Analytics Strategy: On Competition

The book, On Competition, is a useful read on its own. In it, Michael E. Porter defines what competitive strategy is, and eloquently uses a concept that we’re going find useful.

“Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.” (pp. 43)

Here’s the best way to visualize what he means:

This Southwest Airlines example is to competitive strategy as Harrah’s loyalty system is to analytics. It’s the main case study.

The nodes represent activities and the vertices (lines) represent logical reinforcement.

No meals and no seat assignments mean limited passenger service, however, they also mean 15 minute turnaround time. That advantage yields very low ticket prices and frequent reliable departures.

This activity system diagram yields a sustainable competitive advantage because it’s hard for others to replicate. In fact, when others try to compete in the same way, say, when Air Canada tries to emulate WestJet, they fail because they can’t replicate the entire activity system. In effect, the activity system inoculates the firm from competitive pressure so long as key market segments continue to prefer it.

Advantages:

• It’s a network of choices – it’s meant to be designed.

• Competitive forces are inherent to the design.

• It enables comparison.

Disadvantages:

• It doesn’t take into account key trends, macroeconomic forces, or market forces.

• Assessment criterion are lacking.

• It enables an unlimited number of degrees of freedom.

The book is well worth your attention.

Can you draw an activity diagram of your own analytics department?

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I’m Christopher Berry.
I tweet about analytics @cjpberry
I write at christopherberry.ca