We could encounter the word “strategy” several times in many articles, books and conversations. It is easy to talk about it. But what exactly is strategy? Do we mean the same thing? Kim Warren defines a strategy simply as the way for an organization to achieve its goals. But there are (much) more definitions. This means that the concept of strategy is not that easy to catch.
Elements of the Strategy Formation Process
Unlike Warren, certain authors highlight the very process of strategy formation as a particular element in their definition. For instance, John Kay believes that the essence is in finding the right match between the things the organization is good at and the opportunities presented by the surrounding environment. Other strategists, such as Alfred D. Chandler, emphasize that it should be planned from the long-term perspective. In both cases, no immediate results are possible.
Definition by Lynch
Lynch gives a different definition of strategy: Corporate strategy can be described as finding market opportunities, experimenting and developing competitive advantage in a long-term perspective. This definition shows the organization being in open interaction with the environment; the organization must survive in the ever-changing environment and, therefore, the implementation of the strategy requires agility. The Lynch strategy concept is used in this article. However, Warren’s definition, where strategy is the way for an organization to achieve its goals is still relevant in all of its simplicity. This definition implies that management efforts are needed in at least three areas:
- The positioning of the organization: market, audience, product.
- Choosing objectives: what, how much, timing.
- The maneuver to the intended result, time-wise.
This definition perfectly matches with all the lessons the life cycle logically teaches us. These three factors are the foundation for strategic performance management. As shown further, creating a clear picture is what managers should or could do. This article is about the positioning of the organization.
Positioning means that management defines a place for their organization in the economic force field. There is a place under the sun for any organization, provided they find the right position. SWOT analysis is a well-known technique that helps with positioning. SWOT stands for:
By looking at the strengths and weaknesses (SW) of the organization, an image of internal organizational environment is created. By exploring opportunities and threats (OT) a scan of the external environment of the organization is made. This scan helps clearly see the organization’s capabilities in light of its own strengths and weaknesses.
Essence of strategy according to Porter
Michael Porter says that the essence of strategy is that management chooses a financially interesting position that it can rightly claim. This implies that management determines precisely its focus. At the same time, the management points out which product/market combinations are left. Choosing means being sharp, and focus involves saying no. So, positioning is virtually nothing but giving a clear answer to the questions:
- Which customers to choose as a target group?
- What solutions (type of products and services) do you offer to this target group?
Strategic positioning is making fundamental choices about customers and for example the Business Intelligence solutions offered. Positioning is an anchor that makes the organization stay safe for a long time. It will stand even when the external environment is turbulent. Positioning forces the manager to a tricky question: are you sure your organization can generate sufficient power? Can the organization obtain the right tools and skills to achieve the positioning? Estimating the chances to obtain these surplus features can obviously affect the choice of positioning. Gerry Johnson, Kevan Scholes and Richard Whittington add a third element to positioning: anticipate the expectations and influence of stakeholders. Positioning requires anticipating the influence of stakeholders, external environment and strategic ability.
“You can palpate tension in walkways”, said Christophe Lefort, Regional Director of Western Europe for the Canadian RIM. “It’s like we’re trying to invent the Blackberry again.” Like with iPhone, the whole market turned upside down in 2007, so RIM can clamber out of their niche again with a new generation of smart phones, he thinks. This is quite necessary, as RIM, in 2007, was still the market leader, and now it has a mere 7% of the market share with Nokia.
Positioning is quite a complex process. Especially when you think the fundamental uncertainty about the future here plays a big role. In the time given, your position is too far from experiences that prove your choice was the right one. This way, positioning seems like a leap of faith. Or not? Let’s see what the Strategic Positioning School thinks
Strategic Positioning School
Thinking about strategic positioning originates back from the eighties and resulted in founding the influential Strategic Positioning School, which is closely linked to the name of Michael Porter. The essence of strategy, says Porter, is choosing a unique and valuable position rooted in activities and skills that are hard to match by others. According to Porter, an organization can achieve competitive advantages in three ways:
- Goods or services produced cheaper than the competitors’ (cost leadership).
- Unique products or services (differentiation).
- Focus on niche markets (segmentation).
Porter’s generic strategies
Based on this, Porter has developed four generic strategies. You have to choose one of them. If you choose a wrong strategy or combine them, you may get irretrievably stuck in the middle and fail to perform. With the cost leadership strategy, you can increase the margin, still at a low price. This requires the improvement of operational processes in order to reduce the cost. The differentiation strategy is another way to perform substantially better. This involves creating a unique product for which the consumer would pay a premium price. A focus strategy is aimed at competing in a segment of the market, rather than in the overall market. By focusing, the manufacturer has a superior knowledge of the target segments and can better meet the needs of consumers. Again, focusing offers the same possibilities: either a low cost or a unique product.
Many consultants and organizations follow Porter’s approach. He completed his insights with some strategic starting points:
- You must think “outside-in”. This is Porter’s best-known starting point.
- Certain combinations are more or less mutually exclusive by definition. You can’t combine these three methods arbitrarily to gain competitive advantage. For instance, you should not combine cost leadership with a differentiation strategy. An industry-wide scope must not be combined with a focus strategy (focused on one segment).
- The third principle of Porter is a variant of the outside-in thinking: they are the external forces of the environment that largely determine the organization’s performance (profitability).
Porter illustrates his third principle with his famous Five Force Model. In this model, competition, customers, new entrants and substitutes (replacement products and services) play a decisive role. These are all external forces. Thanks to good and smart positioning, an organization can better cope with these five forces and even exploit these industry forces to its own advantage. This is a typical example of agility based strategy.