#46 Fit, Understanding Michael Porter
This is the sixth post in the series that summarizes the book Understanding Michael Porter. Read the first post on common misconceptions about competition here, the second on five forces, the third on competitive advantage, the fourth on creating value, and the fifth on trade-offs
Fit has to do with how the activities in the value chain relate to one another. Fit means that the value or cost of one activity is affected by the way other activities are performed. Fit is based on the idea that good strategies depend on the connection among many things, on making interdependent choices.
If trade-offs make it hard for rivals to copy a successful strategy, fit makes it even harder. In order to get the benefits of imitation. A company will have to copy a whole bunch of interdependent activities. Replicating a whole system of activities is challenging as it requires the integration of decisions and actions groups, departments, and functions.
Fit can be seen as the third barrier or deterrent to imitation of strategy. The list of barriers:
Tailored value chain
Trade-offs
Fit
Three kinds of fit:
Basic consistency: Where each activity is aligned with the company's value proposition and each contributes incrementally to its dominant themes
Reinforcement: When activities complement or reinforce each other
Substitution: When performing one activity makes it possible to eliminate another
Activity system map - a tool to chart a company's significant activities, their relationship to the value proposition, and to each other
Identify the core elements of the value proposition
Identify the most salient activities performed in the business, those most responsible for creating customer value or those that generate significant cost
List unique activity choices at each step
Draw lines wherever there is fit - where an activity contributes to the value proposition and where two activities affect each other
An activity map can help you identify ways to strengthen fit and how to make a strategy more sustainable
A popular misconception is that competitive success can be explained by one core competence, the one thing you do really well. Success is identified as coming from critical resources, core capabilities, or key success factors. This point of view assumes that competitive advantage comes from a small number of actors, be they intangible skills or hard assets. This thinking leads companies to choose the same core competence as everyone else in the industry. Fit means that the whole matters more then any individual part, that many things together create value, not just a few things in isolation.
This misconception leads companies to keep the core and outsource the rest. Instead a better way to think about outsourcing is to identify which activities are generic and which are tailored. Generic activities that cannot be meaningfully tailored to a company's position can be outsourced. The fewer elements that remain in the company's value chain, the fewer the opportunities to extend tailoring, trade-offs, and fit.