Speaker 1 (00:14):

Well, thank you for holding and Buck, I don't see buck, but thank you Buck for inviting me. I wish I could
be there. I love it at UNC and I've been, I've been there many times and I'm sorry, I can't be there
because of my other duties here, but it's a real privilege to get a chance to participate in this course. It's
a very innovative course and we're very impressed here with what you're doing. We wish we had one
here at Harvard. So what I'd like to do in about you know, 45 minutes or so is see if I can give all of you
sort of a way of thinking about strategy. A strategy is a word that gets used a lot. It gets used almost you
know, indiscriminately to describe a lot of different things.
But I think at the core, we all sort of have the gestalt of strategy. Strategy is kind of the big picture of
how the organization is going to win in its environment, whatever that is. And but yet, you know, what
that really means and how to think about it is actually still an issue that I find a lot of management
teams of major companies struggle with. And so my hope is that in a very short amount of time, we can
talk about kind of some of the essential ideas of strategy. I'll be talking a lot mostly about the kind of for-
profit world, but these ideas are equally applicable to any organization, any NGO, any nonprofit that's
actually serving a customer in any way. And I do have a few slides at the end, which I may or may not
have time to cover, which actually give you the bridge between for-profit and non-profit.
So I'd like to suggest that this way of thinking is ultimately going to have a profound impact on the
success of any organization. It's not the only thing that matters as we'll see you know, a good strategy
poorly executed is not going to succeed. But, but ultimately what we learn over and over again is just
good execution, rarely allows you to be truly superior and truly you know, change the world in whatever
you're trying to do. You actually need to have a great strategic sense of how your organization is going
to compete. And so we'll, let's talk about that today. The slides here that I'll show, of course, we'll make
it available to you. And we'll also leave time for some Q and A at the end.

Speaker 1 (02:55):
And I understand that Buck has some questions for that. He's going to ask you to respond to later on. So
I guess that's at least some modest incentive to pay attention even more than you ordinarily. What so
let's, let's talk about strategy. Let's talk about what we mean by a strategy. Let's talk about kind of the
key ideas and strategy. And, I think the starting point for that is really to step quite far back and ask, you
know, what is the fundamental sort of strategic challenge of any organization and here what I find is
that many, many managers and leaders in organizations really start the whole process of thinking about
strategy on the wrong foot. I most, most organizations, I think when they try to understand what am I
trying to do in my industry, in my marketplace, they think that their job is really to be the best
organization in their industry, the best car company, the best retail bank, the best maker of toothpaste.
And to be the best, we have to come up with the best product and the best service and the best supply
chain and the best customer support model.
And if we can figure out in our organization how to be the best, how to get it right in terms of all those
key dimensions, we will ultimately win. That's the kind of thinking process that most organizations
follow is still to this day at least in my experience. And I'm very privileged, I get to work on strategy with,
you know, hundreds of organizations in every possible field over the course of a year or two of my work.
Now when we come to understand, I think that is a very dangerous way of thinking about competition
and it's a very dangerous way of thinking about strategy. Indeed, there is no best company in any
industry that whole idea is, you know, kind of flawed from the very start, you know, what's the best car
or the best car company.

Speaker 1 (04:56):
Well, it really all depends doesn't it? It really depends on what needs that company is trying to serve.
The best car to serve a middle-income person is not the best car to serve somebody living in an urban
area with no parking space and that's not the best car to serve, other needs you know, what's the best
retail bank. Well, it all depends on who the customer is and what the customer's needs are. There are
lots of different customers in virtually every business. And what we find is that it's impossible to be the
best at serving every need of every customer. That is a fundamentally flawed way of thinking about
what the job is of any organizations. Instead in thinking about strategy, really the starting point is not
being the best. The starting point is thinking about how we can be unique, how an organization actually,
can you create unique value for the customers it's seeking to serve?
That is the essential starting point for thinking about strategy. If you're actually delivering unique value
to the customer you choose to serve, you will truly be able to win. Whereas if you're trying to be the
best at sort of competing in the industry, what that tends to lead to is kind of a zero-sum competition, a
competition where companies actually ultimately start to do the same thing and ultimately are not able
to succeed in the long run. So the fundamental question of strategy is really not about being the best,
but it's about being unique. Now, you know, to take it one step further, what strategy versus the other
agendas of management? Well, a strategy is different than the goals, it's different than the aspirations. I,
but you'd be surprised how many management teams don't understand this.

