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2/2 series articleBrandingFood For Thought

Great strategy: what you need to know

By 13th January 2021November 3rd, 202319 Comments
This is part two of the topic related to strategy. In the first part, we gave a brief definition of what strategy is in the most fundamental sense and understood it to mean planning. In order to plan, however, there are so many elements that have to be understood and employed to help guide the business through the execution process.
Before starting a business, an entrepreneur is expected to have a clear idea of the market they will be competing in. Once this first step is established, you want to then evaluate the industry structure with the aim to understand whether or not it’s healthy and good for business. If you already own a business and are operating, you also want to think about your overall position. Are you well-positioned in a bad industry, or badly positioned in a good and profitable industry, and therefore not realizing your goal of profitability? These are the core things that need to be considered. A company shouldn’t only focus on its own health, but also that of the industry. A good strategy would highlight these things: industry analysis, positioning analysis as well as positioning thinking.

INDUSTRY STRUCTURE PROFITABILITY
The profitability of the industry should be the primary motivating or demotivating factor to entering and attempting to establish oneself, assuming that you are a profit-based organization. In doing the industry analysis, an entrepreneur/businessman would do well to consider the following industry profitability determinants:
  1. Supplier’s bargaining power
  2. Threats of substitute/ counterfeit products or services
  3. The intensity of existing competitor’s rivalry
  4. Buyer’s bargaining power
  5. Threats of new entrants
If you determine that your industry of interest has steep competition, the easy entrance of new players, a high chance of substitute products and overly cheap services, etc… chances are, you are not going to win. Either you disrupt the status quo by executing a really well-put-together strategy or find another potentially more profitable industry.  The end goal should always be to make a profit and one way a business can do this is by differentiation. Yes, finding your competitive advantage. Are you going to offer something that a customer would be willing to pay more for? or will you produce an equivalent product or service at a fraction of the price and charge your customers low prices while maintaining profitability?
Determining that competitive advantage is key. But it’s not always easy to figure out what really makes a company competitive. It could be anything. This is where the value chain comes in.  The value chain could be defined as the set of activities involved in providing value to the customer. If you intend to figure out your competitive advantage, the value chain is where you would look as it is where your competitive advantage resides. The strategy is in fact manifested by the choices a company makes in its organization of activities in the value chain and how well linked together they are. With the understanding that value is essentially what the customer is willing to pay for, there are various ways of figuring out your value chain in the same industry with various players to help you find your competitive advantage.
As already mentioned before, you could decide that you want to charge low prices for your offerings. You would do so because you’ve figured out ways to cut costs in production by doing certain things efficiently to reduce the price. on the other hand, you could decide that you are only going to compete on the high-end. This would be because you’ve found something in your value chain that the customer is willing to pay for, thus, giving you that sought-out competitive advantage. You can see that the value chain is a very important aspect of your business as it allows you to get very specific about what it is that is helping you to compete advantageously. This is a little different from the SWOT analysis which encourages you to only look at your strengths, weaknesses, opportunities, and threats. Though great and still very functional, it is also very broad as opposed to the value chain which moves us to go deeper than that in analyzing our processes to figure out where our competitive advantage is coming from. Once we figure this out, we can then effectively position ourselves; whether as a low, medium, or high prices competitor.

Operational Effectiveness

In your quest to find what gives you a competitive advantage, you want to ensure that you are operationally effective. What do we mean by being operationally effective? Operational effectiveness is basically the concept of being aware and updated on best practices in your particular industry, validating and then executing them in your own business; but only better than your competitors. Operating effectively ensures that your business never gets outdated, it helps you consistently figure out what’s hot and improve on it.
No matter how great your strategy is, if you are not operationally effective, you are simply not going to thrive. You’ve got to be in the loop. While operational effectiveness is massively important for your relevance as a business, the chances of it aiding you to compete advantageously are very, very slim. What you are doing, your competition is most likely doing too. So depending solely on being operationally effective will lend you to situations where you have to compete for price. We both know how that ends: low prices for your offerings which as a result undercuts profit. It will end up being a situation whereby, you can not clearly distinguish yourself from your competitors because you are all basically mirroring one another. Believe me, being stuck in a rut is painful enough. But getting out of it– more especially if you absolutely have no idea of what direction you need to propel yourself and your organization is like trying to climb a vertical slope while pulling weight. It’s dead difficult!
A perfect situation that will most definitely drive you into a rut is that of competition on price. Under no circumstances do you ever want to use that as a competitive ground. It’s a losing battle. A very big mistake! So, there’s no doubt that operational effectiveness is great — something that a successful business can’t do without. But it also has incredibly short legs that will help you to run only so far before you realize the ever-widening gap. The advantages it gives you are very limited in terms of how much you can strengthen your foothold against other industry players. So rather than just relying on best practices to operate effectively, you also want to position yourself well strategically as a way of gaining a competitive advantage.

Strategic Positioning

Industry awareness is crucial. But when coupled with strategic positioning, a business would most certainly set itself up for success. Compared to operational effectiveness which as already mentioned requires that you are always on the lookout for emerging trends and potential disruptions in the market, positioning yourself very well strategically allows you to create a unique value proposition or choices for your customers.
In other words, rather than allowing or waiting for the industry to dictate your next move, the strategic position requires — in facts –demands that you are very much up to date with current industry trends so that you not only ride the waves of those trends in the best way you can but also make a set of choices that will set your organization apart from the competition. In a practical sense, you could decide that you’re going to serve a different set of customers to avoid head-butting with your competitors. Such choices would not only allow you to operate profitably but also very efficiently.

