IV. Fit Drives Both Competitive Advantage and Sustainability Positioning choices determine not only which activities a company will perform and how it will configure individual activities but also how activities relate to one another. While operational effectiveness is about achieving excellence in individual activities, or functions, strategy is about combining activities. Southwest’s rapid gate turnaround, which allows frequent departures and greater use of aircraft, is essential to its high-convenience, low-cost positioning. But how does Southwest achieve it? Part of the answer lies in the company’s well-paid gate and ground crews, whose productivity in turnarounds is enhanced by flexible union rules. But the bigger part of the answer lies in how Southwest performs other activities. With no meals, no seat assignment, and no interline baggage transfers, Southwest avoids having to perform activities that slow down other airlines. It selects airports and routes to avoid congestion that introduces delays. Southwest’s strict limits on the type and length of routes make standardized aircraft possible: every aircraft Southwest turns is a Boeing 737. What is Southwest’s core competence? Its key success factors? The correct answer is that everything matters. Southwest’s strategy involves a whole system of activities, not a collection of parts. Its competitive advantage comes from the way its activities fit and reinforce one another. Fit locks out imitators by creating a chain that is as strong as its strongest link. As in most companies with good strategies, Southwest’s activities complement one another in ways that create real economic value. One activity’s cost, for example, is lowered because of the way other activities are performed. Similarly, one activity’s value to customers can be enhanced by a company’s other activities. That is the way strategic fit creates competitive advantage and superior profitability. Types of Fit The importance of fit among functional policies is one of the oldest ideas in strategy. Gradually, however, it has been supplanted on the management agenda. Rather than seeing the company as a whole, managers have turned to “core” competencies, “critical” resources, and “key” success factors. In fact, fit is a far more central component of competitive advantage than most realize. Fit is important because discrete activities often affect one another. A sophisticated sales force, for example, confers a greater advantage when the company’s product embodies premium technology and its marketing approach emphasizes customer assistance and support. A production line with high levels of model variety is more valuable when combined with an inventory and order processing system that minimizes the need for stocking finished goods, a sales process equipped to explain and encourage customization, and an advertising theme that stresses the benefits of product variations that meet a customer’s special needs. Such complementarities are pervasive in strategy. Although some

mine its reputation – if it delivers another kind of value or attempts to deliver two inconsistent things at the same time. For example, Ivory soap, with its position as a basic, inexpensive everyday soap would have a hard time reshaping its image to match Neutrogena’s premium “medical” reputation. Efforts to create a new image typically cost tens or even hundreds of millions of dollars in a major industry–a powerful barrier to imitation. Second, and more important, trade-offs arise from activities themselves. Different positions (with their tailored activities) require different product configurations, different equipment, different employee behavior, different skills, and different management systems. Many trade-offs reflect inflexibilities in machinery, people, or systems. The more Ikea has configured its activities to lower costs by having its customers do their own assembly and delivery, the less able it is to satisfy customers who require higher levels of service. However, trade-offs can be even more basic. In general, value is destroyed if an activity is overdesigned or underdesigned for its use. For example, even if a given salesperson were capable of providing a high level of assistance to one customer and none to another, the salesperson’s talent (and some of his or her cost) would be wasted on the second customer. Moreover, productivity can improve when variation of an activity is limited. By providing a high level of assistance all the time, the salesperson and the entire sales activity can often achieve efficiencies of learning and scale. Finally, trade-offs arise from limits on internal coordination and control. By clearly choosing to compete in one way and not another, senior management makes organizational priorities clear. Companies that try to be all things to all customers, in contrast, risk confusion in the trenches as employees attempt to make day-to-day operating decisions without a clear framework. Positioning trade-offs are pervasive in competition and essential to strategy. They create the need for choice and purposefully limit what a company offers. They deter straddling or repositioning, because competitors that engage in those approaches undermine their strategies and degrade the value of their existing activities. Trade-offs ultimately grounded Continental Lite. The airline lost hundreds of millions of dollars, and the CEO lost his job. Its planes were delayed leaving congested hub cities or slowed at the gate by baggage transfers. Late flights and cancellations generated a thousand complaints a day. Continental Lite could not afford to compete on price and still pay standard travel-agent commissions, but neither could it do without agents for its fullservice business. The airline compromised by cutting commissions for all Continental flights across the board. Similarly, it could not afford to offer the same frequent-flier benefits to travelers paying the much lower ticket prices for Lite service. It compromised again by lowering the rewards of Continental’s entire frequent-flier program. The results: angry travel agents and full-service customers. Continental tried to compete in two ways at once. In trying to be low cost on some routes and full service on others, Continental paid an enormous straddling penalty. If there were no trade-offs between the two positions, Continental could have succeeded. But the absence of trade-offs is a dangerous half-truth that managers must unlearn. Quality is not always free. Southwest’s convenience, one kind of high quality, happens to be consistent with low costs because its frequent departures are facilitated by a number of low-cost practices – fast gate turnarounds and automated ticketing, for example. However, other dimensions of airline quality – an assigned seat, a meal, or baggage transfer – require costs to provide. In general, false trade-offs between cost and quality occur primarily when there is redundant or wasted effort, poor control or accuracy, or weak coordination. Simultaneous improvement of cost and differentiation is possible only when a company begins far behind the productivity frontier or when the frontier shifts outward. At the frontier, where companies have achieved current best practice, the trade-off between cost and differentiation is very real indeed. After a decade of enjoying productivity advantages, Honda Motor Company and Toyota Motor Corporation recently bumped up against the frontier. In 1995, faced with increasing customer resistance to higher automobile prices, Honda found that the only way to produce a less-expensive car was to skimp on features. In the United States,

