often berated for changing too slowly and too little, it is also possible to change too much, and in the wrong ways. Faced with the latest New Thing, managers must choose whether to embrace it or not. Continuity of strategy helps companies to make good choices about whether and how to change in the face of turbulence. Good choices will strengthen tailoring, sharpen trade-offs, and enhance fit.

2.

• A value proposition defines the kind of value a company will create for its customers. Finding a unique value proposition usually involves a new way of segmenting the market. Often, a novel value proposition expands the market. For example, until the iPad came along, customers didn’t realize they wanted tablets—but Apple effectively created a new demand.

• While the value chain focuses internally on operations, the value proposition is the element of strategy that looks outward at customers, at the demand side of the business. Strategy is fundamentally integrative, bringing the demand and supply sides together.

3.

Tailored Value Chain

The value chain is a tool that helps us to understand a company’s most important activities in creating and delivering the value proposition. It describes the source of the company’s competitive advantage.

Value chain example: TripAdvisor

TripAdvisor’s value proposition is quite different to Booking.com’s. TripAdvisor sells advertising space (and high-value leads), not rooms (bare with me one second on the latter). In a way, user-generated reviews and photos are TripAdvisor’s inventory. Thus, the users who pass on reviews and ratings are the supply chain. In return, TripAdvisor makes these reviews available to all users for free.

Trade Offs

• Trade-offs will lead to a different set of activities than others in your industry (or at least to doing the activities differently than others).
• In case of TripAdvisor, the founders had to make a lot of trade-offs along the way leaving their original ideas behind. The closest to their original ideas are online travel magazines with content from (semi-)professional contributors and curated content.

Competition

You can enhance uniqueness and amplify trade-offs when activities combine to reinforce your strategic position. Competitive Strategy is defined as the long term plan of a particular company in order to gain competitive advantage over its competitors in the industry.

4.

Fit across the value chain

• Fit looks at how the activities within the value chain relate to each other and if and how they interact and reinforce each other
• Activities can fit in different ways:
  1. Consistency: each activity is aligned with the company’s value proposition and contributes (incrementally to it)
  2. Combination: activities complement or reinforce each other to further enhance your value proposition
  3. Substitution: performing one acuity makes it possible to eliminate others