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Why Strategy Matters

I’m told the word “compete” has its roots in the Latin phrase con petire which means “to seek together.”  That sounds at odds with the contemporary use of the word competition but perhaps that’s what it really is all about — seeking to actualize your potential by testing yourself against the best opposition. It’s not about winning, it’s about realizing your potential and if you’re not winning you know you have a way to go but in the process you are always winning because you’re moving towards the realization of your potential.

I like that idea if for no other reason that it puts a legitimate positive spin on both winning and not winning.

In a previous blog post I defined strategy as the means by which a firm achieves superior performance by implementing a unique set of activities that deliver a customer value proposition that yields a superior margin in a way that can be sustained.  The key words in this definition are “unique set of activities” and “customer value proposition”.

The pursuit of operational efficiency by adopting  “best practice” initiatives is a necessary condition for long run survival and to achieve mid-range performance levels but it will not in and of itself lead to sustainable competitive advantage as I have defined it i.e. superior profit performance.  Superior performance comes from a superior strategy that’s well executed i.e. the realization of your potential. Tom Peters has some interesting thoughts on benchmarking and why it leads to mediocrity.  I posted on this a couple of years ago – here is a link to that post from which you can listen to a soundbite of Peter’s thoughts on the issue.

The key to developing a superior strategy is have a clear definition of your business purpose (this is the “why” for your existence).  In other words, what value do you intend to bring to the table?  This in turn means you need to have a clear definition of what client segments you want to service and have (or can acquire) the skills required to do so, what value proposition you seek to offer to each segment, what type of relationship you want to have with each segment, and what channels you plan to use to sell, deliver and support each segment.

Strategy emerges from the answers to these questions. But the real essence of strategy formulation is the bet you make about what customer needs will be in 5 to 10 years from now and then determining what activities you need to put in place to best meet those  needs.

As I have suggested in a previous post, titled Strategy in Times of Rapid Change, strategizing is categorically not about predicting the future it’s about making a judgement about what the future is going to be like in a general sense.  In the words of Alan Mulally, the CEO responsible for turning Ford around, strategy ” … is about [having] a point of view of the future and then making decisions based on that. The worst thing you can do is not have a point of view, and not make decisions.”

In other words, the reason strategy matters is it gives management a framework for decisions.  Decisions about what not to do – especially what customers not to seek or service – take note of something Steve Jobs said “I’m most proud of the great ideas we did NOT pursue”, decisions about what services to invest resources in, decisions about what technologies to implement.  These decisions all need to be grounded in a hypothesis about how the business is going to create and capture value.

The worst “strategy” is the “no strategy” option.  That is, relying on “dumb luck”. If someone came to you and said “would like to invest in my business, I plan to take a punt on an idea that I hope might work?” How would you respond? This is pretty much the implied strategy adopted by firms that seek to be all things to all people and to bet their future on circumstance.

There is no doubt that some unbelievably successful businesses have emerged from this approach – Facebook being a case in point. Mark Zuckerberg said that the genesis of Facebook was a couple of weeks of intensive programming that resulted in a social network website that people found irresistible–the rest, as they say, is history.  That’s certainly possible when you can test your business value proposition cheaply and quickly as is possible with many internet-based ideas.  But how many businesses have used that approach never to be heard of again?

Once there has been proof of concept a robust strategy is what’s needed to guide growth and sustainable prosperity.  Look at Google, Apple, GE, Oracle, Amazon and any number of other household name companies to confirm my point.  The best summary of what I’m talking about here is from Joan Magretta’s book “Understanding Michael Porter”.  She says:

A strategy helps you decide what’s important because you know who you’re trying to serve, what needs you’re trying to meet, and how your value chain is distinctly configured to do so at the right price.  These elements ground a company, enabling it to sort out what matters and what doesn’t. Strategy makes priorities clearer. Moreover, if the organization has a purpose that people understand, their willingness to change and their sense of urgency will be higher. [This is a critically important issue for professional service firms where people are such a key element of the value chain.]

Put in human terms, it is easier to change when you know who you are and what you stand for, and very difficult to change when you don’t. It is debilitating for an organization to feel it must serve every new need that emerges or embrace every new technology that comes its way. But when everyone understands the value proposition, an organization can jump at new trends that allow it to be more distinctive in meeting the needs of its customers.

 

 

 

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