Strategy is about attaining and maintaining a position of advantage over competitors through the successive exploitation of known or emergent possibilities rather than committing to any specific fixed plan designed at the outset.
Developing strategy is often over-elaborate and over-complicated. Strategy is simply about understanding where you are now, where you are heading, and how you will get there. It involves tough choices in three areas:
- Who to target as customers?
- What product to offer?
- How to implement the strategy efficiently? (The most common cause of failure is the inability to make clear choices in these three areas)
In every industry, there are several positions that a company can occupy. The essence of strategy is to choose the one position that your company will claim as its own. If this is achieved, the firm can stake out a unique strategic position.
Blue Ocean Strategy
Blue ocean strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant. Instead of dividing up existing— and often shrinking—demand and benchmarking competitors, blue ocean strategy is about growing demand and breaking away from the competition.
Competitive strategy is about understanding your competition and then being different. It means deliberately choosing a different set of activities to deliver a unique mix of value. The essence of strategy is in the activities – choosing to perform activities differently or to perform different activities than rivals.
The Five Competitive Forces That Shape Strategy
By understanding how the five competitive forces influence profitability in your industry, you can develop a strategy for enhancing your company’s long-term profits. Competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products.
Four additional competitive forces can hurt your prospective profits:
- Savvy customers can force down prices by playing you and your rivals against one another.
- Powerful suppliers may constrain your profits if they charge higher prices.
- Aspiring entrants, armed with new capacity and hungry for market share, can ratchet up the investment required for you to stay in the game.
- Substitute offerings can lure customers away.
Reshaping the Forces in Your Favour
Use tactics designed specifically to reduce the share of profits leaking to other players. For example:
- To neutralize supplier power, standardize specifications for parts so your company can switch more easily among vendors.
- To counter customer power, expand your services so it’s harder for customers to leave you for a rival.
- To temper price wars initiated by established rivals, invest more heavily in products that differ significantly from competitors’ offerings.
- To scare off new entrants, elevate the fixed costs of competing; for instance, by escalating your R&D expenditures.
To ensure a successful strategy:
- Create a unique position for your company. Focus on whom your customers are, the value proposition offered to customers, and how you can do this efficiently.
- Understand the importance of values and incentives. The cultures and values, measurement and incentives, people, structure, and processes all determine the environment of your organisation. By influencing behaviour, these will affect the success of your strategy.
- Gain people’s emotional commitment to the strategy. Any strategy will fail unless people are emotionally committed to its success.
- Recognize that understanding is not the same as communicating. Explain why the strategy is important to the organisation and the individual.
- Do not overlook the knowing – doing gap. Individuals tend to do the urgent things and not the important ones.
- Keep your strategy flexible. Ideas have a shelf life. Continually reassess the answers to the “who, what and how” questions. Also, strategy requires adjustment to suit external circumstances. So allow your people to respond and to adjust, without waiting for permission.
WHAT MATTERS MOST TO STRATEGY EXECUTION
When a company fails to execute its strategy, the first thing managers often think to do is restructure. But research shows that the fundamentals of good execution starts with clarifying decision rights and making sure information flows where it needs to go. If you get that right, the correct structure and motivators often become obvious.
The Secrets to Successful Strategy Execution
Companies with excellent strategy execution focus their efforts on two levers:
- Clarifying decision rights—for instance, specifying who “owns” each decision and who must provide input.
- Ensure that everyone in your company knows which decisions and actions they’re responsible for.
- Encourage higher-level managers to delegate operational decisions.
2. Ensuring information flows where it’s needed—such as promoting managers laterally so they build networks needed for the cross-unit collaboration critical to a new strategy. Tackle decision rights and information flows first, and only then alter organizational structures and realign incentives to support those moves.
- Make sure important information about the competitive environment flows quickly to corporate headquarters. That way, the top team can identify patterns and promulgate best practices throughout the company.
- Facilitate information flow across organizational boundaries.
- Help field and line employees understand how their day-to-day choices affect your company’s bottom line.
Strategy. Business StartUps and Corporate Restructuring Consulting
Uwaoma Eizu is the lead strategist at Hexavia! He is a graduate of Mathematics with two MBAs and over a decade of experience working with startups and big businesses. His core is in building startups and in corporate restructuring. He is also a certified member of the Nigerian Institute of Management, Institute of Strategic Management of Nigeria and the Project Management Institute, USA. By the side, he writes weekly for the BusinessDay newspaper.