Speaker 1 (06:55):
You know, I hear a lot of managers say my strategy is to be the number one company in my industry. My
strategy is to be to grow faster than the market. Is that really a strategy? We'll know that's actually a
goal, that's actually an aspiration. It may be a good goal, It may be a very exciting goal, but the strategy
is not the goal. The strategy is how you're going to position yourself in the organization ultimately to
hopefully achieve your goal. How do you get to be number one? How do you get to be number one or
two or whatever, however you describe your goals. How do you actually get there? What's unique about
you? What gives you an advantage? Why would you be number one? Why would you be number two in
your industry? That's the strategy part? So we've got to clearly separate the strategy from the goal.
We've also got us clearly separate the strategy from any particular action that you want to take or think
you should take. So for example, you know, I hear a lot of managers say, well, my strategy is to
internationalize my business. Well, you know, is that a strategy? Well, not really that's an action step.
That's an action you need to take possibly to be successful, but it doesn't actually say what’re your
unique advantages. It doesn't really describe why you're going to win. It's just something you need to do
as part of your journey to building out your organization strategies different from any individual action
strategy is the position you seek to occupy in the marketplace and the advantage on which you will
compete. And there's going to then be many action steps that have to be taken to get you there.

Speaker 1 (08:38):
But those action steps are not the strategy. The strategy is core understanding of your distinctive
position. And finally, a strategy is different than mission or vision. You know, a lot of organizations have
mission statements, vision statements, describing their purpose as an organization, describing their
aspirations for serving their customer and so forth. But the mission and vision are not strategy either
mission tends to be motivational. It tends to be very broad. It tends to be very inspirational and those
things are good in motivating an organization creating a sense of purpose. But again, that's not strategy,
strategy is very concrete. It's very specific, It's really about the choices you make, about how you're
going to distinguish yourself and deliver that unique value to the customer. And the clearer we are
about where strategy fits in the overall architecture of the things managers need to do, the clear it will
be about actually setting strategy.

Speaker 1 (09:39):
Well, so let's talk about how we would think about creating a really successful strategy. Well, the first
thing we have to understand is that the kind of core of all strategy is strategy at the level of an event,
individual business you know, some people call that “business strategy”. Now there are many
companies like general electric that compete in many different businesses, you know, general electric
makes locomotives for railroads and they make wind turbines, right and they make aircraft engines. And,
there is an issue of strategy for a diversified group. We call that corporate level strategy but business
strategy is really the core of all strategy because it's in the individual industry and the individual
marketplace where the dominant determinants of whether a company win or lose actually occur.

Speaker 1 (10:34):
So I'm going to be talking today almost totally about business strategy, how to compete in a particular
business with the understanding that some companies are in multiple businesses, they need a clear
strategy for each of those businesses. But at the business level, we understand from you know, all the
work in this field that performance at the business level is really a function of two things. One is the
business itself because businesses actually differ in their inherent attractiveness for point of view of
profitability. And that's what we call industry structure. Every company competes in an industry that
industry has a structure, and that structure can make it harder or easier for the average company to be
profitable and to improve that profitability over time. That's one part of kind of strategic thinking.

Speaker 1 (11:28):
The second part of strategic thinking is the positioning of the company within the unit industry, how that
company kind of differs from its rivals. Think there about, you know, general motors, versus Ford, versus
a Toyota versus a BMW, and superior performance in terms of excellent profitability and growth is by
both of these things. It's affected by the inherent attractiveness of the industry. It's also affected by the
quality of the position that the company is able to occupy. And we need to be careful to pull these
things apart. We've got to understand what's driving success. Is it the industry issues that are really
driving our profitability? Is it the positioning issues, or is it some combination of the two? We have to be
able to kind of parse our understanding of the problem of competition and the problem with strategy
into those two very different buckets.

