What is Strategy?
Management tools for operational effectiveness have replaced strategy. Managers continue to focus on operational effectiveness rather than strategic planning, both are important to achieve superior profitability but work in very different ways. Operational effectiveness can lead to more efficiency but strategic positioning means performing different activities from your competitors or the same activities but in different ways.
Strategy
Competitors can quickly duplicate your products and activities. They can use the same technologies, the same services and the same advertising. Constantly benchmarking against competitors means similarities in prices, products and services. This is not strategic positioning or vision. Strategy rests on have a unique set of activities. Business owners must deliberately choose a different range of activities from competitor offering a unique mix of value. Without this the strategy is just a marketing slogan which can be copied and will not withstand competition.
The origins of strategic positions:
1. variety
2. customer needs
3. access
4. broad or narrow
Sustainable positioning requires trade-offs, more of one thing means less of another. Trade-offs add a new dimension to strategy, what is you core competence? How do your activities fit? Are they consistent? Reinforced? Efforts Optimised? The business with the best activity system wins. Strategy is creating a fit within a company's activities and the success of the strategy means doing everything well - not just a few - and integrating among them. If this is not present there is no strategy and no sustainability. Growth and profitability are both hazardous to strategy. The desire for more profit and growth is pervasive in that saying no to customers' types is feared. A strategic position should deepen your position rather than extend your position. Business leaders must have the confidence to stick to their strategy and also to offer guidance in making trade-off choices.
Identifying and building on the strengths of a business can form the basis of a strategic plan aimed at capturing additional market share. Strategic planning is designed to give a business superiority in its ongoing campaign against competitors. That is, to gain market acceptance of their product(s) and/or service(s), to seize and hold market share, to gain a competitive edge or advantage, and to ensure long-term viability and success by maintaining customer loyalty. It is a mistake for small and medium-sized enterprises (SME's) to consider that only big businesses can and should undertake strategic planning. The word strategy has military origins. Having and using a strategy, or a strategic plan, means formulating and using a plan to achieve overall success. Strategies are large-scale plans to seize and hold enemy territory, and to weaken and destroy the enemy. In business, the enemy is the competition and firms competing for market share are in a win-lose situation. We must do everything to take a market share and then keep it.
Business can only survive and succeed by continuing to make sales, and the key to maintaining market share is the achievement of a sustainable competitive edge. Why should a customer buy from you and not Brand X? What is your competitive advantage?
Competitive Advantage
How a business can achieve and maintain a sustainable competitive depends on two strategies. Either we compete on price (offering roughly similar goods and services at a lower price i.e. giving better value) or on a basis of differentiation. Competing on price can be dangerous especially for small to medium business since a vicious cycle of price cuts erodes profit and will ultimately lead to failure. The firm with the most resources will be able to hold out longer and will usually win, but it may be a precarious victory. Competing via differentiation means attracting customers by offering superior products/services at a competitive price. This is a better way for small to medium businesses to compete. Product or service superiority must relate to features which are important to consumers, of benefit to them, and which persuade them to buy. In other words, product/service features (the basis for differentiation) must match the buying criteria of our target customers. It is not solely a matter of making a product different as this will usually lead to higher costs, which often cannot be fully passed on to consumers. We therefore must know what buyers want, why they buy, why they will choose Brand X or Brand Y, Store A or Store B. This can be ascertained by market research. To be able to offer product or service superiority a firm needs to have some distinctive (i.e. core) competence upon which it can develop a sustainable and discernible level of product differentiation or superiority.
Identifying Competencies
Identifying the core competencies in any business is a key part of the whole process of developing an integrated and cohesive strategic plan. Ask yourself a few questions:
1. Where do you want to go?
What are your personal values?
What is the vision for the business?
What are your objectives?
2. Where are you now?
What are your capabilities e.g. resources, funds, assets, information?
Who is your competition e.g. survey of industry, environment etc?
What are your strengths and weaknesses? (internal)
What are your opportunities and threats? (external)
From the above questions, what is your sustainable, competitive advantage?
3. Which direction do you now wish to go?
What are your strategic options? Now you can develop strategic plans and actions. It should be obvious from this very brief outline of some of the steps involved in putting a strategic plan together, that identifying core competencies and forming ideas about how we should compete (i.e. what our sustainable competitive edge should be) are not, and should not be seen to be, isolated activities. They are part of the whole sequential process of formulating a strategic plan. It is vital that you are aware of the link between core competence and having the ability to compete by using it to create a sustainable competitive advantage.
Strategy rests on have a unique set of activities. Business owners must deliberately choose a different range of activities from competitor offering a unique mix of value. Without this the strategy is just a marketing slogan which can be copied and will not withstand competition.
Growth and profitability are both hazardous to strategy. The desire for more profit and growth is pervasive in that saying no to customers' types is feared. A strategic position should deepen your position rather than extend your position. Business leaders must have the confidence to stick to their strategy and also to offer guidance in making trade-off choices.
http://www.businessreboot.com.au
What Is Strategy? Has Operational Effectiveness Replaced Strategy?
Lorraine Garvie
Helping you to define your sustainable competitive advantage