Enterprise Strategy and
Competitive Advantage
Identifying how the enterprise provides value, and
creating more profit than the competition
Much of the material in this presentation was drawn from the following source:
•
Porter, M. (1980). Competitive Strategy: Techniques for Analyzing Industries and
Corporations. New York: The Free Press.
What is strategy?

Harvard Professor Michael Porter wrote the bestselling
strategy book for the business community

Porter defines strategy as:
“a broad formula for how a business is going to compete, what its goals
should be, and what policies will be needed to carry out these goals.”1

If we look at the larger definition, however, removed from the
business application, the definition is:
“the science or art of combining and employing the means of war in
planning and directing large military movements and operations.“2

This definition provides some insight into how strategy relates
to identifying competitive advantage
1. Porter, M. (1980). Competitive Strategy: Techniques for Analyzing Industries and Corporations.
New York: The Free Press.
2. http://dictionary.reference.com/browse/strategy website, accessed 14 January 2012.
BA 553: Business Process Management
2
Historical Context

Many ancient texts have been written about military strategy

In the 20th century, some of these books were analyzed for their
application to modern business practices

Examples include Art of War by Sun Tzu (written around the 6th century
BC, and Arthashastra by Kautilya (written around the 4th century BC)

Leadership courses and workshops have been developed around the
principles in these manuscripts

One of the key underlying principles shared in these documents is the
importance of understanding yourself and your enemy (the competition):
“One who knows the enemy and knows himself will not be endangered in a hundred
engagements. One who does not know the enemy but knows himself will sometimes be
victorious, sometimes meet with defeat. One who knows neither the enemy nor himself
will invariably be defeated in every engagement.”

This understanding is the foundation for developing a strategy
Tzu, Sun and Sawyer, R. (1994). Art of War. Boulder, CO: Westview Press. pp. 135.
BA 553: Business Process Management
3
Porter’s Steps in Defining a Strategy
1. What is the company doing now?
1.1 Identify current strategy
1.2 Identify assumptions
2. What is happening in the environment?
2.1 Identify key factors for success and failure in the
industry
2.2 Identify capabilities and limitations of competitors
2.3 Identify likely government and societal changes
2.4 Identify company’s strengths and weaknesses
relative to competitors
3. What should the company do next?
3.1 Compare present strategy to environmental
situation
3.2 Identify alternative courses of action
3.3 Choose best alternative
BA 553: Business Process Management
4
Competitive Advantage

According to Porter, an organization has a competitive
advantage when it can make more profits selling its products
or services than its competitors

Profit can be seen as total revenue minus total costs

Therefore, an organization can increase its profit by either:
1. increasing revenue for the same total cost expenditure, or
2. reducing total cost expenditure while achieving the same
revenue

How can these be achieved?
BA 553: Business Process Management
5
Strategies for Competing

Cost leadership
This involves offering the product or service at the cheapest price. It can be
accomplished by relying on economies of scale, controlling the supply chain, or
increasing efficiency.
Can you think of an example?

Differentiation
This involves providing better or more desirable products and services. This
enables the organization to obtain a higher price for the item. It can be
accomplished by using more expensive materials, a unique design, or superior
craftsmanship.
What are other ways to differentiate your organization?
Can you think of an example?

Niche specialization
This involves focusing the marketing effort on specific buyers, specific market
segments, or particular geographies. It can also involve offering only a subset of
the industry’s products or services.
Can you think of an example?
BA 553: Business Process Management
6
Identifying How to Achieve the Strategy

Once the strategy and competitive advantage are identified, the next step is
to establish a plan for achieving the strategy

The first step is to understand some of the key activities in the organization
that impact the components of the strategy

Porter studied strategy and competitive advantage for many years

He developed additional tools to help organizations identify the key
activities in the organization that help to achieve the strategy, and how
these work together as part of a system

He called this a “Strategic Activity-System Map”

The Strategic Activity-System Map documents the strategic themes (in the
squares), and the activities that achieve those strategies (in the circles)

An example developed by executives at Southwest Airlines in the early
1990s is shown on the next slide
BA 553: Business Process Management
7
Strategic Activity-System Map:
Example for Southwest Airlines
Harmon, P. (2007). Business Process Change: A Guide for Business Managers and BPM and
Six Sigma Professionals. Burlington, MA: Morgan Kaufmann Publishers. pp. 46.
BA 553: Business Process Management
8