What is Business Strategy? Understanding business strategy
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What is Business Strategy? Understanding business strategy
What is strategy strategy is probably one of the most overused words in business. Most managers use it on a daily or even hourly basis, but, to my big surprise, quite a few people don’t, really know what strategy is or make it way too complicated.
If you would follow a masterclass on strategy in any business school at one point in time, you will hear the summary strategy is choice. So the core of strategy is basically making a choice in a certain industry that you play in and if you look closer at that choice, there are two building blocks that you have to focus on.
The first one is: who is my client? It’s; basically segmentations thinking about who you are going to focus on is the first important building block of your choice. The second important building block is to figure out how you are going to make your client happy.
Fancy word for this is called a value chain. Basically, your job is to figure out how you’re, going to make your client happy in a unique way in order that this client is willing to give his or her money for what you offer.
One of the key words in this definition is the word unique. Most of us have been grown up in the world of sports and if I would ask you who won the two of the fast last year or who became world champion, you will probably know the answer.
But if I would ask you who came in second, it will become much more difficult. If we look at the world of business, it’s, not about being the best, but it’s about being unique, and in most of the industries there is room for three to five players that can have a long term healthy return.
It’s, your job, to pick and choose where you’re, going to compete to pick that unique spot. So don’t compete to be the best aim to be unique. When you make a strategy it lasts for a certain period of time.
I don’t know. If you’ve ever asked yourself the question: how long research shows that, on average across all industries, a strategy lasts about seven years in certain industries like software, you will be in trouble after one and a half or two years and in industries like Energy, for example, you will last longer one of the most important reasons that determine the length of your strategy.
Healthiness is the industry and the way assets are deployed. If you have to invest more, it’s, less likely that other people will move in. So strategy will last for some time, so you don’t have to do a strategy exercise every year, but it’s important to update your strategy.
I always like to say strategies like yogurt. If you leave it out of the fridge for too long, the taste becomes quite bad. So if you look at the overall strategy execution framework, one of the building blocks is update strategy.
The reason for that is that it’s healthy to check every year. The choice that you have made it doesn’t mean you have to do a complete overhaul of your strategy, but just doing a check is a very good thing.
When I always suggest to do it before the budget exercise and most organizations, if you have an annual cycle, it will be around the month of July August. Now, when we move further into strategy, there are two things that I often miss in a strategy document.
So what I would like to challenge you with is to see if you can do the following two exercises: the first one is to make your strategy tangible for all people that will join you on the execution road.
I call this a finish line. To give you an example, the strategy from NASA has been turned over into a famous finish line by John F Kennedy: to put a man on the moon before the end of the decade and bring him back safely.
I worked with the carpenter and the finish line for the carpenter was to produce 200 front doors a year. My personal finish line as a professional speaker is to reach out to 50,000 people in 50 countries.
Before I’m 50, you can check my progress on my website, so the first challenge is to translate your strategy into something that is tangible, a finish line. How can you know if you have a good finish line? Well, can you put it in a weekly email? I recently worked with a bank, for example, and their finish line was to increase their client base with 75,000 new clients.
Well, it passes the test of a finish line because you can put it in a weekly email and you can show progress to everybody in the organization. The second test is to see if you get people emotionally motivated, one thing could be return on.
Capital employed has to be 1 % higher than the industry average, which is probably a very good finish line that will make quite a few shareholders happy. However, it doesn’t, motivate most people in an organization, so pick a finish line that not only passes the test of the email so that you can measure the progress from the start to finish, but also make sure it’s emotional.
It triggers people to be involved so that’s, the first exercise. I challenge you to do to test your strategy. The second one I learned from Michael Porter after a session I had with him in evening we were having a drink and I asked him what would be your best strategy tip? His answer was no.
I found it a strange answer, but after some discussion I learned that most people like he used to explain me focus on choice, but in order to focus on choice, you also have to identify the things you’re, not going to do only when You know what you’re, not going to do you’re sure you have made a choice.
So what does that mean for you? It means that you have to add one page to your strategy document, and that page is what I would call a list of notes. What are the five things that you’re not going to do whether on the segmentation side, or the other? What are the clients that you’re not going to serve and two on the house side? What are some of the things you are not going to create? What is the value that you’re? Not going create that you’re, not going to create, for example, how much service are you going to offer
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