Strategy, Does it Really Matter to Business?
There are many discussions about strategy, business strategy, growth strategy, marketing strategy or competitive strategy in university or business. Some people are sceptical about strategy development. How strategy will help your business?
There are many discussions about strategy, business strategy, growth strategy, marketing strategy or competitive strategy in university or business. Some people are sceptical about strategy development. How strategy will help your business?
This writing does not mean to discuss it in academic way as in School of Business, but try to discuss the essences in simple way.
On some concepts, I would refer to the eminent Sun-Tzu, the General and creator Art-of-War strategy, which is in my opinion quite relevant with competitive strategy with some adaptation.
Some people says:
My business still survive and running well without any strategy.
Correct, In the context of competitive strategy, with or without strategy you might win but the different is:
“Victorious warriors win first and then go to war while defeated warriors go to war first and then seek to win”
To understand this easier, just consider this war illustration:
In the battlefield, If you outnumber (overpower) the enemies , indeed even without strategy, logically, there will be still high probably e.g. 90% chance to win assuming the enemies also has no or poor strategy.
But how about if you are in the same strength with the enemy, without strategy there will be e.g. 50% chance to win? But to win, you will suffer bloodily fight just to get a single win. To launch head-on, direct attacks against their competitor’s strongest point. This approach to business strategy leads to battles of attrition, which end up being very costly for everyone involved.
And the chance is even lower when you are outnumbered, the winning chance of direct fight is very low. In this case, strategy will be utmost important.
#1. In Competition, Strategy May Multiply the Winning than Without it.
Some voice might says:
We are so powerful and our enemies are all weak so we do not need any strategy at this point?
Off course, you will win but you will waste of resources and opportunities, If just to beat just 100 soldiers will enforce 1 millions army.
With strategy it could be more effective and more efficient, rather than deploy 1 millions army just to fight 1/10 soldiers. How about if you can win just deploy sufficient number with high certainty to win and deploy the rest to another 9 battles. You will win 10x by strategy than not using any strategy.
In business, it can be in form you prepare well and deliver product/solutions that has competitive advantage so rationally market will prefer yours than other options. It can also, you develop product/solutions to target market that can not be compared to that of competitors. In short, through strategy, before the battle, you had prepared the cause to win.
#2. Strategy Will Help Army to Win the War before Going into the Battle-field.
Strategy will consider collected informations, analyse and calculate how you can win without significant loss or suffer.
Strategy will help what battle should choose, which one to avoid and how to multiply the win compare with not using any strategy
“Generally in war, the best policy is to take a state intact; to ruin it is inferior to this….For to win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill.” - Sun Tzu
In business it will be similar:
Do you want to prepare a product / solutions that are competitive that you exactly certain your solutions/product will absorbed by market and going to win the competition in the market
Or just deliver incompetitive products/solutions without proper market analysis, planning, and then struggle to win the market because it has no competitive advantage or not fit to market needs.
#3. Strategy is about Achieving Objective Effectively and Efficiently Considering the Available Options.
With strategy, a company collect and analyse any relevant information from external environment and internal environment. Considering internal environment (Core competence, strength, weaknesses, products, price,cost, cogs, etc.) and external environment (market, macro environment, competitive environment to identify opportunity and threat) that affecting organisation, a strategy is then developed to achieve the objective.
Ok then, if strategy is important, what it needs to develop a strategy:
First, Collect and Have Enough Information.
Strategy is about how to achieve objective in effective and efficient way considering all available options.
If we use an analogy where strategy development is cooking process. Information is the ingredients, the "raw material". Without information, it is impossible formulate strategy. Even if one can formulate strategy, without sufficient information, the strategy will be a poor strategy. As people says “ Garbage In will produce Garbage Out”.
#1. Know Your Self Well
In war strategy, Sun Tzu says knowing your self very well you already 50% win the battle. And knowing your enemy well is another 50% to win the battle.
It is still relevant in developing competitive strategy in business or business strategy in general.
In MBA jargon it is said as “Internal Analysis”,Identifying Core Competence
Why is this important, if you cannot know what you best at and what you worst at (identifying core competence /capabilities) , no matter how good you know your competitors are you are still has half probability to win.
Why is that? If you beat your competitors weakness with what you strong at you can win. But the problem is you don’t know what you really strong at. In this case, it still has half chance you hit the competitor weaknesses with something that your weakest point also.
So it is important to know what is your business strength and weaknesses, core competences and capabilities.
However, collecting internal information is not always easy.
Because a company is not a single entity or living individual. To get a get good picture of the strength/weaknesses of your company, depending the maturity of organisation process, technology and culture, you might need every one cooperation and support.
In less established and less mature of system company, you will need people contribution in the company to willing to share the data, information you needs to formulate the strategy. It is just because the data is scattered amongst people, not stored in central repository where authorised people can access.
You will need sales, product, finance, marketing, HR, etc. support and cooperation contribution so at the end you can analyse and have good grasp and picture what is your business strength and core competence to leverage, and your company not good at to be improved.
