Defining & Executing Strategy is a Journey, and Each One Has its Own Path
Being a Bottom-line Player can be a perfectly acceptable strategy, if that is what the company wants to achieve and does not want to grab market share
There are many ways one can define Strategy. Michael E. Porter has defined Strategy as "creation of a unique and valuable position, involving a different set of activities".
While this is one of the many definitions of strategy, Alfred DuPont Chandler, Jr. has defined strategy as, "Determination of the long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals".
Irrespective of the definition, one needs to understand that defining corporate strategy is an ongoing process and every enterprise needs to revisit their strategy and align them, based on environmental situations and their intent.
It is quite interesting however to observe that while two companies might end up defining similar long-term goals, for example, "achieving market leadership", the journey they traverse can be quite different. It has lately intrigued me on why a company chooses certain Strategic Alternatives over others and how we can study these moves in a more structured manner.
My love for 2 by 2 has helped me draw the matrix below to understand these moves a bit better.
Based on their strategies, companies can be plotted against the two dimensions — Market Share Focus (X-axis) and Efficiency Focus (Y-axis). While companies on the bottom right quadrant are Growth Players, the ones on the top left quadrant are Bottom-line Players. The ones who are able to achieve growth without compromising efficiency are typically the Market Leaders.
"Companies can continue to be in a particular quadrant or may choose to move across quadrants"
Being a Bottom-line Player can be a perfectly acceptable strategy, if that is what the company wants to achieve and does not want to grow over the industry growth rate and grab market share. There can be multiple scenarios, for example, a company with niche capabilities that can demand a much higher margin but cannot scale up substantially may choose to be a Bottom-line Player. Similarly, a company may choose to sacrifice efficiency and drive top-line to become a Growth Player by over-investing in customer satisfaction levels.
The below matrix shows some of the reasons behind why companies may choose to be in a certain quadrant.
Each company has a DNA or Core Values that help them stay focused and will drive their position in this Market Share – Efficiency matrix. While this is generally true, under changing environmental conditions, companies may gradually shift positions in the long term. There can be many reasons driving such change:
- Leadership Change: A home-grown leader typically has the propensity to preserve the core values and the strategic decisions are aligned accordingly. However, a leader brought from outside may differ from the key tenets which were put in place by the founding members and may take up strategic alternatives that can seem more market oriented.
- Competitive Actions: Sometimes the decisions taken by adversaries impact the actions of an enterprise which leads to a path that can be fundamentally different from what the enterprise has taken in the past.
- Industry Dynamics: While competition is one of the major factors, other stakeholders including customers, suppliers, partners etc. can also drive a company to take alternate paths that differs from its core values.
- Shareholder Value: The motive of profit is the prime objective of an enterprise and hence returns to the shareholders holds utmost importance. As explained in Figure 2. while the Growth-player is capital appreciation focused and returns to shareholders is in form of capital gains, the Bottom-line players are more margin focused and provides dividends as one of the key ways of providing shareholders return. When companies move across quadrants, their operating style has to accordingly change.
Irrespective of the reasons above, the most interesting part, however, is the journey taken by each company when they try to move towards Market Leadership. While the best way possible is to maintain its current position in the strength area and gain on the area of improvement, it is often difficult to achieve.
"Every company is set up to execute a dominant strategy and the execution engine often is not geared to execute alternate strategies"
It takes a strong leadership vision, an exceptional change management team, and a robust governance process to drive such change.
Figure III provides a view of how companies can move towards Market Leadership. There can be infinite possibilities of Revenue-Margin profiles while this happens. While both companies G and B may want to move to M, the most optimal path will be P1 and P1' which does not compromise on their respective current positions. However, even though P1 and P1' can be the best course of action, it might not be possible without making trade-offs from the current position. Hence, a temporary dip in the current position for G (sacrifice growth over efficiency) and for B (sacrifice efficiency over growth) might be needed through one of the possible paths P2 and P2'.
While the destination of Market Leadership may be the ultimate goal, yet it is important to manage the journey carefully to ensure success and long term sustenance. A few important points to remember in this journey are:
- Get your Business Units aligned to Corporate goals
- Gear your Processes and Systems to support the changes
- Take care of your People, understand and solve ground level issues
- Over-communicate the changes – provide the rationale for change and its impact
Like all journies, each company will face a unique set of challenges. A strong Change Management team will be the backbone to navigate and solve such challenges and lead to success.
(Views expressed are author's personal and don't necessarily represent any company's opinions.)