Reconnecting with Strategy

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Most companies owe their initial success to a unique strategic position involving clear trade-offs. Activities once were aligned with that position. The passage of time and the pressures of growth, however, led to compromises that were, at first, almost imperceptible.
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Through a succession of incremental changes that each seemed sensible at the time, many established companies have compromised their way to homogeneity with their rivals.

The issue here is not with the companies whose historical position is no longer viable; their challenge is to start over, just as a new entrant would. At issue is a far more common phenomenon: the established company achieving mediocre returns and lacking a clear strategy. Through incremental additions of product varieties, incremental efforts to serve new customer groups, and emulation of rivals’ activities, the existing company loses its clear competitive position. Typically, the company has matched many of its competitors’ offerings and practices and attempts to sell to most customer groups.

A number of approaches can help a company reconnect with strategy. The first is a careful look at what it already does. Within most well-established companies is a core of uniqueness. It is identified by answering questions such as the following:
M Which of our product or service varieties are the most distinctive?
M Which of our product or service varieties are the most profitable?
M Which of our customers are the most satisfied?
M Which customers, channels, or purchase occasions are the most profitable?
M Which of the activities in our value chain are the most different and effective?

Around this core of uniqueness are encrustations added incrementally over time. Like barnacles, they must be removed to reveal the underlying strategic positioning.

A small percentage of varieties or customers may well account for most of a company’s sales and especially its profits. The challenge, then, is to refocus on the unique core and realign the company’s activities with it. Customers and product varieties at the periphery can be sold or allowed through inattention or price increases to fade away.

A company’s history can also be instructive. What was the vision of the founder? What were the products and customers that made the company? Looking backward, one can reexamine the original strategy to see if it is still valid. Can the historical positioning be implemented in a modern way, one consistent with today’s technologies and practices? This sort of thinking may lead to a commitment to renew the strategy and may challenge the organization to recover its distinctiveness.
Such a challenge can be galvanizing and can instill the confidence to make the needed trade-offs.

Ref: Harvard Business Review

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