When managing your business strategy, a good place to start is to assess what you are not doing and what you would like to do with the company going forward. The essence of any strategy development should be about coping with the competition.

 

“Sound strategy starts with having the right goal,” says Michael Porter, Founder of Monitor Deloitte, a multinational strategy consulting practice that specialises in providing consulting services to senior management in large organisations and governments. He is also the Bishop William Lawrence University Professor at Harvard Business School.

Porter specialises in business and economic strategy and has various models such as “Porter’s Five Competitive Forces That Shape Strategy” which determine the long-term profitability of any industry. These five forces govern the profit structure by determining how the economic value it creates is distributed.

Only by understanding the Five Competitive Forces can a company incorporate industry conditions into strategy.

 

 

5 Competitive Forces That Shape Strategy

 

1. The bargaining power of buyers – as a rule, buyers usually want more for less.
2. The bargaining power of suppliers – as a rule, suppliers usually want to deliver less for more.
3. Substitutes – meet the same basic need you do but for less. This poses a threat to profitability.
4. The threat of new entrants – look to attack the market by providing better deals to get business. This causes larger companies to spend more.
5. Existing rivals – if there is intense competition in a certain industry, this reduces the chances of profitability.

 

Porter reiterates the fact that when developing a strategy for business, it is not about who is the biggest, it is about who is the most profitable.

 

 

How do you know you are choosing the right strategy?

 

While it is always daunting to develop a strategy, especially as a start-up looking to get their foot in the door, so how do you know the difference between good and bad choices?

Developing a feasible strategy should be about making smart choices that lead to sustainable and superior performance.

 

 

So what are good strategy choices?

1. Choose a distinctive value proposition – This will set you apart from rivals and may involve asking the question, “What needs will my company serve, to which customers – and at what price?”
2. Tailor activities to that value proposition – This could be by choosing to operate at a lower cost or to charge premium prices. You can also choose to perform activities differently or perform different activities to your rivals.
3. Making trade-offs – While it may be difficult to accept, there is a time when a company strategy has to accept limits or say no to some customers in order to better serve others. Trade-offs are an important source of profitability differences among rivals and makes it difficult for rivals to copy what you do without compromising their own strategies.
4. The best fit – Great strategies are like complex systems in which all of the parts fit seamlessly together. Think of it as though each choice you have made should bring value to all the other things you do. By doing this, you are improving sustainability and enhancing the bottom line or fundamental factor. Porter says ‘fit’ locks out imitators by creating a chain that is as strong as its strongest link.
5. Keeping the continuity – While managers are often berated for changing too little or too slowly, it is also possible to change too much and in the wrong ways. When faced with a new trend or tactic, it is up to managers to decide whether to incorporate it in the business performance strategy or not. Continuity of strategy will help a company make a good decision about whether to change in the face of turbulence or to pursue their current tactics.

 

 

Combining the ‘soft’ and ‘hard’ factors of your business strategy

 

When developing a business strategy, it may be difficult to differentiate between the finance/operational side and the leadership/corporate culture side of your business.

While most businesses will seamlessly integrate the two as a working whole, it is important to assess all the cogs in your business operation. This will help you see what your organisation is not doing and determine what you would like your company to be or do in the future in order to sustain profitability.