Speaker 1 (12:27):
You know, you could be having a great position. It allows the industry. You can have a mediocre position
in a terrific industry. You've kinda got to understand where that performance is ultimately coming from.
So good strategic analysis includes industry analysis, and it also includes positioning analysis and
positioning thinking now on the industry side you know, what we understand now is that when we look
at an industry, the really way to look at an industry is to look at its fundamental structure. There are lots
of things that are different about industries. The products are different. The manufacturing is different.
The technology in different industries vary dramatically, and every industry is different, but every
industry has a set of fundamental structural characteristics that we have to look at. And they're
illustrated on this slide. This is the so-called five forces that some of you may have heard about.
(13:11)

Speaker 1 (13:24):
And the five forces model says that what really drives profitability is these five things about an industry,
the ultimate power of the customer to push down the price and drive down the profitability, the power
of the suppliers of inputs, components, machines, services, to raise their price and drive down the
profitability industry. Whether there are substitute products or services around you know, whether
there's plastic is going to affect the profitability of aluminum that's a substitute the barriers to entry,
how hard it is for new companies to actually get into that business. If it's easy, profits are going to be
low, if it's really hard to get in the industry that supports higher returns. And then finally the nature of
the rivalry among the companies that are already in the industry, if rivalry is fierce and it's based on
price, profitability is going to be low. If rivalry is perhaps based on features or service or image or brand,
then that tends to support higher levels of profitability. So in for any industry to understand the average
level of profitability in the industry we have to really understand these fundamental structural forces
and industries like airlines that have horrendous profitability and have for decades have horrendous
profitability because they have an unattractive industry structure, you know, too easy

Speaker 2 (14:52):
For customers to switch too much

Speaker 1 (14:54):
Customer power, too much power of the airframe and engine manufacturers, too many alternatives to
the air airplane, and too much rivalry because the costs are fixed really make airlines, a very unattractive
industry. Very few airlines make money, and they don't make it for very long. It's a very unattractive
industry, but for example, business software is a very, very attractive industry because the customer
often gets locked in the cost of switching from one kind of software to another is almost impossible. In
many cases, certainly on the business side you know the nature of the rivalry is much more attractive.
There are no substitute products. The barriers to entry are very high because you have to spend, you
know, tens of hundreds of billions, of dollars to develop the software upfront in order to play in the
game. So, software is very profitable.

Mmle làm từ 15:44

Speaker 1 (15:44):
The average profitability is much higher in software than in airlines, and that's not an accident. That's
not cyclical. That's not a random that has to do with the underlying industry structure. And so B doing
good industry analysis is then critical to anybody developing a strategy to any of you thinking about
getting into a new business or starting a new venture. You've got to understand the fundamental
industry structure in which you want to play and how it might evolve over time. So that then becomes
one critical part of strategic analysis and strategic thinking. But today I'd like to focus more on the
second part, which is the positioning. So suppose you're gonna compete in the airline industry or
suppose you're going to compete in business software. We know that the average is going to be
different in terms of profitability, but how can you be above average in whatever industry you're
competing in. And more importantly, how can you avoid being below average in terms of the
profitability, how do you achieve superiority in performance? That is the fundamental positioning
question. And to understand positioning, we have to start at really the broad level, and that is to
understand why would a company be more profitable than its competitors. And the answer to that is
there's really only two ways you can be more profitable than your competitor.
One is you can be able to command a higher Price because You offer something that the customer is
willing to pay More for. And that's what we call differentiation. And the second reason you might be
more profitable is because you can produce an equivalent product or service at a lower inherent Cost.
And so, at the same price, You will be more profitable or even at a discounted price. You're so efficient
that you can be more profitable. All superior performance comes from either getting a higher relative
price or achieving a lower relative cost because of the choices you've made about how to compete
about how to configure your organization. Okay. So, and you know, at the starting point of any strategic
discussion is, okay, what are we trying to do here? Are we trying to be the differentiator? Are we trying
to be lower cost? Are we trying to do this? For many customers, are we really trying to focus on a
narrow segment of the market and be differentiated for that segment? What is our fundamental
overarching route to competitive advantage to superior profitability? That is really the first broad step in
strategic thinking.
(18:30)