III. A Sustainable Strategic Position Requires Trade-offs Choosing a unique position, however, is not enough to guarantee a sustainable advantage. A valuable position will attract imitation by incumbents, who are likely to copy it in one of two ways. First, a competitor can reposition itself to match the superior performer. J.C. Penney, for instance, has been repositioning itself from a Sears clone to a more upscale, fashion-oriented, soft-goods retailer. A second and far more common type of imitation is straddling. The straddler seeks to match the benefits of a successful position while maintaining its existing position. It grafts new features, services, or technologies onto the activities it already performs. For those who argue that competitors can copy any market position, the airline industry is a perfect test case. It would seem that nearly any competitor could imitate any other airline’s activities. Any airline can buy the same planes, lease the gates, and match the menus and ticketing and baggage handling services offered by other airlines. Continental Airlines saw how well Southwest was doing and decided to straddle. While maintaining its position as a full-service airline, Continental also set out to match Southwest on a number of point-to-point routes. The airline dubbed the new service Continental Lite. It eliminated meals and first-class service, increased departure frequency, lowered fares, and shortened turnaround time at the gate. Because Continental remained a full-service airline on other routes, it continued to use travel agents and its mixed fleet of planes and to provide baggage checking and seat assignments. But a strategic position is not sustainable unless there are trade-offs with other positions. Trade-offs occur when activities are incompatible. Simply put, a trade-off means that more of one thing necessitates less of another. An airline can choose to serve meals – adding cost and slowing turnaround time at the gate – or it can choose not to, but it cannot do both without bearing major inefficiencies. Trade-offs create the need for choice and protect against repositioners and straddlers. Consider Neutrogena soap. Neutrogena Corporation’s varietybased positioning is built on a “kind to the skin,” residue-free soap formulated for pH balance. With a large detail force calling on dermatologists, Neutrogena’s marketing strategy looks more like a drug company’s than a soap maker’s. It advertises in medical journals, sends direct mail to doctors, attends medical conferences, and performs research at its own Skincare Institute. To reinforce its positioning, Neutrogena originally focused its distribution on drugstores and avoided price promotions. Neutrogena uses a slow, more expensive manufacturing process to mold its fragile soap. In choosing this position, Neutrogena said no to the deodorants and skin softeners that many customers desire in their soap. It gave up the largevolume potential of selling through supermarkets and using price promotions. It sacrificed manufacturing efficiencies to achieve the soap’s desired attributes. In its original positioning, Neutrogena made a whole raft of trade-offs like those, trade-offs that protected the company from imitators. Trade-offs arise for three reasons. The first is inconsistencies in image or reputation. A company known for delivering one kind of value may lack credibility and confuse customers – or even under

