Understanding Michael Porter by Magretta Joan

Author:Magretta, Joan [Magretta, Joan]
Language: eng
Format: epub, azw3
ISBN: 9781422160596
Publisher: Perseus Books Group
Published: 2011-11-21T14:00:00+00:00

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CHAPTER 5

Trade-offs:

The Linchpin

IN THE LAST CHAPTER, I presented Porter’s first two tests of strategy: a unique value proposition and the tailored value chain required to deliver it. If there is one important takeaway message, it is that strategy requires choice. Competitive advantage depends on making choices that are different from those of rivals, on making trade-offs. This is Porter’s third test. Trade-offs play such a critical role that it’s no exaggeration to call them strategy’s linchpin. They hold a strategy together as they contribute to both creating and sustaining competitive advantage.

The need to make trade-offs is yet another idea that runs counter to popular thinking, and it does so in two ways. The first misconception is about trade-offs themselves. Managers tend to believe that “more is always better.” More customers, more products, more services mean more sales and profits. You can have it all. You can do both A and B. If you choose either one or the other, you’ll be leaving money on the table. Making trade-offs is almost a sign of weakness.

The second misconception is about whether it is possible, in today’s supercharged, hypercompetitive world, to sustain a competitive advantage. This is a world in which anything can and will be copied, a world in which the best you can hope for in competing is a series of very temporary advantages. Sound familiar? This is, once again, competing to be the best.

But think about it for a minute, and you’ll see that this argument fails to square with the facts. It’s true that choosing a unique value proposition alone is no guarantee of sustainability. If you find a valuable position, imitators will take notice. But competitive advantages can and do persist for decades, as companies such as Southwest Airlines, IKEA, Walmart, Enterprise Rent-A-Car, BMW, McDonald’s, Apple, and many others attest. What do the strategies of such diverse companies as these have in common? The answer lies in just one word: trade-offs.

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