MICHAEL PORTER on Strategic Innovation – Creating Tomorrow’s Advantages

An Innovation Excellence Classic: From an interview with Rowan Gibson
AS WE ENTER the twenty-first century, there is a pressing need for clear strategies. Because unless companies have a clear vision about how they are going to be distinctly different group of customers, they are going to get eaten alive by the intensity of competition. 
There was a time when markets were forgiving when there weren't that many rivals and companies could drift along with 'me-too' strategies. But now 'me-too' strategies are punished quickly and mercilessly. So the stakes of having a clear strategy are higher.

There Principles of Competitive Strategy
The first principle is that if everybody is competing on the same set of variables, then the standard gets higher but no company gets ahead. And getting ahead-then staying ahead-is the basis of strategy: creating a competitive advantage. Strategy is about setting yourself apart from the competition. It's not just a matter of being better at what you do-it's a matter of being of being different at what you do.
Increasingly, the companies that will be the true leaders will be those that don't just optimize within an industry, but that actually reshape and redefine their industry. The important thing is to try to shape the nature of competition, to take control over your own destiny.
The second principle is that a good strategy makes the company different. It gives the company a unique position. And a unique position involves the delivery of a particular mix of value ti some array of custimers which represents a subset of the industry. The fundamental truth in strategy is that a it. Strategy requires choices. You have to decide what particular kind of value you want to deliver to whom.
Third, it's not good enough just to be different. You've got to be different in ways that involve trade-offs with other ways of being different. In other words, if you want to serve a particular target customer group with a particular definition of value, this must be inconsistent with delivering other types of value to other customers. If not, the position is easy to imitate or replicate. So there must be trade-offs between what your competitors do and what your company does. If there are no trade-offs then everything can be easily and cheaply imitated. And that leads, of course, to a mutually destructive battle. Companies end up competing for the same set customers using the same set of infucements. This is usually a loser's game.