A strategy is a means to generate favorable outcomes, not a one-size-fits-all solution. Good strategy depends on answering three questions: How unpredictable is your environment? How much power do you have to shape it? And how harsh are the consequences of bad decisions? Based on the answers, there are five generic strategic approaches to choose from or combine: Be Big, Be Fast, Be First, Be the Orchestrator, or Be Viable. Strategy is essentially problem solving, so the approach depends on the specific problem. You must assess the environment then match and apply the right approach. Using an approach suited to the environment pays off significantly. Research shows firms matching strategy to their environment realize 4 to 8 percent higher returns than those that don't.
A classical business strategy involves positioning your company optimally within a predictable, stable marketplace where you have the opportunity to secure a sustainable competitive advantage. This is achieved by attaining economies of scale, differentiation within your market niche, or by developing superior operational capabilities relative to competitors. With this approach, rigorous analysis is conducted to identify attractive markets and competitive dynamics. A strategic plan is then constructed detailing how the preferred market position will be attained and competitive advantage built and sustained over time, including what tangible resources are required for execution. The strategy is then meticulously executed by efficiently organizing all staff towards the outlined objectives while making small, ongoing performance improvements. The classical strategy works best in mature, low growth industries with stable regulation like utilities, automotive and oil/gas. Success is measured by scale and market share rather than revenue growth. This approach is familiar as it allows a company to leverage its strengths to outperform competitors and gain leadership through scale and capabilities that confer lasting advantage. There is no penalty for changing slowly since the overall market evolves incrementally. However, it only makes sense if in a stable arena with entrenched players and gradual change. Useful tips include: - Remaining open to surprises and insights that may disrupt comfort zones - Determining what market areas to compete in or avoid based on predictive capacity - Attaining a top 3 position for sustainable value creation - Pursuing ongoing cost reductions through experience curve advantages as volumes increase - Rigorous innovation investment to retain leadership. Potential pitfalls include: - Replacing strategic thinking with short-term metrics - Assuming no change is needed over time - Segmenting markets for convenience rather than understanding customer needs - Over-reliance on annual planning cycles poorly matched to accelerating industry change - Prioritizing Wall Street over business needs - Assuming competitive advantage will never erode thus failing to make bold moves when required - Using this style out of familiarity versus suitability - Overestimating market stability and underprioritizing customer responsiveness. In summary, classical strategy seems straightforward - pick a direction and execute with full effort. However, the key differentiation is not scale but culture. Competitors have great people and capital access too; culture attracts the best talent to outperform.
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