In the face of this complexity, companies are finding that focusing in isolation either on aspects of strategic positioning or execution capabilities does not lead to a sustainable competitive edge. A more dynamic and iterative view of strategy is emerging.
Traditionalists have described strategy as a process of analysing the competitive environment and determining a unique strategic position within it. But the potential for companies to maintain competitive advantage through unique positioning has been eroded by the explosion in the availability of competitive information. Unique positioning alone is no longer sustainable.
Many successful companies have already realized that the ability to execute well has become a key part of competitive strategy. Excellence in execution at least partially protects companies from the ravages of rapid change and copycat strategies. Winning companies like Wal-Mart, British Airways and McDonaldâs have shown that simple, widely known strategies can be eminently successful if the execution of the strategy is a step above the competition. But execution excellence without the right strategic positioning is not enough. Eventually, the advantages won through improvements such as total quality management, outsourcing, reengineering and benchmarking are eliminated as competitors catch up (Porter, 1996).
In isolation, neither unique strategic positioning nor execution excellence is sufficient to create sustained competitive advantage. The emerging view of strategy is that success depends on developing and aligning a unique combination of positioning and execution capabilities. Successful strategy is about building a system of mutually complementary elements.
Case Study The paper chase: Wausau Paper Mills
Wausau Paper Mills manufactures printing, writing and speciality paper products and sells them throughout the US and in international markets. In the US paper and forest products industry, Wausau is only a small player in terms of sales, assets or production capacity. It does not rank in the top 30 in any of these categories. However, when it comes to financial performance, Wausau sets the industry standard. Over the period 1986â96, it multiplied shareholder value more than ten times and outperformed the industry average by more than a staggering 700 per cent. Financial analysts predict that Wausau will continue to do well.
Many other players in the industry would appear to hold some competitive advantages over Wausau, in particular the economies of scale that many thought were requirements for profitability in the industry. And in a commodity business like paper, a unique product position is very easily copied. So what sets Wausau apart in this highly competitive business?
Figure 1.1 An emerging view of strategy
Wausauâs success is not a result of positioning alone. It has developed a combination of strategy and execution capabilities that is unique and difficult to imitate.
Wausauâs strategic position
Wausau is a lean and flexible niche player. The company has successfully focused on creating or occupying niche markets, typically gaining a significant market share in a segment (for example, it has a 40 per cent market share in pressure-sensitive labels) and realizing operating margins well above average. If one of the segments in which Wausau operates becomes crowded, it quietly exits and goes on to find another speciality product. In the early 1980s, for example, Wausau provided 3M with the lightweight yellow paper the latter used for its hugely successful âPost-It Notesâ. When other paper companies entered this market three years later and 3M asked Wausau to cut its prices, the company declined and left the business.
Wausau enters and leaves markets more often than competitors, but this is part of a definite strategy. Overall, it concentrates its efforts on just a few product segments. This niche strategy seems to be paying off.
The second component of Wausauâs positioning is its focus on lean operations. Although it has significantly increased its production capacity over the last few years, it has no ambition to become self-sufficient or to integrate vertically. This sets it apart from many of its competitors and proves to be an excellent position in a highly cyclical industry suffering from production over-capacity.
Wausauâs execution capabilities
Wausau is the industry leader in identifying and exploiting new business opportunities, demonstrating both flexibility and creativity in its willingness to move to new product lines as they become more profitable.
Wausau acquired Rhinelander Paper, a struggling producer of interior liners for cereal boxes and pet foods. Seeing a market opportunity, it turned the company into an early producer of microwaveable popcorn bags. As others entered that market, Wausau again repositioned Rhinelander, this time producing pressure-sensitive labels with great success.
Wausau has also demonstrated strong skills in commercializing new products. For example, in experimenting with coloured paper, it developed âAstrobrightsâ, a superior speciality paper that fades less quickly than rival products. Wausauâs product became so popular that customers would ask for it by nameâa remarkable achievement in an environment that usually does not emphasize brand names.
Over time, Wausau has developed some of the best distribution capabilities in the industry to meet customersâ needs for timely delivery. Today, approximately 75 per cent of all items are shipped within 24 hours, a service level much higher than that found at most other paper companies. Ongoing distribution initiatives indicate that the company is not resting on its laurels and intends to distance itself even further from its competition.
Wausau is also skilled at developing and maintaining strategic relationships, with both customers and suppliers. Learning that a major customer was suffering from rising pulp prices, Wausau developed a paper that uses less pulp. In order to reduce its own energy costs, it entered an agreement with a nearby electric utility to build a high-efficiency power plant next to one of its mills.
Alignment at work at Wausau
Wausauâs success is built on the tight alignment between its positioning and execution capabilities. To support its position as a niche player that rapidly enters, exploits and exits markets, it must identify market opportunities and adapt to changing buyer values. Strong customer relationships help Wausau identify unique customer needs. Its abilities to develop and commercialize new products further support this positioning. The companyâs strong distribution capabilities support these customer relationships and allow it to expand geographically. Its skills in developing strategic relationships allow it to maintain lean, flexible operations without the inertia created by upstream or downstream integration.
Each of these examples illustrates the important connections between Wausauâs positioning and capabilities. Wausau leads its industry because specific components of its positioning and execution capabilities mutually reinforce each other.