PoS Sep 2013 | How Strategy Education Improves Profitability
Strategy models are like lenses. Properly used they reveal unseen facets of a business issue or situation. A broad repertoire of lenses helps managers choose relevant and applicable ones. Knowing how to wield and focus lenses is important.
Leaders of many companies wish senior and middle managers understood the subject of strategy better. They feel this weakness often leads to ineffective strategies and costly errors.
When low-cost competition hurts
An Indo-German engineering company, market leader in their business, felt emergent regional SMEs were nipping at their heels with lower priced products. They decided to compete by developing a range of low-priced offerings with limited functionality even though they were not aimed at their target segment.
The Company’s high cost structure required the new products to be priced higher than competition. They were marginally better than competitors’ but customers didn’t find it justified the premium.
Lower average margin of the product mix affected profitability and growth for two successive years.
That’s when they decided to revisit the strategy.
Why invest in strategy education?
A series of intensive strategy workshops helped them realise they were simply not cut out for the low end of the market. The programmes were designed to help senior and middle managers of the Company gain a nuanced appreciation of strategy.
Once everyone had an agreed view of what strategy is, they came to a quick decision that they could not compete effectively against low priced competition. They must concentrate on the segment that needed superior products and were willing to pay a premium for it.
They re-focused on technically advanced products, something they were inherently good at, and returned to faster growth and improved profitability within a year.
Lack of clear and common understanding of strategy can lead to endless discussion because managers cannot agree on what is strategy and what it is not. Inadequate knowledge leads to initiatives that are not strategies, or are poor choices.
That is why managers should acquire working knowledge of concepts, and companies should invest in strategy education.
What is a good strategy education?
A good strategy education equips managers with the essence of a number of concepts and frameworks. This is often achieved by juxtaposing discussion of models with exercises, or games of application.
The most important outcome of a good grounding in strategy is adoption of a shared vocabulary. It ensures discussions on strategy remain focused and consistent with fundamental principles such as competitive advantage, customer value, industry structure, and intrinsic capabilities.
Putting knowledge to work
Learning is embedded by practice. Managers learn better when engaged in formulation of strategy of the business, answering important questions, and making choices. It requires them to carry out research, analyse and interpret data, and validate hypotheses.
This vital process may take weeks, occasionally months. Being iterative, managers are forced to use different concepts of strategy, learn from mistakes, and gradually become adept at strategic thinking.
Firms that believe strongly in strategy embed education and practice as a process. Does your company?
Business Strategy Consultant
Read the detailed account of the quoted case study ‘Rediscovering Competitive Edge’