Quotes About Value

Performance, Porter argues, must be defined in terms that reflect the economic purpose every organization shares: to produce goods or services whose value exceeds the sum of the costs of all the inputs. In other words, organizations are supposed to use resources effectively. The financial measure that best captures this idea is return on invested capital (ROIC).

Porter's solution to this problem requires some courage: the only way to know if you are achieving the ultimate goal of creating economic value is to be brutally honest about the true profits you've earned and all the capital you've committed to the business. Strategy, then, must start not only with the right goal, but also with a commitment to measure performance accurately and honestly.

In insurance, for example, USAA has been a stellar performer with a value proposition aimed at low-risk customers. Here's what is essential: finding a unique way to serve your chosen segment profitably.

A company can sustain a premium price only if it offers something that is both unique and valuable to its customers. Apple's hot, must-have gadgets have commanded premium prices. Ditto for the high-speed Madrid-to-Barcelona train and the trucks Paccar creates for owner-operators. Create more buyer value and you raise what economists call willingness to pay (WTP), the mechanism that makes it possible for a company to charge a higher price relative to rival offerings.

It takes time to develop real competitive advantage, to understand the value you create, to achieve tailoring, trade-offs, and fit. If you grasp the role of continuity in strategy, it will change your thinking about change itself. Paradoxically, continuity of strategy improves an organization's ability to adapt and to innovate.

The key to competitive success—for businesses and nonprofits alike—lies in an organization's ability to create unique value.

Porter starts with the industry because competing to be unique is a choice made against a specific and relevant set of rivals, and because the structure of the industry determines how the value it creates is shared.

Henry Ford famously chose to operate his own rubber plantation in Brazil in the late 1920s, a decision that did not turn out too well. Ultimately, choices like this, about how vertically integrated you want to be, are choices every company makes about "where to sit" in the value system.

Whirlwind's configuration of activities produces a different kind of value with a different cost profile. Looking at competing value chains side by side highlights those differences. If your value chain looks like everyone else's, then you are engaged in competition to be the best.

value is ultimately defined by customers.

Seeing that gate turnarounds are a significant cost driver, you would then dive a level deeper, to the many specific subactivities involved in gate turnarounds. Here you'd be looking for ways to lower your costs without sacrificing customer value. This is how you drive an even greater wedge between your performance and that of your rivals.

than from the product itself.

But this way of thinking about competition is too narrow. The real point of competition is not to beat your rivals. It's not about winning a sale. The point is to earn profits. Competing for profits is more complex. It's a struggle involving multiple players, not just rivals, over who will capture the value an industry creates.

Charles Schwab created the company that bears his name—and a new category known as discount brokerage—around a different value chain. Not all customers want advice, so why should they have to pay for it? Take away all the activities needed to give advice, focus instead on executing trades, and you can create a different kind of value: low-cost trades that make stock ownership accessible to a wider customer base.

Note that if an industry doesn't create much value for its customers, prices will barely cover costs. If the industry creates a lot of value, then structure becomes critical in understanding who gets to capture it. Industries can, and often do, create a lot of value for their customers or suppliers while the companies themselves earn very little for their efforts.

If you have powerful buyers (that is, customers), they will use their clout to force prices down. They may also demand that you put more value into the product or service. In either case, industry profitability will be lower because customers will capture more of the value for themselves.

Powerful buyers will force prices down or demand more value in the product, thus capturing more of the value for themselves.

The sweet spot isn't always the lower-priced alternative. The Madrid–Barcelona high-speed train is a higher-value, higher-price substitute for flying. Energy drinks are a higher-price substitute for coffee. Both drinks are caffeine delivery systems, but some consumers will pay more for the substitute's bigger jolt.

Blue Ocean Strategy

If rivalry is intense, companies compete away the value they create, passing it on

the second test of strategy is often overlooked because it is not intuitive at all. A distinctive value proposition, Porter explains, will not translate into a meaningful strategy unless the best set of activities to deliver it is different from the activities performed by rivals. His logic is simple and compelling: "If that were not the case, every competitor could meet those same needs, and there would be nothing unique or valuable about the positioning.

If God wanted us to bend over he would put diamonds on the floor

It's obvious that women are smarter than men. Think about it - diamonds are a girl's best friend; man's best friend is a dog.

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