What Is Strategy?

C O P Y R IG H T © 2 00 0 H A R V A R D B U S IN E S S SC H O O L P U B LI SH IN G C O R P O R A T IO N . A LL R IG H T S R E SE R V E D . 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.