Many business leaders today spend little time thinking about strategy for their business. Often the day-to-day activities consume the leader’s focus and leave no time to think about the “big picture” and to formulate strategies.
In today's business environment changes occur quickly, and businesses must be prepared to evolve in both the short term and longer terms. This means taking the time to focus your organization on meeting the demands of not only the present marketplace, but also the future marketplace.
Depending on your business sector, changes that could jeopardize the success of your organization can happen quickly. There are many examples of inventions and new processes that have revolutionized particular industries.
Walmart, for example, adopted “just in time” inventory processes that shifted the cost of maintaining inventories to suppliers. Apple transformed the entire music industry with the development of iTunes. The Blackberry, invented by RIM, changed forever how we communicate with each other.
These examples demonstrate that competitors in any marketplace can significantly improve their product or service, which could adversely affect your share of the market. These changes could be as simple as implementing technical solutions that reduce costs, which can then be passed on to the consumer. It may mean developing partnerships with suppliers that can provide a better product at a lower price. Michael Porter in his classic book Competitive Strategy: Technologies for Analyzing Industries and Competitors (New York: Free Press, 1980) identified five competitive forces:
- The threat of new entrants.
- The bargaining power of buyers.
- The bargaining power of suppliers.
- The threat of substitute products or services.
- The extent of rivalry among existing competitors in the industry.
When examining these five factors it is easy to find examples for each of the competitive forces. The iPad, for example, enjoyed a monopoly in the tablet market until Motorola, Acer, RIMS and others developed their own tablets. This is a clear example of a threat of new entrants in the market place. Walmart has the buying power and can easily dictate terms to suppliers. Meanwhile Microsoft, as a supplier of the most used operating system in the world, can demand terms and conditions that buyers would not have to agree to but for the lack of competing suppliers. Brita is an example of a company providing a substitute product to replace bottled water. The Brita filter is less expensive and more environmentally friendly than bottled water. Finally, many industries are very competitive. The auto industry is very aggressive and a good example of the fifth competitive force.
Step 1 – Determining Your Competitive Position
Since most companies cannot afford to do expensive surveys and intelligence-gathering on their competition, a simple exercise can help to determine their position in the marketplace. Below is the Competitive Positioning Grid.
This grid requires the placement of your business and your business’s competitors on the grid. There are two simple questions to answer. The first question, represented by the left side of the grid, is your pricing as compared to your competitors. The second question relates to how consumers view the quality of your service or product.
Based on your general knowledge of your competitors and of your own business, place your business and competitors on the grid. If, for example, your business and all your competitors are in the middle square then there are no differentiating markers between your business and your competitors.
Generally, successful businesses differentiate on price, quality of service or quality of products. They may also decide to focus on one particular segment of the market1. This requires the business to develop a strategy to distinguish the company in the marketplace.
Step 2 – Differentiate
To be successful, a business must develop ways to differentiate themselves from their competitors. If the business is in the middle square of the competitive grid and wants to move in the direction of higher pricing without significant improvements in quality of service, then they may need to undertake an aggressive branding exercise. The stronger the brand recognition, the more likely consumers will choose those products and services over your competitors.
Advertising is often required to achieve high brand recognition. In addition, effective social networking and PR companies can also be used. Much will depend on the type of industry your business is in. However, branding is often expensive and time-consuming, and will require a concerted effort over a long time period.
If the business is looking to lower pricing it will have to either reduce product margin or find a cheaper way to provide the product or service, or a combination of both. This strategy can be effective but it can also be risky. When competing on pricing, competitors will often follow suit in an aggressive marketplace. This will create smaller profit margins for your businesses in the same space.
Focusing on one segment of a market can also be effective and is often less expensive when it comes to advertising. The leader has to be certain that the segment is large enough to sustain growth and generate profit. By focusing on a smaller segment, businesses may be able to increase market share and push competitors out.
Regardless of the strategy, be certain to always ensure the business operations and brand are consistent with the strategy that has been chosen. Conflicting branding with strategy will only cause confusion in the mind of the consumer and will provide no advantage when trying to increase market share.
An example of this was GM's attempt to rebrand Oldsmobile. GM's strategy was to make the car attractive to younger customers. The tag line was "it's not your father's car". This attempt was unsuccessful because it created confusion in the mind of the consumer who saw the car as an older generational vehicle. In the end, GM decided to abort the rebranding and the vehicle line.
It is important to find a way to increase value of your product in the eyes of the customer. When a customer believes your product is the lowest price or best quality, then your business has a potential advantage over its competitors.
Step 3 – Execution of the Strategy
Once a strategy is decided upon then it must be executed. Often strategies are developed and then put on the shelf to gather dust. It is important to develop an action plan, timelines and accountability for the execution of the plan. One of the most commonly used planning models is the “Balanced Scorecard” developed by two Harvard professors, Kaplan and Norton. The scorecard consists of four categories, as stated below:
- Financial Perspective
- Customer Perspective
- Internal Perspective
- Learning and Growth Perspective
A simple balance scorecard may look as follows:
As can be seen in this planning model, the action measurements and targets are reduced to simple terms. This means everyone understands what has to be done, how it will be measured and the expected results to be achieved. Although not included in this example, timelines would also be added to the scorecard.
You should continuously monitor the progress of the plan and communicate the results on a regular basis. This also means having a good reporting system in place to track the action items and results that are achieved. You have to coach your employees and be there to assist when the plan is not progressing as expected. You also have to hold those accountable to do what has been set out in the plan.
In conclusion, businesses can improve by following these steps. This process will not be easy because people are generally wary of change. However, perseverance and good leadership should result in successful execution. In the movie Field of Dreamsit was said "build it and they will come". When it comes to the marketplace, build a great business and customers will come!
1Michael Porter, Competitive Strategy: Technologies for Analyzing Industries and Competitors, (New York: Free Press, 1980)
2Strategy Maps, Kaplan and Norton, 2004 Harvard Business School Publishing Corporation