Cost leadership and differentiation are distinct strategic positions. Pursuing them at the
same time results in trade-offs that work against each other. For instance, higher perceived
customer value (e.g., providing leather seats throughout the entire aircraft and free Wi-Fi)
comes with higher costs. JetBlue continues to pursue an integration strategy today, attempting
to be both a cost leader and differentiator. Many firms that attempt such an integration
strategy end up being stuck in the middle; that is, the managers have failed to carve out a
clear strategic position. In their attempt to be everything to everybody, these firms end up
being neither a low-cost leader nor a differentiator. This common strategic failure contributed
to JetBlue’s competitive disadvantage in recent years.
The key to successful strategy is to combine a set of activities to stake out a unique
position within an industry. Competitive advantage has to come from performing different
activities or performing the same activities differently than rivals are doing. Ideally,
these activities reinforce one another rather than create trade-offs. For instance, Walmart’s
strategic activities strengthen its position as cost leader: Big retail stores in rural locations,
extremely high purchasing power, sophisticated IT systems, regional distribution centers,
low corporate overhead, and low base wages and salaries combined with employee profit
sharing reinforce each other, to maintain the company’s cost leadership.
In addition, operational effectiveness, marketing skills, and other functional expertise
all strengthen a unique strategic position. Those capabilities, though, do not substitute
for competitive strategy. Competing to be similar but just a bit better than your competitor
is likely to be a recipe for cut-throat competition and low profit potential. Let’s take
this idea to its extreme in a quick thought experiment: If all firms in the same industry
pursued a low-cost position through application of competitive benchmarking, all firms
would have identical cost structures. None could gain a competitive advantage. Everyone
would be running faster, but nothing would change in terms of relative strategic positions.
There would be little if any value creation for customers because companies would have
no resources to invest in product and process improvements. Moreover, the least-efficient
firms would be driven out, further reducing customer choice.
To gain a deeper understanding of what strategy is, it may be helpful to think about
what strategy is not.11 Be on the lookout for the following major hallmarks of what strategy
is NOT:
Cost leadership and differentiation are distinct strategic positions. Pursuing them at thesame time results in trade-offs that work against each other. For instance, higher perceivedcustomer value (e.g., providing leather seats throughout the entire aircraft and free Wi-Fi)comes with higher costs. JetBlue continues to pursue an integration strategy today, attemptingto be both a cost leader and differentiator. Many firms that attempt such an integrationstrategy end up being stuck in the middle; that is, the managers have failed to carve out aclear strategic position. In their attempt to be everything to everybody, these firms end upbeing neither a low-cost leader nor a differentiator. This common strategic failure contributedto JetBlue’s competitive disadvantage in recent years.The key to successful strategy is to combine a set of activities to stake out a uniqueposition within an industry. Competitive advantage has to come from performing differentactivities or performing the same activities differently than rivals are doing. Ideally,these activities reinforce one another rather than create trade-offs. For instance, Walmart’sstrategic activities strengthen its position as cost leader: Big retail stores in rural locations,extremely high purchasing power, sophisticated IT systems, regional distribution centers,low corporate overhead, and low base wages and salaries combined with employee profitsharing reinforce each other, to maintain the company’s cost leadership.In addition, operational effectiveness, marketing skills, and other functional expertiseall strengthen a unique strategic position. Those capabilities, though, do not substitutefor competitive strategy. Competing to be similar but just a bit better than your competitoris likely to be a recipe for cut-throat competition and low profit potential. Let’s takethis idea to its extreme in a quick thought experiment: If all firms in the same industrypursued a low-cost position through application of competitive benchmarking, all firmswould have identical cost structures. None could gain a competitive advantage. Everyonewould be running faster, but nothing would change in terms of relative strategic positions.There would be little if any value creation for customers because companies would haveno resources to invest in product and process improvements. Moreover, the least-efficientfirms would be driven out, further reducing customer choice.To gain a deeper understanding of what strategy is, it may be helpful to think aboutwhat strategy is not.11 Be on the lookout for the following major hallmarks of what strategyis NOT:
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