Rethinking the nature of strategy

NAB's latest Business Research and Insights, contains a summary of a seminar provided by Michael Porter at the World Economic Forum, which was held in Sydney in May. Porter is a Professor at Harvard Business School and Director of the Institute for Strategy and Competitiveness, and he discussed the world of opportunities available to companies that are willing to recalibrate their thinking around strategy.

The worst error in strategy is to compete with rivals on the same dimensions

Many organisations focus on how to be the best, but the fundamental question should be how do you deliver something unique to the customers you choose to serve? Strategy is more than a goal, a particular action or mission; it’s what defines the company’s distinctive approach to competing and the competitive advantages on which that approach will be based.

Understand your industry deeply before you focus on your market position

Companies often jump too quickly to their position in a marketplace. But the health of your industry determines success just as powerfully as your market position. Industry analysis is very powerful in revealing an opportunity that you might ignore and part of your job is to make sure industry competition is shaping up in the right way so the opportunity for everyone doesn’t erode.

Understand your positioning clearly

Position starts with higher prices based on a premium product or lower costs based on efficiency – which track are you on? The value chain is crucial in determining your position. Competitive advantage is delivered if you can differentiate along certain parts of the value chain that enable the delivery of additional value to customers. Alternatively, if you use the value chain efficiently you can deliver a lower cost item to the customers you choose to serve. Make a choice.

Understand that operational effectiveness is not strategy

Operational effectiveness is about best practice – real strategy creates a unique value proposition based on doing things differently to deliver superior value. A very common mistake is focusing so much on effectiveness that there is no strategy. The two are codependent – if you implement best practice you are unlikely to have a competitive advantage but unless you are operationally effective strategy does not matter.

There are seven signs of a successful strategy

• A unique value prop compared to competitors that answers three questions: what customers are you serving? What customer needs are you going to master and be uniquely good at serving? What price will you ask – a premium, lower cost or discount based on efficiency?
  

• A differentiated value chain that makes your value proposition real involving clear choices about how the company will operate differently to proposition.

• A willingness to make trade-offs that involves choosing what to do and what not to do.

• A willingness to make customers unhappy. If you try to make every customer happy, you do not have a strategy based on choices.

• Integrated functional silos that tie functions like marketing, design and supply chain together.

• Continuity of strategic direction, with continuous improvement in realising the unique value proposition.

• A coherent approach so suppliers, customers and staff know what you stand for and activity and choices are integrated across the value chain.

The biggest opportunity going forward will be in creating shared value, where societal needs and challenges are tackled through a for-profit business model that aligns business and community/societal needs.

Read more insights from the 2014 World Business Forum keynote speakers at http://business.nab.com.au/tag/world-business-forum/