Determine your strategy: 3 elements explored
Three basic elements are crucial when landing on a good strategy: the objective, the reach, and the competitive edge. This article explores these three elements, which form the core when determining strategy.
Determining the objective
Most companies establish the first element in determining strategy, the objective, in some form or fashion. Unfortunately, it’s usually not formulated correctly. Companies tend to confuse their values or mission statement with their objective.
This, for example, is what a strategic objective is not:
Maximizing stockholder value by surpassing customer expectations for product/service X/Y and offering our employees fulfilling lives, while respecting the environment and community we operate in.
A strategic objective is more of a single and precisely described objective that determines the business for, say, the next 5 years. Companies should have clearly defined their mission and values, but they can’t be compared to strategic goals.
Make your goals SMART
The strategic goal should be specific, measurable, acceptable, realistic, and time-bound. It should also just be one objective. So not: “We want to achieve profitable growth”. You have to decide between profitability and growth. The goal should be the foundation and clarify the decisions that employees make in their everyday activities. A salesperson, for example, should know what to do when deciding how aggressively to price a product.
The Balanced Scorecard
There should be a set of underlying goals that flow from the strategic goal and form the units of measurement in a Balanced Scorecard which tracks progress for stakeholders. But the ultimate strategic goal that drives the business for the next few years should be crystal-clear.
Restructuring the entire organization
Choosing a strategic goal has a huge impact on the company. For example, when Boeing changed their strategic goal from “being the biggest airline” to “being the most profitable airline”, they had to restructure their entire organization. Top-to-bottom, from marketing and sales to production and finances.
Determining the reach
The reach of an organization encompasses three dimensions:
- Customer or offering
- Geographic location
- Vertical integration
The key here is clearly determining the boundaries of these dimensions so that managers know which activities to focus on, and more importantly which not to. These three dimensions vary in relevance. For one company the type of customer is much more important and a bigger determining factor than the geographic reach, for another company it’s the other way around.
Experiment within the borders
The reach doesn’t precisely prescribe everything that should happen within the determined boundaries. On the contrary, it should stimulate experimentation within those boundaries. The boundaries should be very clear to everyone in the organization. This will prevent hours of meetings about projects that will eventually be shot down by management for not fitting inside the strategy. Clarifying the reach helps companies to focus on their strengths. This enables them to reap the fruits of simplicity, standardization, and experience.
Determining the competitive edge
Given the fact that a sustainable advantage is the essence of a company strategy, it’s no surprise that this is the most important part of formulating strategy. Clarifying what sets the company apart helps employees understand how they can contribute to successfully implementing the strategy.
There are two components to the competitive edge. The first one is the customer value proposition. Any strategy that can’t explain why customers should choose your product or service is doomed to fail. A simple graph that sets your value proposition up against those of your competitors gives you a simple and clear insight into what distinguishes your company. Consider the Walmart example to the right.
Customer value at Walmart
In this example, Walmart’s customer value proposition can be formulated as: “Low prices every day for a wide assortment of goods that are always in stock in easily reachable geographic locations”. On these aspects of the customer experience, Walmart scores much higher than its competitors. Performing worse on other criteria is a strategic choice that saves costs in the service of improving the competitive edge of their low prices.
Unique combination of activities
The second component of the competitive edge describes the unique combination of activities that ensures that only your organization can provide that value proposition. This component brushes against Porter’s definition of strategy as making consistent choices about the configuration of company activities. There are several ways to help you clarify this configuration of activities, for example strategy mapping or the business model canvas.
Need advice determining strategy?
Feel free to contact one of the strategy specialists of Passionned Group. We have over 15 years of experience in advising companies and implementing complete solutions.