Why Strategy Drives Competitive Advantage

By M. Isi Eromosele

Strategic choices determine not only which activities a company will perform and how it will configure individual processes but also how activities relate to one another.

While operational effectiveness is about achieving excellence in individual activities, strategy is about combining functional activities.

What are a company’s core competencies? What are its key success factors? The appropriate answer is that all these aspects matter.

A company’s strategy involves a whole system of functional activities, not a collection of parts. Its competitive advantage comes from the way these 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, activities complement one another in ways that create real economic value.

One activity’s cost, for example, could be lowered because of the way other related activities are performed. Similarly, one activity’s value to customers can be enhanced by a company’s other connected activities. That is the way strategic fit creates competitive advantage and superior profitability.

Types Of Strategic Fit

Fit is a far more central component of competitive advantage. Fit is important because corporate activities often affect one another. As such, complementarities are quite common in strategy.

The most valuable fit is strategy-specific because it enhances a position’s uniqueness and amplifies trade-offs.

There are three types of strategic fit:

The first fit is simple consistency between each activity (function) and the overall strategy.

Consistency ensures that the competitive advantages of functional activities accumulate and do not erode or cancel themselves out. It makes the strategy easier to communicate to customers, employees, and stake-holders and improves implementation through single-minded focus in the company.

The second strategic fit occurs when activities implemented are reinforcing. Neutrogena, for example, markets to upscale hotels eager to offer their guests a soap recommended by dermatologists. These hotels grant Neutrogena the privilege of using its customary packaging while requiring other soaps to feature the hotel’s name.

Once guests have tried Neutrogena in a luxury hotel, they are more likely to purchase it at the drugstore or ask their doctor about it. Thus, Neutrogena’s medical and hotel marketing activities reinforce one another, lowering total marketing costs.

The third strategic fit moves beyond activity reinforcement to what is called optimization of effort.

Coordination and information exchange across activities to eliminate redundancy and minimize wasted effort are the most basic types of effort optimization.

Product design choices, for example, can eliminate the need for after-sale service or make it possible for customers to perform service activities themselves. Similarly, coordination with suppliers or distribution channels can eliminate the need for some in-house activities, such as end-user training.

In all three types of strategic fit, the whole matters more than any respective individual part. Competitive advantage grows out of the entire system of activities. The fit among activities substantially reduces cost or increases differentiation.

Additionally, the competitive value of individual activities or the associated skills, competencies or resources cannot be decoupled from the system or the strategy. Thus in competitive companies it can be misleading to justify success by specifying individual strengths, core competencies, or critical resources.

The list of strengths cuts across many functions, as one strength blends into another. It is more useful to think in terms of themes that pervade many activities, such as low cost, a particular notion of customer service, or a particular conception of the value delivered. These themes are embodied in combinations of tightly linked activities.

Strategic fit among many activities is fundamental not only to competitive advantage but also to the sustainability of that advantage. It is harder for a rival to match an array of interlocked activities than it is merely to imitate a particular approach, match a process technology, or replicate a set of product features.

Positions built on systems of activities are far more sustainable than those built on individual activities.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

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