been dramatic, many companies have
been frustrated by their inability to
translate those gains into sustainable profitability.
And bit by bit, almost imperceptibly, management
tools have taken the place of strategy. As managers
push to improve on all fronts, they move farther
from viable competitive positions.
Necessary but Not Sufficient
Operational effectiveness and strategy are both
essential to superior performance, which, after all,
is the primary goal of any enterprise. But they work
in very different ways.
Michael E. Porter is the C. Roland Christensen Professor
of Business Administration at the Harvard Business
School in Boston, Massachusetts.
HARVARD BUSINESS REVIEW November-December 1996
Copyright © 1996 by the President and Fellows of Harvard College. All rights reserved.
A company can outperform rivals only if it can
establish a difference that it can preserve. It must
deliver greater value to customers or create comparable
value at a lower cost, or do both. The arithmetic
of superior profitability then follows: delivering
greater value allows a company to charge higher
unit prices; greater
efficiency results in
average unit costs.
Ultimately, all differences between companies in
cost or price derive from the hundreds of activities
required to create, produce, sell, and deliver their
products or services, such as calling on customers,
assembling final products, and training employees.
Cost is generated by performing activities, and cost
advantage arises from performing particular activities
more efficiently than competitors. Similarly,
arises from both the choice of activities
and how they are performed.
the basic units of competitive advantage. Overall
advantage or disadvantage results
from all a
activities, not only a few.
Operational effectiveness (OE) means performing
similar activities better than rivals perform them.
Operational effectiveness includes but is not limited