Can You Say What Your Strategy Is?
the company offer penny stocks, shares from IPOs, commodities, or options—investment products that it believes are too risky for the conservative clients it chooses to serve. And it does not have metropolitan offices in business districts, because they would not allow for the convenient, face-to-face interactions in casual settings that the firm seeks to provide. Know- ing not to extend its scope in these directions has allowed the firm to focus on doing what it does well and reap the benefits of simplicity, standardization, and deep experience. Defining the Advantage Given that a sustainable competitive advan- tage is the essence of strategy, it should be no surprise that advantage is the most critical aspect of a strategy statement. Clarity about what makes the firm distinctive is what most helps employees understand how they can contribute to successful execution of its strategy. As mentioned above, the complete defini- tion of a firm’s competitive advantage consists of two parts. The first is a statement of the customer value proposition. Any strategy statement that cannot explain why customers should buy your product or service is doomed to failure. A simple graphic that maps your value proposition against those of rivals can be an extremely easy and useful way of identi- fying what makes yours distinctive. (See the exhibit “Wal-Mart’s Value Proposition.”) The second part of the statement of advan- tage captures the unique activities or the complex combination of activities allowing that firm alone to deliver the customer value proposition. This is where the strategy statement draws from Porter’s definition of strategy as making consistent choices about the configuration of the firm’s activities. It is also where the activity-system map that Por- ter describes in “What Is Strategy?” comes into play. As the exhibit “Edward Jones’s Activity- System Map” shows, the brokerage’s value proposition is to provide convenient, trusted, personal service and advice. What is most distinctive about Jones is that it has only one financial adviser in an office, which allows it to have more offices (10,000 nationally) than competitors do. Merrill Lynch has about 15,000 brokers but only 1,000 offices. To make it easy for its targeted customers to visit at their convenience—and to provide a relaxed,
still not available to Jones customers). Unlike the many brokerages that committed hundreds of millions of dollars and endless executive hours to debates over whether to introduce online trading (and if so, how to price and position it in a way that did not cannibalize or conflict with traditional offerings), Jones wasted no money or time on that decision because it had set clear boundaries. Similarly, Jones is not vertically integrated into proprietary mutual funds, so as not to violate the independence of its financial ad- visers and undermine clients’ trust. Nor will
Wal-Mart’s Value Proposition Wal-Mart’s value proposition can be summed up as “everyday low prices for a broad range of goods that are always in stock in convenient geographic locations.” It is those aspects of the customer experience that the company overdelivers relative to competitors. Underperformance on other dimensions, such as ambience and sales help, is a strategic choice that generates cost savings, which fuel the company’s price advantage. If the local mom-and-pop hardware store has survived, it also has a value propo- sition: convenience, proprietors who have known you for years, free coffee and doughnuts on Saturday mornings, and so on. Sears falls in the middle on many criteria. As a result, customers lack a lot of com- pelling reasons to shop there, which goes a long way toward explaining why the company is struggling to remain profitable.
Customer purchase criteria*
Mom & pop stores
Sears
Wal-Mart
Low prices
Selection across categories
Rural convenience
Reliable prices
In-stock merchandise
Merchandise quality
Suburban convenience
Selection within categories
Sales help
Ambience
poor
excellent
Delivery on criteria
*in approximate order of importance to Wal-Mart’s target customer group
Source: Jan Rivkin, Harvard Business School
harvard business review • april 2008
page 5
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