What creates a successful strategy?

A great strategy encompasses a lot of things. You can only deem your strategy successful if it has a clearly defined and unique value proposition. You can not simply compete on the same things as your rivals.
If you find your organization offering the same products/services as the competition, targeting the same customers, and employing the same processes to deliver such products/services at the same price point as the competition, then you simply do not have a strategy. What you are doing is riding the waves of emerging industry trends. You are operating “operationally effectively,”  and that can only take you so far before your organization starts to struggle as you face the risk of being driven out of business. How many organizations or even influencers do you know who made something trendy, but quickly disappeared into oblivion after the hype died down, just as quickly as they appeared? I’m sure you can think of one. There are too many! You don’t want to find yourself in a similar situation.

Let’s define the value proposition

By now you are probably scratching your head and wondering exactly where to start in order to define your unique value proposition. After all, if you can not figure this part out, you may as well be wasting your time. Fret not! It’s really not as difficult as you may think it to be. In defining your value proposition, you want to keep in mind 3 very crucial questions:
  1. Who is the customer?
    • Often the easiest answer to this question is to serve everybody. Anybody who wants it gets it. This may seem enticing. After all, why turn down a customer if they want your offerings?  Easy money right? wrong! Striving to serve everybody is a deadly thing; a very bad strategy. You have to keep in mind that not everybody is going to love your services, however good they may be.  Not everybody will be comfortable with your pricing. Taking everybody as your customer is going to confuse you, weaken your will, and undermine your business in the long run. You have to choose a specific group of people whom you are sure are not only going to use your offerings but also show appreciation.  You have to toughen yourself up well enough to be able to say  ‘no’ to certain customers who simply do not fit your profile, or they may destroy your business.
  2. What is the need?
    • After you have identified your ideal customers, you want to understand what their needs are. Which products or services will most likely appeal to them and solve their pending problems?  Find that pain point, provide a solution, and then drive to the bank because business will be that good!
  3. At what price?
    • The beauty of sorting out the first and second steps is that it gives you an overall idea of where you stand in terms of pricing. Will your offerings be delivered at a premium, parity, or discount?  If your services are exclusive and time-based, then you may decide on a more premium price. Whereas if it’s volume-based services, then you may decide on a more discounted price, relying on volume sales to make a healthy profit.
The key takeaway to these questions is that any answer you reach should be different from your competition’s. If you are able to do that, then you have essentially found your competitive advantage. Meaning you will compete uniquely rather than just doing what everybody else is doing; the latter being a very difficult game to win.
Timeless strategy
Unlike merely operating effectively, or riding the waves of industry trends, a solid strategy is going to be difficult, if not impossible to copy.  How can you ensure that your strategy and competitive advantage do not turn into the next industry trend,  the next big thing that everybody is doing? You want to make sure that your strategy has a well-defined activity system that is directly connected to your value chain.
What do we mean by this? Keeping in mind that the value chain is defined as the set of activities involved in providing value to the customer, your strategy and value chain should complement each other. Having one activity complement another in this way; from your design to manufacturing, and ensuring a tightly integrated system would make it very difficult for competitors to copy your strategy as they would essentially have to copy your entire process, which in a well-defined activity system may not be possible at all; more so if you have been doing the same thing for a long time.
On the topic of being an old industry player, besides a well-integrated system, your other core strength would be continuity. Many make the mistake of essentially changing their overall direction every chance they get. There most certainly are times when some changes may be necessary. Such changes would be sensible when talking about operational effectiveness, the implementation of strategy, clear guidelines for making trade-offs, and the delivery of our value proposition.
What an organization should never do is make changes to its fundamental value proposition; its strategy. Changing your strategy is basically changing your entire company direction.  This could confuse your customers and drive your business to the ground. The price of a good strategy is continuity as well as clear, concise communication to the entire organization so that everybody understands the organization’s direction. If this is done well enough, not only will you be a strong industry player (a force to be reckoned with), but also succeed in your endeavors.

Leadership role

Everything having been said, how does the role of leadership stack up in all of this? It’s leadership that has the clearest idea of the direction the organization is headed in. Since strategy is linked to the organization’s direction, leadership is solely responsible for crafting the strategy and communicating it to the last stakeholder. The guy in charge of marketing will worry about marketing, and the guy in charge of operations will worry about the operation. The responsibility of making decisions that affect the entire organization will rest on the general manager or CEO.
The leader must be very well clued up with the outworking of the organization as well as the overall industry. The leader holds the fate of the entire organization in their hands. hence the leader must be the one who makes decisions about defining the strategy, communicating, and implementing it so that the organization can truly be unique. Every decision made by them gets the organization closer or further away from this ultimate goal of differentiation.
That wraps up our 2 series article on strategy. Don’t just read for keeps. Read and apply. The reward is worth it! Let us know how this helped you in the comment section below.
Aser Kanyiki

Author Aser Kanyiki

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