Winner-Take-All and Communicating Your Strategy

There have been recent articles on how Apple currently has 92% of smartphone profits. There has also been discussion of steadily growing Mac sales despite a declining PC market.

These two developments reminded me of Michael Porter's "What is Strategy?" article, written for the Harvard Business Review in 1996. HBR's 10 Must Reads on Strategy, "What is Strategy?" by Michael Porter (Harvard Business School Publishing Corporation, 2011; article originally published in November, 1996). In the article Porter states the following:

"When activities complement one another, rivals will get little benefit from imitation unless they successfully match the whole system. Such situations tend to promote winner-take-all competition. The company that builds the best activity system . . . wins, while rivals with similar strategies . . . fall behind. Thus finding a new strategic position is often preferable to being the second or third imitator of an occupied position."

Id. Applying this quote, Apple has a unique "activity system" with great fit across activities. This seems to be driving rising sales and an ever-increasing share of PC and smartphone profits. See post titled Acquisitions, Rivalry, and Strategic Trade-Offs. 

And consistent with Porter's prediction, rivals with similar, Apple-like strategies are still being hurt by winner-take-all effects. Companies with forked versions of Android and integrated, well-designed hardware -- like Xiaomi in China -- are having difficulty following Apple's profitable path. Because it relies on forked Android, Xiaomi cannot quite match Apple's activity system and the fit across these activities. Porter might counsel Xiaomi to find "a new strategic position" rather than "being the second or third imitator of an occupied position." Id.

One other small point: Apple has always been open about its strategy of focusing on great products, following an integrated approach, and owning the key technologies. I've sometimes wondered whether it's good for Apple to announce its strategy this way. Michael Porter addresses the issue in an interview at the end of Understanding Michael Porter by Joan Magretta:

"If your competitor hears you give a speech about your strategy, so much the better. Because if you have a clear strategy with trade-offs and choices, the more the competitor knows you're committed to it, the more likely they are to do something else, to avoid head-to-head competition where they're not going to be able to win. 

. . .

[Y]ou don't necessarily want to tell your competitor which machine you're going to buy and when you're going to introduce a new product and all the details that might give them some ability to make things difficult for you. But the basic direction you're going is something else."

Understanding Michael Porter, by Joan Magretta (Harvard Business Review Press, 2012).

The author owns stock shares of Apple.