“Business strategy” is a cool and trendy word. They love to use it in the business world. The public has a good impression when someone talks about strategy. It is even expected from a certain level of management in an organization. But “strategy” is probably one of the most excessive and misused words in the business vocabulary.
Alas, most people who pronounce it do not really know exactly what strategy is. Sometimes I get the impression that the more often someone uses the word “strategy” in a conversation, the less they know about the subject. Please notice that I am talking about business strategy, i.e. about the strategy of a business unit. For corporate strategy, growth strategy, etc., the key points would be different.
Below are seven points that every leader in business should know about strategy. Knowing these basic things, you will have a better understanding of strategy than about 80% of the managers with whom you communicate.
1. Strategy Is About Uniqueness
Strategy is the art of being unique, not being the best. To compete to be the best in business is one of the main, serious misconceptions about strategy.
If you remember only one item from this list, it is better if it is this very first one. Many managers compare a business competition with the world of sports. There may be only one winner. However, the competition in business is more complicated. There can be several winners here. It is not a zero sum game – you won, I lost or vice versa.
There may be several companies in a given industry that exceed an “industry average”, each with a unique, different strategy. They are not a direct threat to each other, because there can be multiple winners. Perhaps the worst approach to strategy is to find the biggest player in the industry and try to copy everything they do. Occasionally this may work, but it is not a strategy. At least, not a good one.
2. A Good Strategy Is a Return on Capital.
Compete for profit. Business is not about “having a large market share” or “growing fast”. Business is about making money. “I want business growth” is not a strategy. Statements like “I want to grow a business” is the same as saying “I want to be rich”.
Such things, alas, do not happen by themselves. Growth is not a strategy, but a consequence. When someone includes growth in a business strategy, a warning orange light should blink. This does not mean that you cannot use the word “growth”. I use it often – at an analysis stage. For example, when you talk about business growth in some territories, growth of a part of the business, or growth points – areas where you can reach your potential and make additional profit.
3. Strategy Derives from a Situation in an Industry
Know the industry. The company is not an island, it does not exist in isolation – it is a part of a large ecosystem, industry. Each industry has its own parameters and characteristics, its own structure. This structure and the relative position of a company in an industry determines its profitability.
Some industries have more opportunity for return than others. Your reflections on an industry and its competition will determine your reflections on a strategy: how you will compete in the industry. The better you know the industry, the better you can identify the elements that will help you stand out, be unique and have more value than the industry average.
4. Strategy Is a Choice and Long-Term Decisions
In my opinion, this is the simplest strategy definition out there. You need an unambiguous choice about who your customers are and an unambiguous choice about how you are going to serve them. It’s like a combination of the outside world (the demand for a product) and the inside world (your supply). In other words, a strategy is a conscious choice from well-analysed alternatives. This allows you to create a roadmap for your organization on the way to its long-term goals.
Or in academic terminology: you need to create a value proposition for a target market segment and develop a unique supply chain activity to serve that market segment. The key word is “choice”. You can’t be everything for everyone. Well, if you pick on every single word, you can, but you’re equally bad for everyone. You’d better target a specific (even if it’s a final size) segment of customers with the same needs.
Next, you need to adapt your activities so that their results meet these needs. Or, in scientific terms, you will need to adapt your value chain (the activities of your company) to the value proposition. The process of strategic innovation will help you make this choice by identifying new “who” and “how” for the organization.
5. Focus of Efforts and Constancy of the Offer Are the Terms of a Good Strategy
Learn to say “no”. If you have a clear and unambiguous definition of what you’re going for – a clear value proposition for the target segment (who) and a set of unique, distinctive operations in the value chain for the needs of this client group (how) – you’ll find that there are many things you won’t do.
These are customers that you won’t serve, activities that you won’t do, products/services that you won’t offer. The decision about what you do not do is equally important in strategy. In the words of the founding father of modern strategic thought, Michael Porter, “The essence of the strategy is what you will not do”. In each strategy, there should be a place for such statements.
6. A Strategy Is not an Endpoint
Never stop. If you have a good strategy, it does not mean that you have achieved success. Competitors do not sleep, customers’ needs and habits are changing, technologies are developing. One critical element to determine the future path of your company is to predict the evolution and trends, and to integrate them into the strategy search process.
You will need a strategy execution process. Simple or complex, it’s up to you. But it should be a regular process. If you don’t do it, you’ll miss out on new value propositions in the industry, and you’ll even be left behind and in trouble. Think about smartphones and Nokia, and you’ll get the idea.
7. Strategy Is a Choice of the Way Through an Uncertain Future
Scenario thinking is important in this matter. Facts and figures reflect only history. You need to transform data into assumptions, this will help to ignite and fuel a thinking process in strategic sessions. The standard way to work with assumptions is through structural scenario planning – to fix some parameters, leave the rest to variables.
This technique will help in strategic sessions by offering possible scenarios and ways (read: strategic alternatives) of the future for your company. I am convinced that scenario thinking is a critical skill for anyone who wants to engage in strategy.
Each leader should at least practice the basics so that no strategic consultant is needed for each strategy session, or at least help critically assess the scenario model presented by a consultant.
It is worth highlighting the points that are
not a strategy:
- mergers and acquisitions
- alliances and partnerships
These are all just tools that can be applied to a strategy execution.
A business strategy is:
- a unique value proposition
- a different value chain from the competitors
- compromises and determining what the company will NOT do
- actions that are integrated with each other and mutually reinforce the effect
- continuous positioning