What Is Strategy?

The myriad activities that go into creating, producing, selling, and delivering a product or service are the basic units of competitive|advantage. Operational effectiveness means performing these activities better— that is, faster, or with fewer inputs and|defects—than rivals. Companies can reap enormous advantages from operational effectiveness, as Japanese firms demonstrated|in the 1970s and 1980s with such practices as total quality management and continuous improvement. But from a competitive|standpoint, the problem with operational effectiveness is that best practices are easily emulated. As all competitors in an|industry adopt them, the productivity frontier —the maximum value a company can deliver at a given cost, given the best|available technology, skills, and management techniques—shifts outward, lowering costs and improving value at the same|time. Such competition produces absolute improvement in operational effectiveness, but relative improvement for no one. And the more benchmarking that companies do, the more|competitive convergence you have—that is, the more indistinguishable companies are from one another.