Strategic thinking strategic talking
Strategy as a position
What choices are you making and what are you leaving as implicit choices?
Sometimes people will ask an explicit question about your choices: They might ask,
· "What is your strategic position,
· "What differentiates you?"
· "What is your USP?" or
· "What is your market positioning?"
When they do, they are asking about strategy as a position or difference.
Positioning in a market
This sort of thinking comes from an expectation of what a strategy should contain. You see this alot in marketing and in the work of Michael Porter's work on strategic positioning. He suggests that you have one of:
· customer intimacy,
· low cost, or
· product differentiation.
These people believe that unless you differentiate yourself from your competition and in the eyes of your customers along one of these lines, you are bound to fail. You must stand out from the rest of the market in some way in order to make money.
For many years Dell have differentiated themselves in the market with low cost PCs that are delivered without a traditional sales channel. At the same time other brands such as IBM have a reputation for ruggedness whereas Sony and Toshiba seem to differentiate themselves with style, lightness and reliability, but at a premium cost. There are many examples.
The role of industry structure
This approach emphasises the importance of markets and industry structure. It is a very analytical approach to strategy. You will often see this sort of analysis alongside Porter's five competitive forces that determine the structure of an industry, namely:
· What are my product substitutes, from the customer's perspective?
· What is the bargaining power of my suppliers?
· What is the bargaining power of those that buy from me (customers)?
· What is the threat from new entrants? What are the barriers to entry?
· How strong is the rivalry amongst existing firms in the industry?
So for instance, there are strong barriers to entry in the PC micro-chip development industry with Intel and AMD having a large part of the market, strong brands and well established R&D. Capital investment is high as is the need for R&D. Rivalry, whilst strong, is limited to two main players, though others are on the edge of the scene.
On the other hand, the mobile phone market is extremely competitive, with companies competing amongst themselves very strongly. New entrants with consumer electronics experience or technology experience can enter easily. There are threats as the technologies of phones, cameras and organisers converge.
Positioning products and services
A similar approach is taken by those people who are fans of the Boston matrix. This traditionally plots a company's products or services against two dimensions of market growth and market share.
Products with high growth and high share are the stars. Products with high market share and low growth are the cash cows and should be milked. Products with low market share in a low growth market are dogs and should be ditched. Products that have low market share in a high growth market are problematic. They have the potential to become future stars or dogs. However, they won't become such if they stay as they are. Therefore, these need to be repositioned in some way or they will be a drain on the organisation.
There are many variations to this approach of making choices about the positioning of products, services as a position in a market. These are just a couple of the more popular approaches.
The changing nature of positioning
This approach has been given a lot of credence over the past 15-20 years. However there are some that argue we are entering a new phase where this is no longer valid. Porter's view was that you must focus on one of these positions. It was impossible to succeed at more than one or straddle positions, without incurring excessive costs or being out positioned by a competitor.
However, more and more we are finding organisations that must have a high degree of customer intimacy and service, as well as cost management, to even differentiate themselves in a market. Porter always recognised that a minimum was necessary. Nowadays, that minimum is rising rapidly.
Conclusion
We have looked as strategy as a plan. We have looked at strategy as importance. In this newsletter we have seen that there are some people who use various positioning tools to determine what is important and what plans should be put in place.
These positioning tools act as guides to strategic options. The danger is that people believe they are always true and follow them as if they were the only approaches. If that were the case, we would not have organisations differentiating themselves on supply chain capabilities (Amazon and Dell), intellectual capital (many medical research companies) or their ability to acquire new technology by merging with fast developing research and development companies (Cisco).
But they do help us to differentiate "strategic" choices from "tactical" ones. If everyone else in the airline industry is using a particular supplier or outsourcing its security at airports, then it may be expedient to do it the same way. That is a tactical choice. Choosing aircraft that can be adapted and modified to offer massages and other premium services, in flight, may be a strategic choice that other competitors cannot easily follow.
So far, we have looked at strategy as a position we take and the choices we make. We have looked at what is important and how important it is to have a perspective on the organisation. In this case the perspective has been about the organisation's role in the industry and the positioning of its products and services.
While you are waiting for the next newsletter, have a look around at how you are positioned as a company.
a) What positioning does your organisation believe it has taken
b) What do your customers think is your position in the market?
c) What choices could you make for the future?
Next newsletter we shall look more explicitly at how strategy sometimes involves deception.
More soon
Excitant Ltd, Excitant House, 15 Robin's Field, Wansford, Peterborough, Cambridgeshire PE8 6JW, UNITED KINGDOM
Registered in England and Wales. Company No 4562075
No comments:
Post a Comment