Part 2 – Strategy – The “How,” as in, How do I execute my vision?
Strategy – strategy, as a concept, carries a sexiness to it. It conjures images of intellectual battling, thinking moves ahead and out-smarting opponents. Companies and governments pay top dollar to premium consulting firms, such as McKinsey, Bain and the Boston Consulting Group, to help them devise the appropriate strategy.
Yet we would argue that the process of building a growing company is comparable to that of constructing a building – if the vision is what the building will look like when completed, the strategy is the architectural blueprint of how it should be constructed. Strategy needs to serve the vision, not lead the discussion.
The Harvard Business School professor Michael Porter noted that a company’s strategy should be tied to either 1) cost leadership, 2) differentiation or 3) focus in order to develop a competitive advantage relative to its competitors. Without one of these three positionings, it is difficult for a company to earn profits greater than the industry and/or its peers. A CEO/owner needs to determine which path to head down that would most likely reflect the previously defined vision.
Strategy – strategy, as a concept, carries a sexiness to it. It conjures images of intellectual battling, thinking moves ahead and out-smarting opponents. Companies and governments pay top dollar to premium consulting firms, such as McKinsey, Bain and the Boston Consulting Group, to help them devise the appropriate strategy.
Yet we would argue that the process of building a growing company is comparable to that of constructing a building – if the vision is what the building will look like when completed, the strategy is the architectural blueprint of how it should be constructed. Strategy needs to serve the vision, not lead the discussion.
The Harvard Business School professor Michael Porter noted that a company’s strategy should be tied to either 1) cost leadership, 2) differentiation or 3) focus in order to develop a competitive advantage relative to its competitors. Without one of these three positionings, it is difficult for a company to earn profits greater than the industry and/or its peers. A CEO/owner needs to determine which path to head down that would most likely reflect the previously defined vision.
- Cost leadership – providing a product/service at a lower cost to a customer. This enables greater profit generation as the company can charge less for its product/service while maintaining margins and sell more products/services or price at the same level as competitors but make more money for each product/service sold. The challenge is that a company that pursues cost leadership must be structured differently than competitors – we have seen this most often in a company having better access to a critical input/resource (e.g. a mining company closest to a customer), with lower cost of distribution (e.g. GEICO and its direct sales model) or scale in production (e.g. Intel and chips).
- Differentiation – this is a focus on devising a product or service with a different set of attributes that better match what a target customer segment desires. Frequently this enables a company to charge a premium for its product/service, such as through the trust that a brand provides. For example, consumers are willing to pay more money for a commodity product because it arrives in a light blue box (Tiffany’s for jewelry) or tools because they come with the label Snap-On.
- Focus – is the ability to limit a product/service to a particular customer segment and to serve it more effectively by developing internal capabilities that better enable the company to satisfy the customer demand. A classic example is Southwest Airlines that created a business model around a customer segment that was highly price sensitive – this included avoiding hub-and-spoke networks in favor of point-to-point routes, standardizing on a specific airplane type to reduce operating expenses and working capital needs and avoiding the traditional distribution channels. Another example of focus is the aerospace company Heico, which has concentrated its business on aftermarket parts that cost less to its airline customers.