Now, in order to take that further, we need now the concept of the value chain, the value chain says it in
any business in order to compete What it means is we have to perform a whole set of what we like to
call activities. Activities are things that a company does to actually create the product design, the
product, make the product, provide service, provide support after sale market, the product, the value
chain is really a framework for seeing the firm as a set of activities. And the headings in this value chain,
sort of, these are a generic set of headings. These are headings that are sort of general, they apply to
any business, but of course every business is different. So here you see a value chain for building houses.
And now once we focus on home building, we can take the value chain idea and we can then spin,
specify it to that particular business. So, you know, in developing and building houses, we have to
acquire the land somehow.
And then we have to actually make the house, build a house, and then we have to find customers and
then we have to close the transaction. And then we have to provide support over time after the sale of
the home. And the top part of the value chain is the supporting activities that allow us to conduct the,
what we call the primary activities along the bottom. Like you know, we got to do the procurement, we
got to purchase inputs all along the value chain. We've got to bring it, we have hire people, retain them,
train them. So again, this is all a hopefully intuitive to you just looking at this chart. And the basic idea is
that all competitive advantage and all great higher price and all lower costs comes from choices. The
company has made about how to configure the value chain about how to do these things in the value
chain. So, if you have lower costs, it's because there's a number of things in the value chain where you
figured out how to do it more efficiently. And if you have a higher price, that's because there's certain
things you've decided done in the value chain that allow you to deliver that greater value that allows
that customer to say, I'll pay a premium for that. And that could be in the design that could be in the
service that could be in the branding that could be in a lot of different places, but the value chain allows
us to get now really specific about where the competitive advantage comes from. And that's why it's so
important. You know, the old ideas about strategy, where, you know, you looked at your strengths and
your weaknesses and your opportunities and your threats. And that was a very broad, you know, quite a
powerful way of thinking about, you know, how to think about how you were going to compete, but the
value chain says, no, we got to get much deeper than that. We got to really look at great detail at how
we actually go to market, how we actually make the choices about how we're going to compete in the
organization. That's where all competitive advantage comes from. This then becomes a critical tool in
thinking about positioning.

(21:21):

