What is strategy?

Positioning

Strategy is the creation of a unique and valuable position

◦ Serving few needs of many customers
CSP001: SECTION B
◦ Serving broad needs of many customers
SESSION 1

◦ Serving broad need of many customers in a narrow market

The essence of Strategy is choosing what not to do

Strategy is creating a fit among a company’s activities

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Positioning
What a company must do

Deliver greater value to customers

◦ (higher average unit price)

Create comparable value at a lower cost

◦ (lower average unit cost)

Performing different activities than rivals

Operational effectiveness
Is it enough?

Performing similar activities better than rivals

Operational effectiveness necessary but not sufficient
◦ Can be replicated
◦ Over capacity
◦ Reduced capability for innovation

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 Strategic positioning
Ways to get Competitive Advantage
Performing different activities or performing similar activities in different ways
◦ Variety based positioning: particular product or service
CSP001: SECTION B
◦ Needs based positioning: particular customer segment
SESSION 1

◦ Access based positioning: delivery channel

Marketing myopia: companies fail to adapt and respond to constantly changing consumer tastes
and demands

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Imitation of Strategic Positioning
Why straddling or repositioning is difficult…

Strategic positioning is not sustainable unless there is trade-off with other positions
◦ Inconsistencies in image or reputation
◦ Inflexibility in activities
◦ Limits on internal coordination and control

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Cost Leadership & Differentiation
Can a firm pursue both simultaneously?

No Yes
Use of structure, Firms can do both
management control, because some bases
and compensation of differentiation also
policies are nearly lend themselves to
opposites. low cost.
Structure, controls, and
policies are not opposites.
Example: Rolex
Example: Toyota
 Ambidexterity
Exploitation vs Exploration
Exploitation and exploration are two fundamentally different learning activities between which firms
divide their attention and resources (March, 1991)
◦ Long-term survival and success depend on an organization’s ability to “engage in enough exploitation to ensure
the organization’s current viability and to engage in enough exploration to ensure future viability” (Levinthal and
March, 1993)

Exploitation is associated with activities such as “refinement, efficiency, selection, and implementation”
◦ One-sided focus on exploitation may enhance short-term performance, but it can result in a competency trap
because firms may not be able to respond adequately to environmental changes

Exploration refers to notions such as “search, variation, experimentation, and discovery”

◦ Too much exploration may enhance a firm’s ability to renew its knowledge base but can trap organizations in an
endless cycle of search and unrewarding change

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Strategy and the Internet

Michael E. Porter, "Strategy and the Internet," Harvard Business Review, Mar 01, 2001.
Strategy and the Internet

Michael E. Porter, "Strategy and the Internet," Harvard Business Review, Mar 01, 2001.
Strategy and the Internet

Michael E. Porter, "Strategy and the Internet," Harvard Business Review, Mar 01, 2001.
Strategy and the Internet

Michael E. Porter, "Strategy and the Internet," Harvard Business Review, Mar 01, 2001.
Strategy and the Internet

Michael E. Porter, "Strategy and the Internet," Harvard Business Review, Mar 01, 2001.
How internet affects industry structure?
Bargaining power of suppliers
◦ Access to more suppliers (+)
◦ Reduces differentiation (-)
Bargaining power of buyers
◦ Reduces switching cost (-)
Threat of substitutes
◦ Expands the size of the market (+)
◦ Creates new substitution threats (-)
Barriers to entry
◦ Reduces need for channel (-)
◦ Open system, difficult to maintain
proprietary offerings (-)
Rivalry among competitors
◦ Competition on price (-)
◦ Widens geographic market increasing
number of competitors (-)
Two Sided Markets

CSP001: SECTION B SESSION 6 14

Platform Business
Platform business is a business model (not a technology infrastructure) that focuses
on helping to facilitate interactions across a large number of participants

The role of the platform business is to provide a governance structure and a set of
standards and protocols that facilitate interactions at scale so that network effects
can be unleashed

CSP001: SECTION B SESSION 6 15

Networks
A network is a system of interconnected nodes
The nodes can be people, companies, places or
things
In platform mediated networks, the nodes are
called network users.

CSP001: SECTION B SESSION 6 16

One-, two-, and three-sided networks
Networks can be categorized according
to the number of distinct user groups
they encompass.
◦ Networks with homogenous users are
called one-sided
◦ Networks with two distinct user groups are Google
called two-sided e.g. games (gamers;
developers)
◦ Networks with three distinct user groups
are called three-sided e.g. you tube
(content consumer; content provider;
advertiser)

CSP001: SECTION B SESSION 6 17

Network effect and WTP
Network effects can be positive or negative
◦ Positive network effect: WTP increases with user base

Metcalfe’s law: The value of a network equals the

square of the number of users

CSP001: SECTION B SESSION 6 18

Platform
A platform encompasses the common components
and rules employed by network users in most of
their interactions
Products and services that bring together groups of
users in two- or three- sided networks are
platforms

CSP001: SECTION B SESSION 6 19

Pricing the Platform
Typically, two-sided networks have a
‘subsidy side’ i.e. a group of users who
when attracted in volume are highly
valued by the ‘money side’
◦ Cross sided network effects: members of
each group exhibit a preference regarding
the number of users in the other group
◦ Same-sided network effect: each groups
members have preferences regarding
number of users in their own group

CSP001: SECTION B SESSION 6 20

Winner take all Dynamics
A network platform is likely to be
served by a single platform when:
◦ Multi homing costs are high for at
least one user side
◦ Network effects are positive and
strong – at least for the users on the
side of the network with high multi
homing costs
◦ Neither side’s users have a strong
preference for special features

CSP001: SECTION B SESSION 6 21

Threat of Envelopment
Platforms frequently have overlapping
user bases
Leveraging these shared relationships
can make it easy and attractive for one
platform provider to swallow the
network of another

CSP001: SECTION B SESSION 6 22

Aggregation Platforms
Bring together a broad array of relevant resources and help users to connect with
the most appropriate resources

These platforms tend to be very transaction- or task-focused:

◦ Express a need, get a response, do the deal, and move on
◦ Marketplace and broker platforms like eBay and Etsy are well-known examples.

Aggregation platforms tend to operate on a hub-and-spoke model, whereby the

platform owner and organiser brokers all of the transactions.

CSP001: SECTION B SESSION 6 23

Mobilisation Platforms
Move people to work together to accomplish something beyond the capabilities of
any individual participant.

They tend to foster longer-term relationships rather than focus on isolated and
short-term transactions or tasks.

In a business context, the most common form of these platforms brings together
participants in extended business processes like supply networks or distribution
operations.

CSP001: SECTION B SESSION 6 24

Learning Platforms
Facilitate learning by bringing participants together to share insights over time.

They tend to foster deep, trust-based relationships, as participants have the

opportunity to realise more potential by working together.

Business leaders who understand this will likely increasingly seek out platforms that
not only make work lighter for their participants, but also grow their knowledge,
accelerate performance improvement, and hone their capabilities in the process.

CSP001: SECTION B SESSION 6 25