[This is the first of four posts I've planned on the topic of business strategy. My intent is to offer up a simple model for structuring strategy conversations. I hope you find it thought provoking & useful.]
TOPIC OF BUSINESS STRATEGY
It is fair to say that the topic of business strategy triggers a variety of responses from admiration to suspicion. When we see a company execute a winning strategy, it is easy to admire the result and hypothesize as to why it was effective. Yet, when we’re asked to get involved in the strategy development process, it is common to view it as a less productive activity compared to “running the business”. But running the business is in all likelihood as really just executing the strategy. There is a way to engage in the strategy process and keep it simple yet productive. Here is a framework.
DEFINITION & EXAMPLES
One way to define strategy is ‘the way in which an organization chooses to compete in the market’. Given this, the number of strategies is almost endless. However, Michael Porter, the thought leader on the topic of strategy helps keep it simple by defining three basic strategies that apply to a majority of businesses.
Overall Cost Leadership: This strategy requires efficient scale facilities or processes, vigorous pursuit of cost reductions, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimization in areas such as R&D, service, sales force, advertising, etc. Low cost relative to competitors is the primary strategic theme.
Differentiation: This strategy is one of differentiating the product or service offering by creating something that is viewed as being unique on an industry wide basis. The differentiation could take the form of design, brand, technology, features, distribution, or a combination of these and other factors. This doesn’t allow the firm to ignore costs, but they are not the primary strategic theme.
Focus: This strategy is aimed at a particular market segment, product line, or geography. The primary strategic emphasis is on serving a particular target better than the competitive set.
To illustrate the strategies, here are some examples for the grocery market in central Iowa:
Basic strategy | Company | Company statement |
Overall cost leadership |  | Everything we do, from selecting suppliers to scouting locations to building and operating stores, facilitates savings…[aldi.com] |
Differentiation |  | …a company known for excellent service and low prices. [hy-vee.com] |
 | Building on our 75+ year heritage of convenience and service… [Dahlsfoods.com] | |
Focus |  Jung’s Oriental Food Store. [actual logo not available] | …variety of carefully selected, high quality imported Asian foods and produces. |
 | It’s all about food at Gateway Market, a new kind of good food market for central Iowa. [gatewaymarket.com] |
Source: Company websites
SIMPLE QUESTIONS
One easy way to engage the strategy process is to use the basic strategies as a framework for comparing your strategy to those of your competitors. Just ask:
· Which strategy are we most closely executing?
· Which strategies apply to my two toughest competitors?
· What facts support these beliefs?
· Unprompted, how would a customer describe the market choices?
· What are the reasons to believe our strategy will be the most effective?
· What factors are for and against this belief?
· Which strategy are we most closely executing?
· Which strategies apply to my two toughest competitors?
· What facts support these beliefs?
· Unprompted, how would a customer describe the market choices?
· What are the reasons to believe our strategy will be the most effective?
· What factors are for and against this belief?
THE BENEFITS
Having a clear strategy will help…
1. Prioritize opportunities and problems
2. Assess performance
3. Increase confidence and strengthen resolve during execution
4. ...And increase the likelihood of achieving business objectives
THE CONSEQUENCES
If an organization is too busy to engage the strategy process, it could mean that the current lack of strategic focus is creating a situation where an organization is attempting to be “all things to all people”. Subsequently, evaluating performance in this situation will likely reveal that results are below expectations for many, if not all, of the strategic initiatives. Furthermore, an organization that views itself as failing to perform will likely struggle on implementing any strategy. There are numerous examples of this situation; however, answering the questions above can reduce the likelihood of this strategy ambiguity.
CONCLUSION
Asking questions to identify and clarify the current strategies is a simple and effective way to have an enlightening strategic conversation. This step alone can yield some very good benefits (see above). In addition, there are some other simple steps, that will be covered in future posts, that also yield value from the strategy development and implementation process.
Please share your comments about this post or topic. Thanks!
MICHAEL E. PORTER, 1980 - New York