Now, then we make a very fundamental distinction, and this is something that, you know, all, you know,
great leaders understand, and that is as we pursue competitive advantage, there's really two ways of
doing that. One is to be more operationally effective and think of operational effectiveness as do the
same thing better you know and think of operational effectiveness in terms of best practices. You know,
there are best practices out there they're being invented all the time. Operational effectiveness is just
assimilating all the best practices, being up to date, having the most modern machines, having good up-
to-date software, you know, understanding the latest thinking and how to motivate a Salesforce you
know, using the internet, to reach your customer. Those are all best practices and part of success. And
part of the advantage is operational effectiveness continually raising the bar on operational
effectiveness.
Indeed, this is about, you know, 90% of the job of any leader is operational improvement. You know,
figuring out new ways of doing things better and, you know, making those happen within the
organization that is critical to success. If you're not operationally effective strategy, doesn't matter. Let
me say that again, if you're not operationally effective strategy, doesn't matter because you're going to
give up too much cost and quality in the process of not being operationally effective. And you may have
a great strategic positioning, but it's not going to matter because your competitors are going to eat your
lunch. But the theory says that operational effectiveness, although a necessity is not sufficient actually
to achieve superior performance and particularly not for long, because if it's a best practice for you, it's
going to be a best practice for your competitor and slowly but surely your competitors are going to
figure this stuff out. And if all you're doing is implementing the same best practices, it's very hard to be
distinctive and unique and offer something different.
Instead, if all you're doing is implementing the same best practices, we have something that I like to call
strategic convergence. Everybody starts looking the same and all The companies look the same and are
offering pretty much the same products with pretty much the same features with pretty much the same
services. Then what happens is competition has to gravitate to price and price starts going down. You
know, the worst mistake in strategy is to get into a competition on the same thing. If your competitors
competing on after sales support, the last thing you want to do is compete on after sale support. You
want to find another way of competing to deliver unique value to the care about that. And if all you're
doing is thinking about the world in terms of best practices and operational improvement you fall into
that trap of, you know, you get better, but you don't, you're not profitable. You're not actually winning.
You're rushing to state, you're rushing to stay in the game.
And very few sustainable competitive advantages come from operational effectiveness. Most of them
come actually from strategic positioning, that's different strategic positioning kind of presumes that
you're operational effective, but street positioning is all about making choices, choices. Operational
effectiveness is just about executing best practice. There's no choice there. A strategy is about making
choices about how you're going to be different, not doing the same thing better, but choosing to be
different in order to meet a different need of a set of customers that you've chosen to serve, then your
rivals that's the fundamental distinction rate, operational effectiveness and strategic positioning, both
are critically important. But what we found is that it's the strategic positioning part that often gets
overlooked or, or, or, or, or, or under, under focused on and companies just find themselves caught in a
game that they can't win because they're just implementing the same best practices that everybody else
is, is implementing.
And they're just copying what they see other people doing rather than actually making choices about
how to be different, how to be unique. Okay. Now, in order to then develop a robust strategic
positioning, we now, I think understand that there's some basic attributes of a successful strategy. And
so let me very quickly kind of cover those attributes. And then we'll talk a little bit about, you know, how
to get there and then a little bit about how this can be kind of imported into the world of non-profits
first attribute of a winning strategy is the organization must have a unique value proposition. You've got
to offer something different to the customers you're choosing to serve than your competitors. That's
kind of step number one. If you're trying to be better at producing the same product with the same
manufacturing, with the same service, to the same customers at the same price, you don't have a
strategy, you know, you're competing on operational effectiveness.

(26:41):

Now what's the value proposition. The value proposition is the answer to three basic questions. One
what set of customers are you choosing to serve? That's a critical question that every strategy has to
answer. Now you know, the typical default answer is, well, let's serve everybody, you know, anybody
who wants it, you know, can come well, that's not strategy. That's the slippery slope to mediocrity
strategist has to understand what customers you actually want to serve. And then the next question is
what needs of those customers, are we particularly going to try that and meet uniquely well, that's the
second question. And then at what price are we going to ask for a premium, are we going to offer a
parody? Are we going to make an offer a discount?

(27:35):
Because we found a way to be really efficient in meeting the needs of who we want to serve. Those are
the three questions that constitute a value, the proposition, and the key principle of strategy is your
answers have to be different. Then the competitors, you know, if you're serving the same customers and
meeting the same needs at the same price, you don't have a strategy you're just competing on who can
do the same thing better. That's operational effectiveness. That's a hard game to win. Particularly if your
competitors are not idiots, you know, if they're not brain dead, you know, it's a hard game to win. But,
strategy says, you know, we don't compete head-to-head. We compete to be unique.

(28:21):
Now let's take an example of that. This is a company that I know very well.
Cái dưới lấy trên trang khác nhma nộ i dung cơ bản vẫn thế nhé, đỡ mờ hơn cái trên.

