#47 Continuity, Understanding Michael Porter
This is the seventh 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, the fifth on trade-offs, and the sixth on fit
Popular advice to business leaders is about how to deal with the accelerating pace of change, how to overcome resistance to change, and how to lead large scale change efforts. If companies take this advice (“constant reinvention”, “radical transformation”) seriously it can cause them to initiate big changes and in the wrong ways. In this chapter, Porter highlights the advantages of continuity of strategy and when a company should change it's strategy.
Strategy is implicitly a bet that the chosen customers and needs - and the essential trade-offs for meeting them at the right price will be enduring. When starting a company it is enough if you have a broad sense of which customers and needs are going to be relatively robust five or ten years from now. Strategies emerge and evolve over time. Good strategy strikes the right balance between designing a strategy analytically and experimenting until one emerges.
Why is continuity essential?
Continuity of strategy is necessary for a organization to develop competitive advantage. Some of the key benefits of continuity
Continuity reinforces a company's identity - it builds a company's brand, its reputation, and its customer relationships
Continuity helps suppliers, channels, and other outside parties to contribute to a company's competitive advantage
Continuity fosters improvements in individual activities and fit across activities; it allows an organization to build unique capabilities and skills tailored to its strategy
Continuity increases the odds that people throughout the organization will understand the company's strategy and how they can contribute to it
Continuity of strategy improves an organization's ability to adapt to changes and innovate. If you don't have a strategy, then anything and everything could be important. A strategy helps you to decide what's important because you know who you are trying to serve, what needs you are trying to meet and how your value chain is distinctively configured to do so at the right price
Continuity of strategy does not mean that an organization should stand still. As long as there is stability in the core value proposition, there can, and should, be enormous innovation in how it's delivered.
When does strategy need to change?
Strategy needs to change if the following conditions are met:
If customer needs change and obsoletes a company's core value proposition
An innovation that invalidates the essential trade-offs on which a strategy relies
A technological or managerial breakthrough that completely trumps a company's existing value proposition
What kinds of change should a company make to maintain it's competitive strategy?
Strategy is a path, not a fixed point. An effective strategy is dynamic. A company must make the following changes to maintain it's competitive strategy:
Must stay on the frontier of operational effectiveness. You must continuously assimilate best practices that do not conflict with your strategy or the trade-offs essential to it
Adopt ways to extend your value proposition or better ways to deliver it