Ten Tenets of Strategy
The right strategy, even in a mediocre industry can make you a winner. And the wrong one can make your life unbearable. Far more important than any specific service or product you offer is how you choose to compete. Strategy is the collection of decisions that you make that defines your firm’s unique value to the customer. It determines how you will return value to your stakeholders. And it is at least as much about what you will not do, as it is about what you will do.
Corporate strategy can include high level choices such as whether to compete on cost, performance or customer intimacy, which segments of the market to pursue, what parts of the value chain to emphasize and many other critical decisions. Product or service strategy is one step more detailed, encompassing choices on which products and services you offer and how to outmaneuver the competition with specifics about those offerings.
There is no absolute right strategy for your firm. But there may be one that is a best fit considering all other constraints. Determining the “best fit strategy” is a matter of understanding the industry forces, trends in the marketplace, your competitors’ strategies, your firm’s strengths and weaknesses and the passion that drives your value-creation engine. With these assets and constraints in mind, your firm can set a direction and build competencies for a business that can be defended and expanded upon over the long term.
Through years of personal experience and discussions with key thought leaders, I have crystalized the following Ten Tenets as guidance for the development of your strategy.
- Your core competency is not your strategy.
- Compete on core capabilities*, your set of business processes integrated throughout your value chain.
- Make hard choices. Decide what you will not do.
- Focus on customer outcomes. Design your strategy through the customers’ eyes.
- Analyze and design for the industry forces.
- Understand and analyze the landscape of possible customer outcomes.
- Know your competitors and their strategy profoundly.
- Diversify around your core capabilities.
- Balance the stakeholders.
- Strategy is dynamic. Adjust as necessary, but with caution.
* Note that competencies and capabilities are not the same. We will define these terms in the upcoming Tenets.
Over the coming weeks on this blog site, I will expand on these Ten Tenets of Strategy. These tenets can be applied to your corporate strategy, product or service strategy or at any level in the organization where strategic decisions are being made.
Tenet #1: Your core competencies are not your strategy.
Most companies have one or more core competencies of which they are proud. A core competency is anything that a company is able to do or deliver better than or as well as any other company in the world. Examples may include the ability to design low noise amplifiers, or to develop software with intuitive user interfaces, or to manufacture parts with the lowest possible cost, or to discover knowledge of customer applications.
It is all too frequent that business leaders think that their company’s strategy – or even its mission – is determined by its core competencies. Their strategy becomes protecting and enhancing this core competency. Their strategy has, in effect, been defined by their core competency. “We build the best slide-rules, so our strategy is to continue to grow our market share in the slide-rule market”.
But having a core competency is not the same as having a strategy. Your firm’s core competencies need to flow from and support your strategy, not define it. While it is clearly best if your strategic direction utilizes the competencies you already possess, in sailing to a distant land you must first point the boat in the right direction and then think about what supplies you will need.
Overprotection and over focus on core competencies can cause you to be bound by those competencies. A company that defines itself by its core competencies may lose sight of the importance of changes in the industry or market, making the firm’s offerings of less value over time to customers as the competitive advantages of those competencies diminish. One need only look at standard examples through history to see this, as the proverbial “buggy whip” company is not able to adapt due to a narrowly defined view of itself, aligned along its current core competency. Polaroid and Kodak are only the latest examples.
Additionally, it is far easier for a competitor to copy a core competency than it is to duplicate an entire strategy as manifested in a business capability, or full value chain. In fact, it is easier than ever to buy a core competency these days. Your competitors can do it. You can too. With the advent of better communication, better tools and better understanding of how to utilize the global workforce, you can buy your core competency by shopping the world (excepting the very newest of technological discoveries).
I worked for a company a few years ago that wished to get into a new business. Before I arrived at this company, they had tried the route of re-training existing engineers, managers and marketing personnel in the new industry. But as smart as people can be at learning a new industry, technology and business, the ramp was too slow for the needs of the market. So I set up a new remote engineering site, right next to the most successful company in this industry. And suddenly creating a core competency in engineering for this market was easy. Labor is now less loyal to the same employer for a full career (since companies are less loyal to them). As a result, it is more practical than ever to buy a needed competency to fit a strategy.
Additionally, Open Innovation as described in Henry Chesbrough’s now standard text has stretched our thinking about which competencies must be owned by a given firm. Open Innovation is the process of opening your innovation sources to more than just your internal R/D teams and shopping for solutions to specific problems outside of the company walls. Today, many companies are casting their innovation net more broadly than ever by packaging a problem in a well-constructed statement and using companies like InnoCentive and NineSigma to solicit creative solutions from engineers and scientists around that world, resources that do not work for the company.
Your core competency is not your strategy. Create your strategy and let your core competency needs flow from that strategy. You can enhance or create a new core competency by shopping the world.
Next time I will discuss Tenet #2, and show how focusing on core capabilities rather than core competencies will support your strategy and create a defendable differentiation.
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