He came up and you all probably know it well, because many of you sitting in that room are part of their
target customers. You know, what's their value proposition. Well, they don't look like Ethan Allen data.
They don't look like a lot of the other furniture stores, and the starting point is really who they're trying
to serve. And you see on the slide yeah, you know, they're trying to serve people who really appreciate
design, who appreciate, you know, products that are good quality and decent materials. But they' re,
they want their serving customers actually want to get that at a very low price with a very low price
point. And in order to do that, they're going to actually meet quite a large set of the needs of those
target customers.
They have a wide line of furniture and accessories for, you know, every room in the house. They have
collections. So, they're gonna try to meet a lot of needs of those particular, a group of customers. And
we'll kind of get a little bit into that later on. So basically, IKEA as is, has made a choice about who we
are trying to serve. And, and that is the starting point for strategy and how we are going to define value
for those customers in our own unique way. Okay. and, you know, I know this company very, very well
because my daughter, my oldest daughter lives went to university of Pennsylvania. And in virtually every
time that I went down to Philadelphia, which was once every six weeks or so, you know, she would often
call ahead and say, dad, could you rent an SUV when you come down, you know, and, and I would say,
well, of course but you know, why do you want that?
And she'd say, well, you know, I want to go to a camp. I want to go right here. And so, we would, you
know, so I got to know, I got to know this organization very well, and it was clear that that all often great
strategies don't involve sort of traditional segmentation schemes of the industry. You know, I can't
customers, they're not old or young, although they're a little bit skewed too young, but they're quiet,
they're not, they're not rich or poor. They tend not to be super rich, but they have a wide variety of
incomes, but there are people who are unified in a certain set of needs compact space, efficient
furnishings, you know, style and design. But, but at, at a, at a very low price. And you know, that's the
starting point for strategy, you know, who do you really want to serve and what set of their needs are
we going to actually try to meet with our strategy now that leads then to the second attribute of a
successful strategy.

(31:12):

And that is, you've got to have a different value chain. You can't be conducting the business in the same
way. You know, if you have the same product development, the same manufacturing, the same supply
chain, the same customer support, the same kind of marketing. You don't have a strategy. You can have
the greatest slogan in the world about your value proposition, but unless the value chain allows you to
be uniquely good at delivering that value proposition, then the strategy is kind of all hot air. So if, if we
go back to Ikea, we see the, all the choices they've made in the value chain and, and the key, you know
thing that they figured out was the, the whole modular concept that is that if you designed furniture so
that it was easy to assemble and disassemble, you could, you could ship both inbound logistics, but also
get to the customer.
You could, you could actually move the customer, the product around in a box of the pieces of the
furniture rather than have to ship couches and, you know, and bedroom sets around, which are bulky
and expensive to ship. And it's that modular concept. That was one of the key choices they made about
how they were going to configure their value chain, but there was a whole lot of other choices. You
know, I can't have these huge stores. Everything that I can't have is in the store. There’re no choices,
there's no options. There's no customization. Basically, it's there. It's in the store, it's sitting there, you
can look at it. There's virtually very low in store service. I mean, if you go to Ikea and there's somebody
that has an Ikea, you know, shirt on that says, I can't, and you look in their direction, they usually turn
around and run in the other direction.
Mmle lam toi day nhe

Speaker 1 (32:56):
They don't want to help you. That's, that's not their strategy. They, they, they they're, their products are
well-described on the internet. They're, well-described in the store in terms of the basic facts and
figures. There's no customization. They don't want to spend the money to have an in-store person, you
know talking to you and coaching you. That's, that's not part of their strategy, their customer, their
value proposition. That, isn't what it's all about. You can see the other choices you, you and I can't, you
can't buy a piece of furniture. All you can buy as a box, and then you, and then, you know, dad has to
back his SUV up and you have to put the box in, and then daughter and dad get the, you know, schlep
the box up the stairs, you know, into her dorm room. And then we get to have a pre-Christmas
experience, you know, putting together the furniture in, in the parts. And that's, that's their, that's their
value chain. That's the choices they made. And that's very appealing to my daughter-in-law Anna,
because she gets the terrific

Speaker 2 (33:58):
Stuff. That's cool

Speaker 1 (34:01):
And appeals to her design sensibilities. But she gets it at a really low price point. And she's willing to do
all that stuff. I mean, she doesn't need to have a salesperson. She doesn't need to have somebody show
up with a moving van, you know, to put the, put the furniture in her, in her dorm room or her
apartment. The value chain is aligned with the value proposition. And that then becomes the second
part of a really great strategy.
The third part is the concept of trade-offs all great strategies involve making trade offs. The trade off is
where to do one thing really well. You deliberately choose not to do other things. And I like to say that
the real test of a strategy is whether you've chosen not to do things

