Strategy

Strategy

Strategy is the glue that aims to build and deliver a consistent and distinctive value proposition to your target market. Bruce Henderson, founder of the Boston Consulting Group, warned: “Unless a business has a unique advantage over its rivals, it has no reason to exist.”

If you have the same strategy as your competitors, you don’t have a strategy. If the strategy is different, but easily copied, it is a weak strategy. If the strategy is uniquely different and difficult to copy, you have a strong and sustainable strategy.

Harvard’s Michael Porter drew a clear distinction between operational excellence and strategic positioning. Too many companies think they have a strategy by pursuing operational excellence. They work hard at “benchmarking” the “best-of-class performers” to stay ahead of their competition.


But if they are running the same race as their competitors, their competitors may catch up. Their real need is to run a different race. Companies that target a specific group of customers and needs and deliver a different bundle of benefits can be said to have a strategy.

Several companies can be cited as having distinctive strategies.

• Southwest Airlines, the most profitable U.S. airline, is run differently than other airlines in dozens of ways: It targets price sensitive, short-trip passengers; it flies point-to-point rather than through hubs; it uses only 737s, thus reducing spare parts inventory and pilot training costs; it sells only economy class and doesn’t give seat assignments; it doesn’t serve food; it doesn’t move baggage to other carriers; and so on. The net results are that Southwest can take off after landing in 20 minutes compared to the average of 60 minutes for competitors, and its equipment is in the air longer and yields a higher return on its investment.
• IKEA, the world’s largest furniture retailer, searches for lowcost real estate in a major city, builds a giant store with a restaurant and day care center, sells good quality furniture at a lower price that customers take home in their cars and put together, offers membership privileges leading to even lower prices, and in a dozen ways remains hard to copy by any would-be imitators.
• Harley Davidson not only sells motorcycles but provides entry into a social community that rides together, has races, and shares the Harley Davidson lifestyle with its HD leather jackets and clothing, watches, pens, watches, and restaurants.

Companies have a unique strategy when (1) they have defined a clear target market and need, (2) developed a distinctive and winning value proposition for that market, and (3) arranged a distinctive supply network to deliver the value proposition to the target market.

Nirmalya Kumar calls this the 3Vs: value target, value proposition, and value network. Such companies cannot easily be copied because of the unique fit of their business processes and activities.

Companies that forge a unique way of doing business gain lower costs, higher prices, or both. While their competitors increasingly resemble each other and are forced to compete on price, strategically positioned companies avoid the bloodbath by following the beat of a different drummer.

Looking at strategy this way prevents companies from thinking they have a strategy because they are going on the Internet, or outsourcing, or restructuring, or acquiring other firms, or adopting customer relationship management. These business initiatives can easily be copied. They don’t define how a business is going about building a sustainable strategy.

One of the best rules for strategy development is to strive to find out what the target customers like and do more of it; and find out what they dislike and do less of it. This means spending time in the marketplace and seeing what matters. As stated by Al Ries and Jack Trout, “Strategy should evolve out of the mud of the marketplace, not in the antiseptic environment of an ivory tower.”

Your strategy should be some unique synthesis of features, design, quality, service, and cost. You have succeeded in building an enviable strategy when it has created such an advantageous market position that competition can only retaliate over a long time period and at a prohibitive cost.

What is bad strategy? We know it when we see it.

• Yesterday’s strategy. Sears and GM, for example, tend to be responsive to the marketplace of yesterday. “You can’t have a better tomorrow if you are thinking about yesterday all the time.” (Charles F. Kettering, American inventor) In too many companies, the old strategy is “baked in.” Dee Hock, CEO emeritus of Visa, said: “The problem is never how to get new innovative thoughts into the mind, but how to get the old ones out.”
• Protectionism. American steel companies lack strategy because they spend their time urging protectionism. Protectionism is a sure way to lose your business.
• Marketing shootouts. Price wars and mutual destruction indicate the absence of strategy rather than its presence.
• Overfocusing on problems. Peter Drucker warned against “feeding problems while starving opportunities.”
• Lack of clear objectives. Companies often fail to spell out or prioritize their objectives. “If you don’t know where you’re going, it’s really hard to get there.” (Viri Mullins, president, Armstrong’s Lock & Supply). I have a strong bias toward advising a company to do what is strategically right rather than what is immediately profitable.
• Relying on acquisitions. Companies that build their growth plans on acquisitions rather than innovation are suspect. Half of a company’s acquisitions will become tomorrow’s spin-offs.
• Middle-of-the-road strategy. What happens to those who have a middle-of-the-road strategy? They get run over.
• Believing if it isn’t broke, don’t fix it. That is one of the worst rules of management. “In today’s economy, if it ain’t broke, you might as well break it yourself, because it soon will be.” (Wayne Calloway, CEO of PepsiCo)

The sad fact is that most companies are tactics-rich and strategy-poor. Sun Tzu in the fourth century B.C. observed: “All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved.”