The five things you must think about to optimise your strategic positioning.
Let me ask you this question: "What does 'being strategic' really mean and how does it relate to you and your business?"
Not sure? Well, it has to do with how you think and what you think about.
And it's critical today. It really doesn't matter if you're a running a business with 50 employees, are the sole-proprietor of a booming one-man (or woman) show, or even if you're still working 9 to 5 and are looking to plan your escape. You always have to think strategically.
Thinking strategically involves thinking about the small number of things that makes the difference between success or failure. This means that it's important to think accurately and focus on the few things that actually matter.
So I want to lay out five steps - five things you need to think about - to become a more strategic thinker.
STEP 1: The very first step you have to take in becoming a strategic thinker is to understand the 'game you're playing'. By this I mean you need to understand the role of the entrepreneur, how it changes, how it relates to management, organisation, investment, business growth, etc. And you need to know your role in that bigger picture. That's step number one.
STEP 2: The next step in the process is gathering insight into your prospects' unmet needs. Why is knowledge of unmet needs so important? Well it is for this reason; it is to allow you to grow your business in the fastest way possible so as to enjoy first mover advantages and the healthiest profit margins.
What you really need is to provide something that your prospects don't believe they can substitute their way around. That's not always easy, but that is the ideal. If you look at companies where there is a high degree of substitutability, you'll never see incredibly high profit margins.
For example; take a company like McDonald's. Given its closest rival, Burger King, it is unlikely that McDonald's current business model will ever allow it to exceed its 7% ROI as any rise in its prices will drive everyone into Burger King!
A less obvious example is BMW and Mercedes. You'd think these companies would have very high profit margins because of their luxury status and the prices they charge. But the truth is they don't simply because luxury cars are interchangeable.
The thing is to avoid such a position.
It's only when there are no substitutes, or when the prospect believes there are no substitutes, that a much higher profit margin can be commanded. The way to do that is by positioning your business as a unique solution to your prospects' unmet needs.
That's one of the reasons why it's important to step away from seeking 'chance opportunities' and into the world of strategic opportunity and innovation. You only have to think of Cemex, Edward Jones, William Cook, ING, Zara, Amazon, Virgin, Lulu, E-Bay and countless others to see what I mean.
So how do you position yourself to meet those unmet needs in a unique manner?
STEP 3: That's the next step - understanding "your context and formulate a compelling offer". Understanding your context means understanding the marketplace; understanding your competitors; understanding what's going on in the world of your business such as where your prospects are gathering, etc. The more you understand here, the easier it is to position yourself so you have no substitutes. It's essential to know what's currently happening in all those places.
And what does lead to?
For a start it offers you the means to define the nature of the business you are in.
Then it will help you formulate decisions in three choice areas; (1) your targeted customers, (2) the products and services of superior value you will offer them, and (3) an efficient and distinctive way to deliver this within a fit between what the customer wants and what the company does really well.
A combination of these three factors if thought through with creativity in the right context will help you achieve competitive advantage.
STEP 4: The next step is to think about the source of your competitive advantage. What will you do to provide superior - and sustainable value - that will make your business a better choice?
Actually taking steps to offer customers something better and different to competitors is, as we have seen, a major driver in developing a superior strategy. But is it enough? The question raises several important issues.
Twenty five years ago Direct Line introduced telephone-based insurance sales and changed the way insurance was sold in the UK. But virtually every insurance company imitated telephone selling - so making any advantage gained short-lived.
So what can be done to find and establish real and sustainable differences which matter to customers? There are a couple of possibilities. The first is to select and perform activities differently to competitors; and the second is to perform activities that are different to those of competitors.
For example, easy Jet's strategic positioning, as a short-haul, 'no-frills', low-cost service for business travellers, tourists and students in Europe, rests on an interlocking system of the activities it performs to support its low-cost convenience positioning. These include fast gate turnarounds, frequent departures with few aircraft, automated ticketing, self seat selection, meals at cost price, and low maintenance and fuel costs.
In contrast, a full-service airline performs activities to support a high-cost, full-service programme. It will provide customers with services to reach any number of destinations with a larger range of aircraft, as well as providing comfort, offering in-flight meals, arranging connecting flights, and checking and transferring baggage.
Thus while both airlines operate viable and valuable business models, they are built on entirely different systems of interlocking activities and competencies that are difficult to replicate.
So where are we? Well you should have an appreciation of the game you're playing. You have insight into your prospect's unmet needs. You understand the context of the marketplace and your competitors. You have thought about your competitive advantage. However, there is one last, very important thing you need to think about.
STEP 5: Last but not least, you have to think about how you allocate your resources and capabilities. At the end of the day, the strategic decisions you make about where and how you allocate your resources will determine how big your business will grow. It's what lets you grow a spectacular business with even the most modest resources.
Identifying unmet needs, a compelling offer and the means to deliver this efficiently and distinctively does not necessarily lead to a breakthrough strategy. A further key concerns a company's competencies and capabilities and the resources required to exploit them.
Leveraging core competence and capabilities should be ongoing to create new competitive advantages. Companies such as Apple, Canon, Wal-Mart and Tesco have achieved success by competing in different markets because they have enhanced or acquired fresh assets and capabilities to create new and better products, improve operations and create new capabilities faster or at lower costs than competitors.
For a strategy to be truly superior, it needs to reflect what a company does best - not what its competitors can do just as well. Thus, in attempting to imitate a company's strategic position, any rival will be forced to replicate not only its key activities, but also the way it carries them out; in other words, the activity system itself and the skills required to implement it! All this will drive demand for the quantity and quality of resources required by your business.
In this day and age this may be the biggest advantage you can have in business.
And bottom line, you can only determine how to allocate your resources when you know the answers to the other four questions. The source of your competitive advantage; the context of the marketplace; insight into your prospects and you understand the game you're playing. It's the only time it can happen. You cannot allocate your resources appropriately if you don't have those other four steps in place.
So sit down and think these questions through. What are your answers to each? What is the best allocation of your resources?
When you answer these questions, you'll be on your way to developing a great business.
Andrew M. Pearson
Director
COACHING BUSINESS
Turning Good Businesses Into Unique Businesses
Andrew Pearson is a management coach who works with ambitious business leaders seeking growth for their companies.
For information on ACTIVEinsight a powerful visioning and planning tool that helps define and shape breakthroughs to achieve profitable business growth click here.
A complimentary copy of his E-book "Breakthrough Strategy" can be obtained form his website here.
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