why is strategy

It is intuitive for most managers to conceive of their business in terms of the customers’ needs they are meeting. But a critical element of needsbased positioning is not at all intuitive and is often overlooked. Differences in needs will not translate into meaningful positions unless the best set of activities to satisfy them also differs. If that were not the case, every competitor could meet those same needs, and there would be nothing unique or valuable about the positioning. In private banking, for example, Bessemer Trust Company targets families with a minimum of $5 million in investable assets who want capital preservation combined with wealth accumulation. By assigning one sophisticated account officer for every 14 families, Bessemer has configured its activities for personalized service. Meetings, for example, are more likely to be held at a client’s ranch or yacht than in the office. Bessemer offers a wide array of customized services, including investment management and estate administration, oversight of oil and gas investments, and accounting for racehorses and aircraft. Loans, a staple of most private banks, are rarely needed by Bessemer’s clients and make up a tiny fraction of its client balances and income. Despite the most generous compensation of account officers and the highest personnel cost as a percentage of operating expenses, Bessemer’s differentiation with its target families produces a return on equity estimated to be the highest of any private banking competitor. Citibank’s private bank, on the other hand, serves clients with minimum assets of about $250,000 who, in contrast to Bessemer’s clients, want convenient access to loans–from jumbo mortgages to deal financing. Citibank’s account managers are primarily lenders. When clients need other services, their account manager refers them to other Citibank specialists, each of whom handles prepackaged products. Citibank’s system is less customized than Bessemer’s and allows it to have a lower manager-to-client ratio of 1:125. Biannual office meetings are offered only for the largest clients. Both Bessemer and Citibank have tailored their activities to meet the needs of a different group of private banking customers. The same value chain cannot profitably meet the needs of both groups. The third basis for positioning is that of segmenting customers who are accessible in different ways. Although their needs are similar to those of other customers, the best configuration of activities to reach them is different. I call this accessbased positioning. Access can be a function of customer geography or customer scale – or of anything that requires a different set of activities to reach customers in the best way. Segmenting by access is less common and less well understood than the other two bases. Carmike Cinemas, for example, operates movie theaters exclusively in cities and towns with populations under 200,000. How does Carmike make money in markets that are not only small but also won’t support big-city ticket prices? It does so through a set of activities that result in a lean cost structure. Carmike’s small-town customers can be served through standardized, low-cost theater complexes requiring fewer screens and less sophisticated projection technology than big-city theaters. The company’s proprietary information system and management process eliminate the need for local administrative staff beyond a single theater manager. Carmike also reaps advantages from centralized purchasing, lower rent and payroll costs (because of its locations), and rock-bottom corporate overhead of 2% (the industry average is 5%). Operating in small communities also allows Carmike to practice a highly personal form of marketing in which the theater manager knows patrons and promotes attendance through personal contacts. By being the dominant if not the only theater in its markets–the main competition is often the high school football team – Carmike is also able to get its pick of films and negotiate better terms with distributors. Rural versus urban-based customers are one example of access driving differences in activities. Serving small rather than large customers or densely rather than sparsely situated customers are other examples in which the best way to configure marketing, order processing, logistics, and after-sale service activities to meet the similar needs of distinct groups will often differ. Positioning is not only about carving out a niche. A position emerging from any of the sources can be broad or narrow. A focused competitor, such as Ikea, targets the special needs of a subset of customers and designs its activities accordingly. Focused competitors thrive on groups of customers who are overserved (and hence overpriced) by more broadly targeted competitors, or underserved (and hence underpriced). A broadly targeted competitor– for example, Vanguard or Delta Air Lines – serves a wide array of customers, performing a set of activities designed to meet their common needs. It ignores or meets only partially the more idiosyncratic needs of particular customer groups. Whatever the basis – variety, needs, access, or some combination of the three – positioning requires a tailored set of activities because it is always a function of differences on the supply side; that is, of differences in activities. However, positioning is not always a function of differences on the demand, or customer, side. Variety and access positionings, in particular, do not rely on any customer differences. In practice, however, variety or access differences often accompany needs differences. The tastes – that is, the needs – of Carmike’s small-town customers, for instance, run more toward comedies, Westerns, action films, and family entertainment. Carmike does not run any films rated NC-17. Having defined positioning, we can now begin to answer the question, “What is strategy?” Strategy is the creation of a unique and valuable position, involving a different set of activities. If there were only one ideal position, there would be no need for strategy. Companies would face a simple imperative – win the race to discover and preempt it. The essence of strategic positioning is to choose activities that are different from rivals’. If the same set of activities were best to produce all varieties, meet all needs, and access all customers, companies could easily shift among them and operational effectiveness would determine performance.

Solo no se puede

Amigos desde hace mucho, todo se fue como arena entre los dedos, he tratado de saber de ti sin respuesta. Espero algún día me contestes y al menos me valores como alguna vez lo hiciste, que el tiempo no sea excusa solo para pasar a saludar al menos, que al menos vuelva a tener un poquito de importancia en tu vida. Solo eso.

A mi manera

¿Pero qué es un hombre? ¿Qué es lo que ha conseguido? si no es a sí mismo, entonces tiene nada.

No todo es lo que parece.

Que las nubes cubran el cielo, no significa que el cielo no exista.

Quizás

Quizás no sea el mejor, pero de seguro no soy el peor. Cada día lo intento todo para ser mejor y eso es lo importante, me importa más el resto que yo mismo, quizás eso es lo malo en mi.

Externalidades.

Quisiera ser breve, tal vez lo sea. Solo dejaré que fluya. Sé que no soy buena persona, solo no soy una mala persona. No desmerezco a mis amigos para nadas, tengo poquisimos. Me gustaría disfrutarlos a todos, pero no se puede, siempre hay excusa por parte de algunos, falta de tiempo o mil cosas más. Creo tener razón al pensar en que está bien en que no siempre se puede tener lo que se quiere, en el caso de las amistades... bueno es como lo mismo, no siempre puedes tener a tus amigos cuando quieres, pero finalmente es peor mi caso y es lo que me destruye de a poco. A mi no me complica tanto no ver a mis amigos, finalmente siempre he tenido una vida muy solitaria, por lo cual se vivir conmigo mismo. El problema es cuando se genera expectativa. SI USTED NO PUEDE CUMPLIR NO SE COMPROMETA, esa es la frase que me hace eco en la cabeza. Si no me puede ver, no me diga que nos juntemos, si despues va a salir a ultima hora con que no. Una vez es aceptable, dos veces quizas, tres veces parezco hueon creyendo y cuatro veces ya no me queda felicidad. La verdad los amigos son para disfrutarlos y todo eso. A pesar de que he andado muy positivo este ultimo tiempo (no queda otra) hay cosas que me desalientan y me dan lata, porque finalmente tengo amigos que me dañan aunque no lo quieran.

FROM MY WEAK AND FRAGIL WORLD