Sunday, July 5, 2015

Challenges of Activity Systems Maps and Porter Prize



While researching Activity Systems Maps I came across a fantastic resource with examples of how Porter's strategic principles have been successfully applied in industry.  Details of the Porter Prize are described at the end of this post.  The site includes descriptions of the strategic fit, trade offs, and unique value propositions of several companies that have won the Porter Prize.

I was very impressed by the ability of Activity Systems Maps to illustrate the interrelationships between an organizations strategic themes.  Particularly how this interconnectedness created a strong value web where changing  a strategic theme would either weaken the value web or present a different offering for customers.   The inter-reliance of each strategic theme became much clearer when improving one theme such as quality or variety would have an impact on another theme such as price.  Even a small influence on price could result in percentage change in revenue or profit placing you in a weaker position than your competitor.   On the other hand offering a higher quality product such as Starbucks' coffee could attract a different customer willing to pay a premium price.   This premium coffee would compete against a different market than $0.50 vending machine coffee.  We saw how competing on the same product will eventually reduce margins for competitors among car manufacturers.  Some type of differentiation beyond operational efficiencies was required for multiple organizations to maintain attractive margins in the same market, by attracting different customers with different desires. 

I wanted to find more examples of how companies strategies were being illustrated through Activity Systems Maps.  I was surprised by how few examples of Activity Systems Maps I was finding aside from Ikea, Southwest Airlines and Vanguard until I found the Porter Prize site.   I was then surprised at how much less insightful the other Activity Systems Maps were.    While the Porter Prize winners descriptions of unique value propositions, trade-offs, and fit were often described very clearly this often did not translate well into an Activity Systems Map.  

Often times the core strategic themes were unclear, off target, or misleadingly generic.   Unclear strategic themes such as YKK's "Inheriting Management Philosophies" required further explanations.   YKK's management philosophies lead to notable trade-offs to establish unfaltering trust among their employees and customers which can translate into loyalty.  Off target strategic themes such as Kakaku's "Accumulate Information" were less informative than their more strategic theme of providing neutral, reliable and unbiased product reviews and pricing.  Providing unbiased reviews and pricing initially irritated retailers and manufacturers however customers grew to appreciate the value of honest reviews and Kakaku attracted reputable vendors who would offer pay-per-click referrals while less reputable vendors were not as attracted to the site.   This honest information became attractive to customers and reputable vendors looking to promote their products.  Canon's "Aiming to Be Number One in the World" strategic theme seems to be misleadingly generic as everyone wants to be number one, however in reality others are often willing to make compromises such as building "good enough" manufacturing facilities rather than "state-of-the-art" facilities.   Perhaps Canon may have been more clear on wanting to be number one in quality rather than in terms of lowest price or largest sales volume.

Other challenges of Activity Systems Maps are the ability to capture the complexity of the strategies.   For instance YKK's "flexibility for customization" and "economies of scale" do not appear prominently on their Activity System  Map, possibly due to all manufacturers needing to scale and yet be flexible to a varying degree.   Similarly Google has established a "corporate culture" which provides it a strategic advantage but may be too complex to illustrate and explain concisely.

At first the Activity Systems Maps did not seem to illustrate competitive advantage however by comparing competitors Activity Systems Maps side-by-side it becomes much clearer how competitors differentiate themselves among similar activities and where they will not be able to compete effectively.   For instance, putting an Activity Systems Map for Continental Lite next to Southwest would reveal how Continental Lite could not compete on price alone with increased sales costs through travel agents, plane maintenance and baggage transfers.   Or if Amazon were to offer internet-only sales of furniture they would lose against Ikea's low cost due to shipping expenses and would reduce the customer experience of seeing and feeling the product quality in person.   Ikea.com does in fact offer product shipping at a notable cost which is not shown on Ikea's Activity Systems Map, possibly because it is several years old.

Overall I believe that Activity Systems Maps can be an incredibly valuable tool for illustrating the interrelationship between strategic themes and activities however the value will undoubtedly vary from organization to organization.   The ability for leadership to build, and others to understand the value of the chart may also be in question if people are not already familiar with the purpose of the chart.



Examples of Activity Systems Maps from Porter Prize winners
Kakaku.com
Provides honest transparent information to customers that retailers and manufacturers may want hidden including as pricing and product reviews. 



YKK Corporation
Fastener Manufacturer (Examine your zipper and you may see "YKK" imprinted on the tab)



Canon (Camera Lenses)


Porter Prize Japan Winners 2001-2014 http://www.porterprize.org/english/pastwinner/index.html

Provides detailed breakdown of each winning organizations strategy by:

  • Unique Value Proposition
  • Unique Value Chain
  • Fit Among Activities
  • Innovation that Enabled Strategy
  • Consistency of Strategy over Time
  • Trade-offs
  • Profitability
  • Activity Systems Map

The Porter Prize was first established in 2001 to recognize profitable Japanese companies which have succeeded through implementation of unique strategies based on innovations.
http://www.porterprize.org/english/index.html

Porter Prize India was started in 2012 http://www.porterprize.in/archives/

Porter Prize South Korea started in 2014 http://www.porterprize.kr/ (predominantly in Korean)

Recordings of India's Porter Prize 2014 and 2013 Talks
https://www.youtube.com/user/arthsastra


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