Speaker 2 (34:45):
Is not,

Speaker 1 (34:45):
Not what you've chosen to do, but also, but also what you've chosen not to do, you know, what needs
do you not serve? What customers will you not try to please? That is essential to all great strategies. I K
as a great example, I can tell you right now with no disrespect to the company, I hate, I can't, I don't like
it every minute. I'm there I'm unhappy and uncomfortable. I would never shop there. I would never buy
that product. I'm not interested in putting together the furniture. I'm not interested in taking my SUV
and getting it. I'm not in any of that. My daughter loves it.

Speaker 2 (35:21):
I hate it. And

Speaker 1 (35:23):
Very interesting things about strategy. And if you can remember, you know, one or two things from this
talk, remember this part of strategy is the willingness to make

Speaker 2 (35:32):
Customers on happy. If you're going to have a successful strategy,

Speaker 1 (35:38):
You can't try and make everybody happy. You've got to make some customers insanely happy, but other
customers, you just have to be cool with the idea that you're not meeting their needs. You know, and
you're not serving whatever needs they have have. So, you know, if I filled out customer comment card
after, and I can visit, you know, I would give them, you know, bottom ratings for everything, but I can
use to look at my customer comment card and say up, we don't care. That's not our, that's not who
we're trying to serve, but in a world where we have all these slogans, like you need to please your
customer and delight your customer companies get totally wrapped around the axle here. They think
that their job is to make everybody happy. And if somebody gives them a complaint, they should be very
attentive to that.

Speaker 1 (36:24):
Well, most of the complaints you get are for people that you're not trying to serve, and they've
stumbled into your store and you, and you have to for those, but if one of your target customers gives
you some negative feedback, boy, we rivet our attention on that. So you can see the nuance of strategy
and you can see how subtle it is and how you can get you know, really confused about what the strategy
thing is all about. Trade offs become critical, pleasing. Every customer is a disaster. You know, trying to
have it all and offer every service and meet every need is, is, is doomed to failure. A strategy is
fundamentally about trade-offs.

And, and this slide just, you know, catalog some of the trade offs that, that, that you're well aware of. I
mean, if you want, if you want special custom varieties, then, you know, I can't just says, well, I
understand that, but we don't do that.

Speaker 2 (37:20):
We don't do that.

Speaker 1 (37:22):
And and essentially it's the, what we don't do stuff that really helps lift Ikea to the level of extraordinary
performance, never, ever imitated because it's very hard to copy Ikea. If you're another company
without ultimately eroding whatever advantages you've had in your organization. And ultimately their
advantage has been very, very sustainable. Lots of strategies have sustainable advantages. There's some
people in, in, in, in the field of management, thinking that believe that no advantage can be sustained
and that's complete and utter BS,

Speaker 2 (38:03):
Most

Speaker 1 (38:03):
Great companies sustain their advantages for decades. And everybody's known I can a strategy now for
30 years, all you have to do is walk into the store. You can see exactly what their strategy is. Nobody's
been able to imitate them same with Apple, the same with countless other companies. And that's
because strategy is essentially about making choices, making trade-offs. And as we'll see later, tying
those choices together into a a a coherent

Speaker 2 (38:30):
Whole you

Speaker 1 (38:32):
Know, fourth characteristic of a great strategy is fit.

Speaker 2 (38:36):
It's

Speaker 1 (38:36):
Connecting the activities in the value chain.
 It, it's making the way you do one activity leverage the way you do another activity. And this is what we
call a, an activity system. This is the Ikea case, and this starts to help to see how the activities that are
mutually reinforcing and how, the way they do design affects the way they do production and the way
they do production affects the way they do logistics and the way they do logistics, the way they run their
stores and the way they run their stores affects the way they do design. And it all, it's all mutually
reinforcing. So to copy Ikea, you, can't just, it,

Speaker 2 (39:12):
Maybe a feature, you have to copy everything because

Speaker 1 (39:17):
It's really the whole that produces the advantage. It's not the individual choices

Speaker 2 (39:22):
They reinforce.

