Being preferred most often.

Isn’t that the ultimate goal of every well-run business: being the supplier preferred most often by its targeted customers for the goods and services it offers? Whether or not that position is ever achieved, isn’t it a management team’s responsibility to move their company closer to the top of their customers’ ‘preferred vendors’ lists when making investments in facilities, systems, operations, people, etc.?

Being most often preferred is not simply one of many equally important business goals. It is the #1 goal.

Why? It’s the only time a sale happens.

Every time a buying decision is made, only the most preferred vendor—the one whose offer sits at the top of the competitive rankings—gets the order (that’s how we keep score of who’s most preferred). Everyone else goes home empty-handed. And the key to becoming preferred most often is to strive to consistently present offers that deliver something of compelling value that is superior to those from all other vendors. In the long run, only the most preferred suppliers make real money.

Unfortunately, you can’t assume that such a coveted position will materialize organically just by doing many things really, really (really) well—that’s just not how business works in the real world.  A company has to make very deliberate choices about specific elements of its business that, taken together, will get it there.

So how does a company become the most frequently preferred supplier? Let’s start with two of the most basic market elements: customers and competition.

Customers

A steady supply of customers is the lifeblood of every business. Nothing else even comes close in importance to the health of a company. Yes, there are many things a company has to do well to be viable, and in practice strength in one area can often help compensate for weakness in another.

However, there is nothing that can compensate for an inability to attract and retain customers. Even the best run, best financed company cannot survive for very long without a steady stream of buyers coming through the door.  Anything that puts that supply at risk, by definition, puts the very existence of the business at risk.

So what poses the greatest threat to that supply of customers?

Competition

Companies are relentless trying to win customers at the expense of their competitors, each one looking for ways to have the most compelling offer every time a purchase is made.  So it is essential for each business to tenaciously steer toward that position, else it will be left behind by the other market players who will, sale by sale, inevitably erode away its customer base.

How then does a company protect its customers from the threat of competition? It does so by using a strategy for guiding its business—a real, honest-to-goodness strategy.

Strategy in General

To proceed further, we need a practical understanding of what a real strategy is. We’ll start with this excellent definition:

“A strategy is a way through a difficulty, an approach to overcoming
an obstacle, a response to a challenge.”

Rumelt, Richard. Good Strategy, Bad Strategy:
The Difference and why it Matters,
2011

This definition brings attention to three facts about a real strategy:

  1. The terms ‘way’, ‘approach’ and ‘response’ imply that a strategy is made up of multiple elements, not just a single decision, activity or goal
  2. A strategy is not a plan; a plan contains details of activities, resources, timing, responsibilities, budgets, etc. that are to be used to achieve a set of goals or objectives; a strategy does not
  3. Before any strategy can be formulated, the obstacle or challenge to be overcome must be clearly defined

Strategy in Business

The concept of strategy entered the business world in the 1960’s as a means for understanding why and how some businesses become very successful,  while others fail to do so. Its subsequent development has allowed leaders in the field to effectively address this question by identifying which elements of a company’s makeup (its structure, operations, offerings, policies, activities, systems, etc.) are the ones which, as a group, enable it to most frequently ‘win’ against its competitors.

Some businesses have financial challenges; some have technology obstacles, while others have operational difficulties to address. But of all the challenges a business can face, none is more universal and ever-present than competition.

Therefore strategy’s first and foremost role in business was, and continues to be serving as a tool for specifically dealing with every company’s biggest challenge: competition. It is the fundamental strategic challenge of every firm. So when the word strategy is used here, it follows the usage of Michael Porter from Harvard Business School (the guru’s guru of strategy):

 “…for Porter, strategy always means “competitive strategy” within a business.”

Magretta, Joan. Understanding Michael Porter:
The Essential Guide to Competition and Strategy
. 2012.

Taking this equivalence one step further, because its competitive strategy deals with the highest-level challenge faced by all businesses (or business units), it can be argued that it is also its business strategy (if not, what would be the higher level, more ubiquitous business challenge that deserves this overarching label?). In Porter’s view, both of these labels refer to the same concept. Call it what you will, as long as strategy’s real purpose is not lost.

To be clear, and contrary to how it’s used by many ‘strategy’ consultants, a firm’s business strategy is not intended to address the many other things it has to do to meet the needs of its customers and be an ongoing operation (many of those can be properly addressed by other means).  Rather, its purpose is quite specific:

To effectively identify those aspects of a business that enable its offerings to be preferred over its competitors and make sure they are effectively and consistently addressed and delivered.

For Part II of this series, What a REAL Business Strategy IS, please click here.

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