The most liberating, yet most difficult, aspect of strategy development is choosing your key area of differentiation. When asked, “What kind of business do you want to be? Do you want to have the best products, best service or lowest prices?” many CEOs simply say “Yes, we want to be all of those things.”
This response is both unrealistic and misguided. It’s hard enough to be truly world-class and market-leading on one of these aspects of strategy, never mind all of them. In fact, although there are infinite strategy variations, it is possible to identify these five generic strategies:
- Product Leader. These companies want to have the latest and best products for their target customers. New product development is critical to their success, and customers are willing to pay more to get the value they’re after. Examples include Apple, Sony, Singapore Airlines, Ferrari.
- Cost Leader. These companies offer amazing prices to their customers who believe that the product quality is good enough given the price available. Examples include Ryanair, Tata Cars, Aldi, Primark.
- Convenience Leader. These companies offer a clear standard of performance and deliver against it every time. They are highly dependable, highly convenient and hassle-free. Their strong focus and their highly efficient systems often mean that they are also low cost organisations. Examples include McDonalds, Toyota, Dell, Amazon.
- Service Leader. These organisations gain and keep clients as a result of the expert advice and support they offer, both before and after purchase. Examples include John Lewis, Nordstroms, Home Depot, Lexus.
- Solutions Leader. These businesses tailor their offer to individual customers, creating bespoke solutions. Close and deep relationships with their customers are critical to their success. Examples include McKinsey, IBM.
Which organisations can you name that lead on three or four these dimensions? If you can name one or two, congratulations, but these exceptions simply prove the rule.
Most of the world’s top organisations make clear choices about where and how they wish to differentiate themselves. They focus on one or, at a pinch, two of these dimensions, and a major reason they do this is that different strategies demand different types of organisation.
While, for example, a Product Leader company, such as Apple or BMW, will emphasise new product development and have many cross-functional project teams working on bringing new ideas to market, a Cost Leader business, such as Aldi or Ryanair, will have very simple, centralised processes, and will strictly control costs in all areas of the organisation.
So which strategy should your business be pursuing? The answer is likely to be found by understanding where your organisation’s capabilities, the key needs of your target customers, and your passions meet.
Table 1: Choosing Your Strategic Focus
Table 1: Choosing Your Strategic Focus
As a first step to setting a direction, put 3-4 hours in the diary and work with your team to take the following steps:
- Using the table above, map out the strategic profile of your key competitors on each of the dimensions. How do you rate them, and what evidence do you have for your views?
- Now it’s your turn. Place a “C” for Current in the relevant box for each type of strategic focus. Are you behind the pack, in the pack, ahead of the pack, or so good you’ve created your own pack?
- Next, for each strategic dimension place an “F” for Future in the box that you aspire to be in the next 3-5 years. Make an initial decision as to whether you would you like to improve, stay the same or perhaps even decline in relative performance on each of the dimensions.
- Finally, review the profile that you’ve developed. The gap between your current position and your future ambition indicates the level of work you will need to undertake to achieve your goals.
You will of course need to undertake more work to validate the direction you have provisionally set. Test it, for example, against your customer research and behavioural evidence.
But what’s your initial reaction to the potential future direction of your company? What level of excitement does it give you about the type of organisation you could become?
After all, without a sense of excitement, mission and anticipation, it’s unlikely that you’ll deliver a strategy of any value whatsoever.
To find out more contact Stuart by clicking here or call +44-(0)1636-526111.