"Who Are You Competing Against?"
Improving productivity, inventory turnover and other internally focused activities alone means making investors happy, but has nothing to do with getting business. In this case, who are you really competing against? Your own old “self”! Such improvement is good, but only in the context of having a goal to gain an advantage against competitors with a set of customers - so that these customers say, "I want to do business with this company!" You need to know how to make customers happy in a way that brings about competitive advantage. Strategy is having a "where to play" and "how to win" against competitors.
You can always have a strategy to win in a certain way in a certain place. The US military changes its organization and equipment based on who and where they are going to fight. They recognized a new world order where Russia is no longer the main enemy and large armored divisions are not going to work. They changed their strategy to emphasize fast, mobile strike specialized units. JC Penny totally sunk itself (and got the CEO fired) by working on mini-boutiques, improving sales per square feet which had, arguably, nothing to do with winning customers from Macys, Target, or other department stores.
Operational Effectiveness vs. Strategic Positioning
1. Operational Effectiveness is creating, making, and selling a product or service faster, cheaper, and with less defects. You do not win on this alone in the long run nor is it sustainable since competitors can eventually emulate this.
2. Strategy or rather, strategic positioning, is about doing things that differentiate you from others for a sustainable competitive advantage. It's about doing similar activities differently or different activities from similar competitors. Great example of this: Starbucks offers high quality coffee in a bistro-like ambiance.
Remember Michael Porter’s “What is Strategy”:
1. Strategy is the creation of a unique and valuable position, involving a different set of activities.
Strategic position emerges from three distinct sources: 1) serving few needs of many customers, 2) serving broad needs of few customers, 3) serving broad needs of many customers. In other words, find niches.
2. Strategy requires you to make trade-offs in competing—to choose what not to do. You cannot be all things to all people. As one of my programming colleagues said when I pushed him too hard, “We can do anything. We just can’t do everything!”
3. Strategy involves creating “fit” among a company’s activities. McDonald’s tested McPizza and customers just were not willing to wait (it’s supposed to be “Fast” food!). Pepsico owned KFC, Pizza Hut, Taco Bell but spun them off to create YUM! - just did not allow them to focus their activities.
So always know who you're really competing against, know your strengths and weaknesses, look for niches, and be disciplined not to bite off too much when formulating your strategy.