CHAPTER 4: CREATING VALUE
A distinctive value proposition (demand side of the
business).
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Which customers to serve?
Which needs to meet?
What relative price will provide value for
customers and profitability for company?
Test 1: Is your value proposition different from you
rivals?
Activity system map: chart significant activities and
their relationship to the value proposition and each
other. Densely connected = good strategy.
Keep the core, outsource the rest? Instead of asking
what are the core competencies, ask which activities are
generic and which are tailored.
Test 4: Are your activities enhanced by each other?
A tailored value chain (performing activities differently,
or performing different activities)
CHAPTER 7: CONTINUITY
Only way to tailor activities: choices in the value
proposition that limit what a company does.
Continuity at the core of the strategy enables the
company to get good at its activities, and foster
tailoring, trade-offs and fit.
Test 2: Is your value chain tailored to your value
proposition?
CHAPTER 5: TRADE-OFFS
Strategy is about making choices. Competitive
advantage depends on making choices that are different
from those of rivals. The essence of strategy is choosing
what not to do.
Trade-off: incompatible choices. If you choose one, you
cannot choose the other.
Trade-offs are choices that make strategy sustainable
because they are hard to match.
Test 3: Have you made different trade-offs than your
rivals?
CHAPTER 6: FIT
Fit: how the activities in the value chain relate to one
another. Fit amplifies the competitive advantage of a
strategy (by lowering costs and raising customer value
and price).
Fit means that the value or cost of one activity is
affected by the way other activities are performed.
Continuity helps suppliers, channels and other outside
parties to contribute to company’s competitive
advantage.
Continuity of strategy does not mean that an
organization should stand still. Paradoxically, continuity
of strategy actually improves an organization’s ability to
adapt to changes and to innovate.
Strategies are not built on a detailed prediction of the
future.
When strategy needs to change:
1. Customer needs change (value proposition
becomes obsolete)
2. Innovation invalidating essential trade-offs
strategy relies on
3. Technological/managerial breakthrough
The deliberate and explicit setting of strategy is more
important than ever during periods of change and
uncertainty.
Test 5: Is there enough stability in the core of the
strategy to allow the organization to get good at what
it does?
Fit locks out imitators by creating a chain that is as
strong as its strongest link.
Epilogue
Three types of fit:
1. Basic consistency (whole more than sum of its
parts)
2. Real synergy (complementary/reinforcing
activities)
3. Substitution (performing one activity enable to
eliminate another)
Core competences: critical resources, core capabilities,
key success factors.
Common mistake in strategy: choosing the same core
competences as everyone else in the industry.
Practical implications:
1. Trying to be the best is intuitive, but selfdestructive.
2. Competition is about profit, not market share.
Size and growth are pointless if profitless.
3. Competitive advantage is about creating unique
value for customers, not beating rivals. If you
have competitive advantage, it will show up in
your P&L.
4. Distinctive value proposition is essential for
strategy. But if it doesn’t require a specifically
tailored value chain to deliver, it has no strategic
relevance.
5. Sign of a good strategy is that it deliberately
makes some customers unhappy. (making
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choices on what not to do, trade-offs in order to
specialize)
Strategy needs to specify what the company will
not do. Making trade-offs makes competitive
advantage possible and sustainable.
Good execution is important. It is unlikely the
source of sustainable advantage, but without it
any strategy will fail.
Good strategy depends on many choices and
the connections between them. A core
competence alone will rarely sustain a
competitive advantage.
Continuity is important. Flexibility in times of
uncertainty sounds good, but it means the
company will never become good at anything.
Too much change is just as bad as too little.
Do not need to predict the future to commit to
a strategy. Making commitments actually
improves ability to innovate and adapt.
FAQs
Common mistakes:
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Competing to be the best
Confusing marketing with strategy
Overestimating strengths
Wrong definition of business or geographic
scope
Thinking they have a strategy when they really
don’t
Strategic planning becoming a time-consuming
ritual that doesn’t support strategic thinking
Capital markets, focus on shareholder value is
bad for strategy and value creation
Pressure to grow is bad for strategy
Advice:
Concentrate on deepening and extending strategic
position, rather than broadening