Fit : The Amplifier

Truk Karawawattana ID:5610213003

Fit

“How the activities in the value chain relate to one another.”

✖ Popular misconception, that competitive success can be explained by

one core competence. (independent choice)

✔ Good strategies don’t rely on just one thing, on making one choice.

but they depend on the connection among many things, on making

interdependent choices.

Amplifier

Chapter 4

Value proposition and value chain give rise to competitive advantage

Chapter 5

Involve trade-offs, the strategy becomes more valuable and more difficult

to imitate

Fit = an amplifier, raising the power of both effects

Competitive advantage – lowering the cost or raising customer value

Sustainable – raising barrier to imitation

What is Fit?

IKEA’s competitive advantage

Flat packs – lower the shipping costs and product damage

Suburban store location – lower the cost (land is cheaper)

These two choice are interdependent. Value of flat packs is amplifier by

the car-friendly locations that make it easier for customers to load their

purchases into their cars.

IKEA

IKEA’s competitive advantage

Huge store – global scale product sourcing and give more space to showcase all its merchandise in fully decorated room displays(more valuable if customer are willing to spend more time per visit)

Free childcare and in-house cafeteria – possible for customer to take their time

“Fit means that the value or cost of one activity is affected by the way other activities are performed”

ZARA

Value proposition is “Speed” everything Zara does is tailored to getting

the latest styles into its store fast (2-4 weeks)

Control its value chain from end to end and make some significant trade-

offs

Some of the choice may not seem cost effective given Zara’s low relative

price positioning

ZARA

Zara’s design team is twice the size of H&M’srather than pay big-name designer, Zara has scouts around the world looking for the latest fashion trend and their large team of in-house designer can create a new collection in under a month

Zara does it own manufacturing, most of it done in Europe (Not Asia)production in-house, configured for small-batch. Zara own a fleet of trucks to speed goods from its centralized logistics hub in Spain to its stores throughout Europe in 24 hours

Garment arrived ticketed and hungthis raise shipping costs but means the merchandise arrives ready to sell (no in-store ironing)

Zara’s store locate in the highest-rent districts in townhigh foot traffic. new goods arrive in limited supply, send a clear message : “buy it now or losing the opportunity”

ZARA

All of this add up to Zara’s superior results (competitive advantage)

Zara’s customers shop more often than others

They buy more merchandise at full price

Zara was marking down about 10% (industry average 17%)

Zara spend less than 1/3 of 1% of its revenue on advertising

(most fashion brand spend 3-4%, H&M spend 5%)

How Fit Work

1. Basic Consistency – each activity is aligned with the

company’s value proposition and each contributes incrementally

to its dominant themes

(When activity are inconsistent, they cancel each other out)

How Fit Work

2. Real synergy – each activities complement or reinforce each other

eg. Home Depot’s value proposition : huge selection, everyday low

price, knowledgeable service

the large warehouse store offering both selection and low prices. But

without excellent service, customers would have felt lost in the

warehouse stores

How Fit Work

3. Substitution – performing one activity make it possible to eliminate

another

IKEA’s full-room displays and product hang-tags substitute for sale

associates

Zara’s prominent store locations and the rapid turnover of its

collections make traditional advertising unnecessary

Activity Map

Activity map can help you to identify ways to strengthen fit,

find new ways in which activities can reinforce each other or

where one activity can substitute for others

Fit & Core Competence

✖ A common mistake in strategy is to choose the same core

competence as everyone else in your industry

✖ Companies should focus on their core activities. Those that aren’t

“core” can be outsourced

(The fewer element that remain in the company’s value chain, the fewer

the opportunity to extend tailoring, trade-offs, and fit)

✔ Fit means that the whole matters more than any individual part,

a success depend on a whole system of interdependent activities

Fit Makes Strategy More

Sustainable Trade-offs make it hard for rivals to copy a successful strategy.

Fit make it even harder, because they have to copy a whole nest of

interdependent activities

The more a company’s positioning rests on complex fit, the harder it is

for rivals to know exactly what it is they are trying to copy.

The more activities rivals try to reconfigure, the more damage they will

do to their current positions

Each thing you do amplifier the value of the other thing you do. That

enhances competitive advantage. And it enhanced sustainability as well.