How to Create a Compelling Strategy
Strategy is too often lacking clarity and consistency. Some decisions or initiatives gain the gravitas of being ‘strategic’ when in fact they are operational.
So how do you create a successful strategy?
There are four key elements of a great strategy – a clear strategic positioning, aligning and integrating all activities, making clear choices and trade-offs, and leadership.
Establishing a clear strategic positioning
The essence of strategy is to serve a clearly defined customer to satisfy a clearly defined need or want in a way that is different and better than your rivals. This is captured in a strategic positioning statement.
For example, Ikea’s strategic positioning is to target young furniture buyers who want style at a low cost.
Strategy guru Michael Porter identifies three sources of a sustainable strategic position:
Specialise on a particular product-type within a particular industry e.g. lubricants in the automotive industry.
Serve most or all the needs of a particular customer e.g. targeting households through bundling power, gas, broadband and mobile.
Focussing on a particular geographic or access need e.g. Barfoot and Thompson focussed on Auckland real estate market.
A strategic positioning is enduring. A low-cost airline vs a full-service airline remains true over the long term. How that strategic positioning is executed may change as new technologies are adopted, societal values change, economic and political cycles come and go, and consumer behaviour changes.
Consistently align and integrate activities
Once you have a clearly defined strategic positioning, it is critical to align all the activities of the business to that strategic positioning.
Taking the Ikea example, Ikea keeps costs down' through self-service kiosks and produces it’s own standardised, low cost, modular, ready-to-assemble furniture that is picked up by customers in an adjacent warehouse. Stores present its products in room-like settings so customers can see style without need to engage designers. They have in-store childcare and extended hours to cater for young consumers with children working full-time.
These activities are a clear and cohesive alignment to Ikea’s strategic positioning. Taken as a whole, the integrated system of activities that is hard for rivals to replicate. It is the integrated system of activities that is the source of competitive advantage, not any one individual component.
Alignment is more than products and services. It also includes how and where they are provided, the organisational culture, business model, systems and processes, recruitment, onboarding and training, and the external brand and marketing activities. Together, these elements deliver on, and reinforce, the strategic positioning.
Making clear choices and trade-offs
Strategy is about clarity, choice and trade-offs. It is as important to be clear about what you are not going to do as it is what you are going to do .
In the example above, Ikea has made a deliberate choice not to provide a personal assistance through salespeople on the shop floor. They do not provide for customers who want high levels of personalisation or choice of products. There is a customer demand for this higher level of service and therefore cost, it is just not the customer Ikea is choosing to serve. You can go to Freedom or Harvey Norman for that.
The role of leadership
Staying true to the strategic positioning of a business is a core role of leadership. Through their consistency of decision-making, willingness to make clear choices and trade-offs and clarity of communication, leaders strengthen (or dilute and contradict) a strategic positioning.
The temptation to be all things to all people is a common strategic trap. Companies seeking to broaden the customer need they serve are often better to establish distinct business units or subsidiaries with their own clear, compelling and consistently executed strategic positioning. For example, Qantas established Jetstar to avoid compromising the full-service airline positioning. Similarly, Hertz established Ace Rentals as a low-cost rental car provider. For Foodstuffs, New World, Pak ‘n Save and Four Square occupy clear and distinct strategic positionings within the supermarket industry.
In summary
The essence of strategy is to serve a clearly defined customer to satisfy a clearly defined need or want in a way that is different and better than your rivals. Strategy is about clarity, choice and trade-offs. A strategic positioning is enduring.
With a clear strategic positioning, you can set about aligning the activities of the business to that positioning. It is the integrated system of activities that is hard for rivals to replicate and ultimately the source of your competitive advantage.
Through their consistency of decision-making, willingness to make clear choices and trade-offs and clarity of communication, leaders strengthen (or dilute and contradict) a clear, compelling strategic positioning.
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