Speaker 1 (39:24):
And again, this is another reason why really good strategies are almost impossible to imitate. You don't
just have to imitate one thing. You have to imitate everything in the company. You're imitating has been
doing it for a long time and, and, and you have it, you know, so it's really, really hard for a coherent, well
thought out strategy to be imitated. It's easy to copy a product feature. So if that's what you think your
strategy is, I have this better feature. Well, that's not gonna work.

Speaker 2 (39:50):
That's not gonna work. And

Speaker 1 (39:52):

The final attribute of a, of a sound strategy is continuity. You know, in this, in this world of change you
know, we tend to get caught in the trap that we need to be changing the company all the time. And that
is true in only one sense. And that is, we've got to be continuously improving operational effectiveness.
We've got to continually find better ways of doing things, and we have to continually find better ways,

Speaker 2 (40:16):
Ways of implementing our strategy. Yeah.

Speaker 1 (40:20):
And, and, and, and delivering that value proposition better and making those trade offs more clear and
sharp. So change is continuous, but not
Speaker 2 (40:29):
Change in strategy, not changing the basic value proposition, because if you, if

Speaker 1 (40:36):
She started flopping around on your basic value proposition, there is no way that you'll

Speaker 2 (40:41):
Ever be successful because firstly,

Speaker 1 (40:44):
Well, you won't be good at it. You know, if you're trying to get your organization to deliver low cost one
year and then be differentiated in the next year, you'll never get good at it. People will just, their heads
will spin your, your employees won't know what to do. Your customer won't understand who you are
and what you're trying to offer. You know, your suppliers won't know how to support you. So strategy
requires continuity. And that means that all strategy is essentially a bet because you got to stick with it
for, you know, two, three, four years to make, to see for it, to have the opportunity to be really
successful. And and, and a lot of people get caught in this trap of agility, you know, and flexibility. Well,
don't get caught, you know, because just by being agile, you know, that might make you less bad, but
you're not going to be uniquely good unless you're willing to make a commitment to a direction.

Speaker 1 (41:36):
And hopefully you make a commitment to an enduring value proposition where some technological
trend doesn't invalidate it, you know, in a year. But though, but that's the price of a great strategy is, is
continuity and sticking with it and getting your organization to understand it better. And having
everybody in the organization able to actually describe, you know, who are we, what's, what's different
about us really all the way down to the Salesforce and the service department and all the, all the,
particularly the customer facing, but even the people that are hidden from the customer, you know,
what kind of products should we be developing in our product and moment organization? Well, in order
to answer that question, we got to understand the strategy, you know, who are we, how are we trying
to be unique? And, and, and what we find is that these five areas, if we can get these things,

Speaker 2 (42:26):
Things, you know, right, then there's a good chance that we can,

Speaker 1 (42:30):
You can actually be superior. And the, we can actually sustain that over time. You know, at some level
back to the earlier slides what we don't, what we're trying to do with strategy is avoid a zero-sum
competition where we're all trying to meet the same needs. And if I win, that means that somebody else
lost what we want to do instead is really create a positive sum competition. Where are we, where are
we where companies meet different groups of needs, hopefully uniquely well. And that actually allows
multiple organizations to be successful. It also tends to expand the market because we can serve more
needs and we can serve more needs better. And that means that more people get to be served. And
there's this kind of simple minded view of competition, which I that we, we study in, you know,
economics one Oh one, which is that all companies are the same and the offer the same products and
services, and there's kind of homogeneous. And the only way to end is, you know, to be the lowest cost
producer. And, and that's, that's fine in, in, you know, like one industry out of a thousand, you know, if
you, if you're, but, but even in a commodity industry, it doesn't work that way. You know, you could be a
coal company producing coal, but it turns out that, you know, you don't have to differentiate yourself
just on the coal, it's also your logistical system and your delivery. And, you know, there's lots of ways to
distinguish yourself when you see the organization.