For Part I of this series, The Real Purpose of a Business Strategy, please click here.
The prevailing custom of incorrectly referring to all manner of business concepts and ideas as strategies (e.g., ‘Be the market leader’, ‘Grow revenue 20%’, ‘increase social media use’, etc.) has kept many from becoming aware that strategy is a unique, very specific concept that makes a critical contribution to the business world. Mislabeled phrases like these are almost always goals, or objectives, or tactics, or aspirations, etc. They are certainly important tools for achieving business success, but they are separate and apart from strategy. The regrettable result of this misuse is the absence of a real business strategy guiding most of today’s firms.
What a REAL Business Strategy IS
One facet on which many experts agree is that a business strategy is made up of a set of choices that are intended to move a company toward a deliberately chosen market position.
In their excellent 2013 book, Playing to Win: How Strategy Really Works, Lafley and Martin offer the following definition of strategy:
“A strategy is an integrated set of choices that uniquely positions the firm in its industry
so as to create sustainable advantage and superior value relative to the competition.”
I believe it would be more helpful and instructive for small- and medium-sized businesses if it were re-stated in terms of the ultimate market position it is designed to achieve:
A business strategy is an integrated set of choices that position a company as the
most frequently preferred supplier of its targeted customers for the goods and services it offers.
How well a company selects and develops its points of advantage, how successful it is in creating compelling value in its offerings and how smartly it controls costs and sets prices will determine whether it realizes the goals of ‘sustainable advantage’ and ‘superior value’. Whether it does or not, the target remains the same: being preferred (i.e., chosen) most often—because that’s where the money and growth are.
Although many experts agree that a strategy is a set of choices, they all don’t describe them in quite the same way or at the same level of detail. However, each approach adds insight into what a business has to do to be competitively successful. Below is a synthesis of their ideas presented in a form that businesses can readily identify with, understand and realistically apply to the competitive environments they face.1
The key business choices that have been identified fall into two groups.
The Market-facing Choices
This set of choices address the market in which a company will participate and the position within that market it intends to occupy. Although seemingly obvious, businesses often don’t deal with all these choices completely, or in some cases, at all.
- The products and services to be sold
- The customers to be targeted
- This must be a subset of all potential buyers
- They can be defined by demographics, needs, psychographics, channels, geography, product categories, stage of production, etc., whatever is most appropriate for the specific business
- The subset of the chosen customer’s needs to be addressed
- All their needs regarding an issue usually cannot or should not be addressed
- The unique, compelling value proposition to be offered
- This is what sets a company apart from its competition—it is what is intended to make it preferred most often by its targeted customers
In practice this means choosing the set of customers and needs on which a business will focus all its efforts, and as a result intentionally allow all other potential buyers to in some way be disappointed because that focus could miss, by design, one or more of their most important needs.
The Company-facing Choices
These choices speak to the internal elements required within the business for it to successfully achieve and maintain its chosen market position and resultant competitive success. The leaders in strategy are very clear that this second set must be part of a company’s business strategy because it has to include the internal commitments necessary for realizing the promised unique market position—they are what gives a strategy its ‘teeth’ and makes it visible in the marketplace.
- The company’s definition of ‘winning’; what it’s trying to achieve in terms of:
- Its goals for customers—how the business will improve their situation; they address the situation or experience the company seeks to improve (often considered its mission)
- The goals for the business itself (e.g., greatest customer loyalty, highest market share)
- The set of activities, resources and capabilities that are needed to specifically create and deliver the unique (and only the unique) aspects of the value proposition
- The policies, the guiding themes that communicate the right ‘sense of the business’ to employees, telling them what is most important to its success; they establish the proper mindset and priorities for making consistent, strategy-supporting decisions, inspire people to take action and align and focus the behavior of everyone in the company (often considered part of a company’s culture)
- The management and operational systems needed to enable, promote, support and measure the activities, resources and capabilities referred to in Point 2
Without these execution elements, the first four choices will bear no relationship with reality—they will simply be a wish list. And ‘wishing will make it so’ has never been a formula for business success.
To have a real business strategy means that these eight choices are made as a tightly linked set that integrate with and reinforce each other. A strategy so created results in a business that is seen by its customers as focused and consistent, with all parts of the organization conveying the same story in both words and actions. When buyers clearly know what a business stands for, it builds a powerful brand image, solidifies the company’s credibility and reputation and ultimately creates a compelling preference for working with that organization.
Without a real strategy, there is no guiding mechanism, no reference for employees to turn to for assuring their activities and choices are consistent and build on each other’s contribution to a common set of goals and objectives—something that is essential to achieving real success in any competitive environment.
Operationally, a properly structured business strategy is the filter through which all proposed plans, initiatives, tactics methods, procedures, communications, content, etc. must pass to be approved; otherwise they will be made independently of each other to address immediate, local issues without sufficient regard for their effect on the business as a whole. Adhering to a true strategy prevents the creation of a less-than-effective collection of ‘random acts of business’ from wasting a company’s resources on investments that appear to be good ideas but don’t really contribute to achieving the #1 goal of being the most often preferred vendor of its targeted customers.
So the message is clear: If a company has not developed a real business strategy, it has not completely or effectively addressed how it intends to protect and build its customer base against its most fundamental challenge: the competitive forces operating in its market.
For Part III of this series, Creating a Strategy for the Business, please click here.