However, it is not as easy scholars may think. Depend on Organization maturity, many case there are still strong non sharing culture, sectoral ego, power playing by holding information, internal politics, thus it hards to have everyone cooperation and difficult to get the ingredients which are needed .
The key in this step is, internal cooperation, sharing culture and the same intention for achieving organisation objective. It needs every functional to align to support the strategy development not "a silo" thinking
In war, Its difficult to think about to fight enemies in the battlefield, if you uncertain that your friends/troops does not support or the same page with you, or even holding you back or have a chance at some point expect you to fail or to let you fall down when you are at stake.
#2. Know Your Competitors Well.
Sun Tzu said:
“And knowing your enemy well is another 50% to win the battle.”
In the MBA jargon it says as “Competitor Analysis and do Competitive Intelligence”
To find and exploit your competitor’s weakness requires a deep understanding of their strategy, capabilities, move, campaign, products, pricing, etc.
By understanding your competitors well, you will know in what area your competitor not good at. It can be in their product value proposition, their marketing, their delivery, their quality, their pricing, their brand, how fit their product to market, etc.
By understanding your competitors, you can come out with the better solutions/product or better fit solutions to the market.
#3. Know Which Battle Zone to Choose and Which One to Avoid.
It is also important to understand the overall macro, micro/competitive and industry trends occurring around you in order to have a feel for the “terrain” on which you will do battle.
In MBA jargon it is called industry analysis, external environment analysis, market analysis.
Another element of the ingredients is external environment factors that need to be identified. These factors can be an opportunities or threats to the organisation.
In business, strategist will need another function help to do PEST research, market research, marketing intelligence, competitive intelligence, competitive analysis. All are needed to develop sufficient external information in order to decide what to leverage, what to avoid, what to overcome, etc.
It is important in order to decide and formulate actions depending on what factors that affecting your business now or in the future. Which one that can you leverage which one that you need to mitigate. Which one you need to anticipate and which are you need exploit now. Which one that can be key driver that you can exploits and take advantage at and which one than can be key inhibitor.
#4. Know Who Should be Make as Allies, Who Should be Put as Rivals.
“Therefore, those skilled in war bring the enemy to the field of battle and are not brought there by him.” - Sun Tzu
“Shaping you competition” means changing the rules of contest and making the competition conform to your wants and your actions. It means taking control of the situation away from your competitor and putting it in your own hands. One way of doing so is through the skillful use of alliances.
By building a strong alliances, you can make common standard or rule of the game thus the moves of your competitors can be limited. Also, by controlling key strategic points in your industry, you will be able to call the tune to which your competitors dance.
Second, Formulate the Strategy
With objective set and information needed collected, strategy can then be formulated.
There are many framework, theories in formulating strategy. I just want to refer a simple and well-known one from Michael Porter. That even this simple one, not every one in business understand.
Michael Porter said competitive strategy is about “being different”. Or strategy is about developing competitive advantage.
It is right or will work, It is not about who said that, It is about common sense of cause and effect relationship.
This being different and creating competitive advantage is to make you have advantage position in the competitive environment. When your company product/solutions are competing in the market with competitors.
By creating competitive advantage means you already preparing your solutions/product that when your product/solutions face competition your product will be have higher chance to be selected by customers since it bring more value to them either by differentiation or lower cost.
Yes it is a common sense, people rationally will choose what is more beneficial to them. If the same price, they will choose what gives more value/benefits. If they give same benefits, they will choose one with less sacrifice/ expense. Or get both, more value and less price if possible.
The basic principle what strategy try develop is to analyse, leverage the law of cause and effect, prepare the cause, so when the cause are there and the law happen then will gain the effect. If you do and others don't, you will gain the advantage.
Preparing the cause can be preparing a solutions/product that rationally (the law) people will choose (the effect). It can be preparing what market to target, what campaign to launch, etc.
Third, Execute the Strategy.
Even the best in art business strategy is no use if not being executed. After the strategy is formulated by the support from all the people/units in organisations, the strategy definitely needs to be executed.
Leadership, management support, organisation structure and culture affects the execution of strategy. It needs all the units to be committed to execute the strategy.
In reality, depending on the maturity of system, structure and culture in an organisation the execution is also the hardest part.
Because strategy will not only impact externally but also impact internally, yet it will affect to people within that probably get the direct/indirect impact of it. If it works, it will be good to company but might not to some people.
And last but not least, strategy formulation and execution is about involving people as the most important asset to the company.
There are many literature on Organisation Theory and Behaviour, Leadership, or human resources management on how to manage people, culture, etc. Let’s discuss in another occasion.
I would like just to quote Sun Tzu says.
“When one treats people with benevolence, justice and righteousness, and reposes confidence in them, the army will be united in mind and all will be happy to serve their leaders.”
Just think about it,
If Strategy makes difference in War, Will strategy make also difference in your Business Competition?