PoS Dec 2012 | Two Secrets of a Good Strategy
Why do most strategies fail to lift a company’s fortunes?
In my last month’s post I had written about the importance of insight in shaping effective strategy. Besides lack of insight, strategies fail for two other reasons. One, managers often confuse strategy with outcomes. And two, they do not leverage the firm’s strengths.
Grow the business by X%, increase market share to Y%, become preferred partner of customers, improve operating margins, are some of the commonly articulated strategies. They are all objectives, not strategy.
An objective is a destination, a desired future state of the business. It answers the question: where do we wish to go. The question of strategy is how we shall get there.
By confusing strategy with objectives, managers end up doing pretty much what they had been doing. They try harder, deploy more resources, or improve productivity or efficiency. They do not build a new road: a strategy that will deliver superior value to customers. No wonder, customers don’t flock to the door and the search for another strategy begins! The first secret of a good strategy is clear vision and a specific worthwhile long-term goal.
Many roads – strategies – connect the present and the long-term goal. Each firm builds their own path. Most fall short of the destination because they don’t know their true strengths and fail to leverage them.
What qualifies as strength? A firm’s strong suite – a capability, unique technology, patent, location, access to cheap resources, or an incomparable way of doing things – should create competitive advantage.
To do that, it must be better than competitors’ strengths, should be difficult for others to copy, and it should enable the conduct of activities in a way that delivers compelling value to target customers.
Fulfilling all three criteria is not easy. That is why most companies do not possess a discernible competitive advantage and chug along at or below average profitability for the industry.
A few companies in every sector possess and leverage their strengths. These firms are sometimes leaders by market share, but almost always at the top on profitability.
Asian Paints is a striking example among Indian companies. They are not only the largest in India; they have been there for over four decades.
Remarkably, they are also one of the most profitable paint companies worldwide.
Discovering what the firm is genuinely good at is the first step towards grooming the capability to create and sustain competitive advantage. This is the second secret and the leader’s first job.
Write to me if you would like to validate the effectiveness of your Company or Division’s strategy
Business Strategy Consultant