7 Things Every Leader Should Know About Strategy
Strategy is a cool word. People like to use it. It leaves a good impression with your audience when you talk about ΓÇÿstrategyΓÇÿ. But strategy is probably the most over and misused word in business. And we often have the impression that the more someone uses the word ΓÇÿstrategyΓÇÖ in a conversation, the less they know about the subject .
Most people who use it donΓÇÖt really know what strategy is all about or donΓÇÖt understand the important underlying business strategy principles. This mini guide about strategy wants to change that.
HereΓÇÖs a list a 7 things we believe every leader should know about strategy and business strategy principles.
Know these inside out and you will do better than 80 percent of the managers that you will come across
1. Business Strategy = compete to be unique, not to be the best
Strategy is not about being the best, but about being UNIQUE. Competing to be the best in business is one of the major misconceptions about strategy. And if you only remember one tip from this list, it should be this one. Many leaders compare competition in business with the world of sports. There can only be one winner. But competing in business is more complex. There can be several winners. It does not have to be a zero sum game ΓÇô you win, I lose or vice versa.
Within a single industry, you can have several companies beating the industry average, each with a distinctive, different strategy. They are no direct threat to each other. There can be several winners. So the worst possible approach to strategy is to seek out the biggest player in the industry and try to copy everything they do.
ΓÇ£Strategy is a pattern in a stream of decisionsΓÇ¥ Henry Mintzberg
2. Business Strategy = compete for profit
Business is not about having the largest market share or about growing fast. ItΓÇÖs about making money.
ΓÇÿI want to grow my businessΓÇÖ is not a strategy. ΓÇÿI want to grow my businessΓÇÖ is the same as saying, ΓÇÿI want to be richΓÇÖ. Those things (unfortunately) donΓÇÖt happen by themselves. Growing is not a strategy, itΓÇÖs a consequence. When someone includes growth in their strategy, there should be an orange light starting to blink.
That does not mean that you cannot use the word ΓÇÿgrowthΓÇÖ. We use it a lot in the analysis phase ΓÇô for example, when you talk about growth areas of the business or when you look for growth platforms ΓÇô areas where you can reach potential that will give you additional profit.
3. Know your industry before you develop your business strategy
A company is not an island ΓÇô itΓÇÖs part of a larger ecosystem, an industry. Each industry has its own characteristics, its own structure. This structure and the relative position your company has within the industry determines profitability. Certain industries have a higher return than others. Your thinking about the industry and industry competition will determine your thinking about your strategy ΓÇô how you are going to compete within the industry.
The better you know and understand the industry, the better you will be able to determine elements that will make you stand out, be unique and reap a higher average return than the industry average.
4. Business Strategy = Choice
In my eyes, this is the most simple strategy definition. You need a clear choice of WHO you are going to serve and a clear choice of HOW you are going to serve those clients. ItΓÇÖs about connecting the outside world ΓÇô the demand side ΓÇô with your company ΓÇô the supply side. Or in fancy terms: you need a value proposition for a specific customer segment and to develop unique activities in the value chain to serve them.
The key word is ΓÇÿchoiceΓÇÖ.
You cannot be everything to everybody. You want to target a limited segment of potential buyers with the same needs. Next, you are going to tailor your activities in such a way that they meet these needs. Or in fancy terms: you want to tailor your value chain ΓÇô your companyΓÇÖs activities ΓÇô to your value proposition. Strategic innovation is the process to make those choices ΓÇô defining a new who and how for the organization.
ΓÇ£Strategy is thinking about a choice and choosing to stick with your thinkingΓÇ¥ Jeroen De Flander
5. A good business strategy requires you to say NO often
If you have clearly defined what you go for ΓÇô a clear value proposition for a specific client segment (who) and a set of distinct, unique activities in your value chain to offer the needs of this client group (what), you will find out that there are lots of things that you are not going to do. There will be customers that you are not going to serve, activities that you are not going to perform and services/products that you will not be offering. In strategy, choosing what not to do is equally important.
Using the words of the founding father of modern strategy thinking, Michael Porter: ΓÇ£The essence of strategy is choosing what not to doΓÇ¥. Each business strategy should also have a section where it clearly states the NOs.
6. A good business strategy requires you to keep moving
Having a good business strategy does not mean that you have arrived. Competitors move, customersΓÇÖ needs and behaviors change, technology evolves. One crucial element to determine a future path for your company is to predict these evolutions and trends and incorporate this thinking into the business strategy-building process.
If you donΓÇÖt, you can miss out on new value that is created in the industry or even left behind and get into trouble.
Think about the smart phone and Nokia and youΓÇÖll understand.
7. Scenario thinking is an important strategy tool
The last one of the business strategy principles is not the least important. We donΓÇÖt have to tell you that facts and figures can only go so far. You need to turn data into assumptions that will fuel your reflection process. The standard way to work with assumptions in a structured way is by scenario thinking ΓÇô fix some parameters and let other vary. This technique helps your reflection process by offering you possible future routes (read: strategic options) for the company.
We believe that scenario thinking is a crucial skill for anyone who wants to deal with business strategy. Every leader should at least master the basics so that they donΓÇÖt need a strategy consultant for every reflection process or at least to help them challenge the scenario models that the strategy consultant presents.
Adopted from J De Flander
