Why do companies have difficulty with strategy?
Updated: Mar 26, 2020
“Our strategy is to internationalize”.
“My strategy is to consolidate my industry”.
“Our strategy for this year is to ramp up R&D budget”.
“My strategy is to outsource more of my production”.
Have you ever come across these lines before? Do you think any of these is really a strategy?
Definitely not. These are steps towards strategy and not the strategy itself.
Why do companies have difficulty with strategy:
In today’s competitive & fast-changing business environment, we find many companies fail to grow due to a lack of good strategy. Most organizations believe they have a strategy when in fact they have none.
Many people at different levels of organizational hierarchy freely use the word strategy. What is not clear is whether they are all referring to the same thing. There are a lot of management fads that confuse us about strategy.
A major source of confusion among managers is to understand competition and market. Managers think competition as being the best in the market. “If I become the best, I will succeed”, is the strong belief. However, this is a dangerous way to think about competition.
Let me ask you this question: Is BMW the best car? Some people might agree while some won't.
It serves a certain set of needs of a certain set of customers whereas other car brands serve a different set of needs & target certain customer segments.
There is no best company. There is no one way to compete.
Competition is all about creating unique value for the set of customers you choose to serve. It all depends on what needs are you trying to serve.
What is strategy?
A Strategy isn’t a goal. A Strategy isn’t operational effectiveness. It is neither a business process re-engineering nor bench-marking.
A strategy is a set of choices to achieve the organization’s goals & objectives by offering a unique value proposition to customers & achieve sustained competitive advantage.
It deals with long-term performance rather than routine operations. It defines how you are going to compete differently. It is utilizing, allocating & managing resources to meet the goals and objectives.
A strategy is “emergent”. It is a process and a pattern of actions rather than one, which is fully formulated in the beginning.
The first fundamental choice in strategy is whom am I trying to serve. You can’t serve everyone. You can’t meet the needs of all. You need to be clear which needs of which customers are you going to serve.
Simple questions to ask during strategic planning are:
- What is your unique offering?
- Whom are you trying to serve?
– On what principles should it be based on?
– Is the strategy sustainable?
Making the right choices with the help of internal & external analysis, allocating the resources to achieve the defined objectives & offering a unique proposition to set of customers is critical to sustaining in today’s fast-changing business environment.
Michael Porter (1998) - Competitive Strategy