This article is largely inspired by the HBR article “What is Strategy” by the father of modern business strategy, Michael Eugene Porter.
Defining the word strategy is tricky. Most definitions are centered around articulating a goal and then creating a plan to achieve it.
But the problem with these definitions are that they allow for very poor strategies to be created. Some of these strategies won’t have any competitive advantage – something that Michel E. Porter puts a lot of emphasis on when defining strategy. I have found that Michael E. Porter’s way of looking at strategy is by far the most well-defined and differentiated way. And so, this is the way I have always looked at strategy.
Let’s start by saying what strategy is NOT, which is what Michael Porter does in this article, too. Strategy is not operational effectiveness. What does that mean? It basically means strategy is not doing things more efficiently and effectively. When that is what your strategy is based on, e.g. I’m going to produce a better and cheaper bike, then you set yourself up for a price war against your competitors. When one competitor with a similar product starts selling their product for less, other competitors will look for cost-reduction opportunities and bring their prices down. This is great for efficiency and probably for customer choice and accessibility too. But it’s not great for your bottom line.
Michel Porter defines strategy as “The creation of a unique and valuable position, involving a different set of activities.” In other words, strategy is the identification or creation of a strategic position, based on competitive advantage, which you then use to define your organization’s overall goals and how you will achieve them.
In defining how you’ll achieve the goals, your strategic positioning carves out differentiation versus your competitors either through different activities or similar activities done in a different manner. The strategic positioning is created from one of three possible situations: variety-based positioning: serving a limited number of requirements across a wide range of customers, needs-based positioning: serving a wide range of requirements across a limited range of customers or access-based positioning: serving a wide range of requirements across a wide range of customers within a narrow market.
To explain differences in these strategic positions, let’s use hairdressing as an example.
Variety-based positioning: A salon that specializes in one thing within the hairdressing business, e.g. blow-dries (such as Dry Bar), or perhaps just coloring.
Needs-based positioning: A salon that specializes in non-toxic products across all its services, such as non-toxic hair dye, shampoos, conditioners, hair masks, hair extensions that don’t use glue or other toxic-material bonds, and nail varnish that is 7 or 14-free, meaning it is free of the 7 or 14 top toxic chemicals that normally exist in nail varnish.
Access-based positioning: A salon that specializes in providing services within low-income communities.
What You Won’t Do
As part of the strategy, it is important to also define what the business will not be doing. This is because with any strategy, there will be trade-offs. A poor strategy ignores this and tries to do everything. This rarely, if ever, works. The most obvious issue with this is when your employees or even your senior decision makers are at a decision point but can’t easily choose which way to go because the business strategy actually supports both – conflicting – options, such as a call center that is measured equally against sales made and providing the best customer service.
And lastly, we need to make sure that activities carried out within the business are all in support of the strategy. This is done through one of three possible ways, or a combination of the three: aligning activities to the strategy, e.g. low cost is the strategy, so all activities have to align to and support that; reinforcing activities, e.g. because low cost is the strategy, complimentary delivery is not offered; and optimizing effort, e.g. because low cost is the strategy, and complimentary delivery is not offered, a partnership with a delivery company is signed and offered to customers.
Using the examples above, I’ll demonstrate how the positioning then influences all aspects of the business strategy, which – as we said before – is defining the goal and how it will be achieved.
Variety-based positioning: This salon will emphasize the one service it offers, such as blow-dries. It will not offer other services. It will perfect the one service it offers. It will ensure that all activities drive the perfection of that one service, e.g. training for staff, products purchased, salon lay-out, booking processes etc. Activities align to and reinforce this strategy. Appointment slots are easier to manage because it is easier to predict how long each customer will need.
Needs-based positioning: This salon will offer a variety of services but they will all utilize non-toxic products. This salon will not consider or purchase any products that are not non-toxic. They will also not offer services for which non-toxic products cannot be found. Purchasing activities are focused on non-toxic products. Marketing is focused on targeting customers who choose not to use toxic products.
Access-based positioning: This salon will be physically located in areas where low-income families live. Services provided by the salon will be less expensive, and therefore the products used by the salon will have to fit the cost structure, i.e. be less expensive than other salons as well. Services provided by this salon will differ depending on the needs of its target customer. For example, extensions using expensive keratin bonds will not be a service that is provided by this particular salon.
Working on Your Strategy
Whether you’re defining a new strategy for a new business, or re-visiting your strategy for your existing business, don’t forget to identify your strategic positioning and your competitive advantage. Can you articulate what that is? Next, identify and review your high level activities and test them against your strategy. Do they support and reinforce the strategy, and each other? If you’re able to do all that, congratulations – you’re on your way to a solid strategy!
You can read the HBR article “What is Strategy” if you’d like to full version of Michael E. Porter’s definition of strategy, which lies in finding and flexing a competitive advantage.
What has your biggest challenge with developing your business strategy been? What will you be doing differently this time around? Post your comments and any questions below, and if you can help anyone else out, don’t hesitate to do so! As always, if you’ve found this article useful, share it with someone who’ll benefit from it too!