June 22, 2020 - You cannot be all things to all people. By adopting a strategic position, deciding to be either a cost leader or to differentiating yourself, the aim is to emerge with a sustainable competitive advantage over other competitors in your sector.
I think many businesses by-pass this difficult categorization and leap straight into the tactics of battle. The best tactics used in the wrong type of battle will never win a war.
“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” – Sun Tzu (The art of war 500BC)
The analogy I use is a sports team. The team’s vision is perhaps to be the best and win the competition. Strategically they acquire the best talent, best coaches and facilities that they can afford, then make a determined effort to train as hard as they can. Then week by week, they may adopt a vast array of tactics, playing to their strength depending on the make-up of their opposition or injuries in their own team.
Many businesses also spend countless hours, wasting valuable money getting a consultant to write a strategic business plan that they do not have the skills or experience to implement. Even if they have a great vision, owners become overwhelmed. This is the #1 area where they come unstuck.
Michael Porter, is a Professor at Harvard Business School and world leading expert on economics, business strategy, and social causes.
Michael Porter famously once said, “The essence of strategy is deciding what not to do”
Offering the cheapest prices as a means of differentiation without being a true cost leader and hoping to win market share off an established competitor is one such fatal error. But a common one. It is fatal because the cost leader can sustain lower prices longer than the other competitors. If a price war follows, the cost leader will last longer and watch the competitor go out of business.
Cost leaders eat price takers for breakfast.
If you can’t compete head-to-head with a larger competitor, then you’d be better to find a speciality niche that has customers willing to pay a premium for the service, that don’t cost you as much to find.
The most simplistic form of strategic review companies do is called a SWOT analysis. (Strengths, Weaknesses, Opportunities and Threats) External factors relate mainly towards the opportunities and threats that a business faces and the strengths and weaknesses are internal factors.
Strategy is one of the 5-Pillars of ‘Profit Metrics’. The ‘Profit Metrics’ method embeds reliability and predictability into business finances. It allows owners to anticipate, evaluate and navigate. It enables them to get out in front of the business, be strategic and boost their bottom line.
For more information about Profit Metrics, please click here