Bloop Global

The DNA Of a Good Strategy

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It’s time to look at your business with a fresh pair of eyes. It is time to get honest about where you are, where you want to be, and what it will take to get there. STRATEGIES do four things: they change the game for rivals, they open up new opportunities for innovation in the company, they protect existing business, and they deal with risks and pressures.”

Your strategy must account for where you are competing, the customers you are targeting, what you are going to offer, how you intend to win, and what your people need to succeed.

Your strategy must be communicated in a way that ensures buy-in from stakeholders – especially your employee. Otherwise, execution may fall flat.

Strategy brings the map to the journey.

Without it, you’re just heading someplace without knowing when a vehicle has a faulty GPS.

The Strategy you need now.

  • What makes you stand out. What’s your competitive advantage?
  • How will you create new market segments, disrupt a current market or respond to the disruption in the marketplace?

There are at least five elements of a company’s strategy:

  • Customers,
  • Differentiation (better be sustainable),
  • Resources,
  • Execution and
  • People.

5 forces of competition:

Visualize your business as a position in five circles. Each circle represents a different axis on which your business competes, and there are many positions in each. Decide which of the five you want to compete on (if any), and how hard you’re willing to work to be the best possible.

Understanding these variables is essential; every decision you make as a business leader should be evaluated in light of them. If you don’t know where your business fits, who your customers are, or where and how you plan to win, it’s impossible to say what your real strategy is.

An organization’s strategy is the logic underlying its activities so that – in combination with the environment – it gives that organization an advantage. The logic can be applied in business, politics, sports, and pretty much anything else where people intend to out-perform their competition.

Your strategy must account for where you are competing, the customers you are targeting, what you are going to offer, how you intend to win, and what your people need to succeed.”

Where are you competing? Look at your business objectively and decide where it fits among the five circles of competition.

The five circles of competition were developed by Michael Porter, a Harvard Business School professor, to help businesses decide where they should compete. The aim of The Five Circles of Competitive Strategy is to give businesses a new perspective on how they should position themselves in relation to their competition.

Every business exists in a circle of competition. In fact, the challenge of every business is to differentiate within their circle of competence and then market themselves effectively to the people that are in there.

Knowing where you fit in the five circles of competition is an important starting point for business planning. It determines how you relate to your competitors, your customer and your potential customers — and it allows you to see problems more clearly. Examining your competitive position helps you focus on the right issues, and avoid wasted effort and unnecessary costs as well as allowing you to decide when and why to make strategic changes in your bid to be successful.

Where are you competing? Is it a blisteringly hot marketplace that’s only getting hotter, or a market so saturated with competition that you can’t find your target audience? Maybe you’re just getting started and don’t have a well-defined target customer or market. Or maybe you have so many competitors that don’t really fit in any one place. Since every business is different, we need to look at the nature of the industry and how it affects competition.

If you take a look at the 5 Circles of Competition, your competition will fall into one of the following five categories:

(1) You have them beat

(2) You’re in it neck-and-neck

(3) You’re not doing as well

(4) You are completely outclassed and

(5) you don’t have anything to worry about.

 

Forces That Shape Competition

The configuration of the five forces differs by industry. In the market for commercial aircraft, the fierce rivalry between dominant producers Airbus and Boeing and the bargaining power of the airlines that place huge orders for aircraft are strong, while the threat of entry, the threat of substitutes, and the power of suppliers are more benign. In the movie theatre industry, the proliferation of substitute forms of entertainment and the power of the movie producers and distributors who supply movies, the critical input, are important.

Competition is a force that shapes every industry, in every period of history. Competition is about human beings. Its outcome turns on the capacities and initiatives of individuals who may lead companies, plan strategy, manufacture products, design marketing campaigns or provide services. The rules of competition are shaped as much by its participants as by its structure. It is not an embraceable concept for the faint-hearted. Anyone with the ambition to lead a company must understand competition in all its manifestations, intelligently assess its implications and seize opportunities where they arise.

Competition is a fundamental force that shapes all businesses in every industry. How you choose to compete will shape your strategic options, improve performance, and create the future value for your company.

How can you shape competition in your favour? That is a question that many would aspire to find an answer for.

You probably understand that the direction of industry change is influenced by a number of factors but what are those factors? We are told that in order to stay ahead of our competition we should embrace change but how can we create change or influence it if we don’t know what direction it is heading in? If you want to be on the lookout for market opportunities, perhaps you should learn what drives industry change.

The strongest competitive force or forces determine the profitability of an industry and become the most important to strategy formulation. The most salient force, however, is not always obvious. There were two major forces operating in the computer business during the 1980s. One was Wintel (the Windows software system and Intel microprocessors) and the other was Apple (with its Macintosh operating system). Few people realized that these two forces would have a greater impact on strategy formulation than did IBM or any other competitor.

What makes the iPhone so special? The answer is not the iPhone itself but what surrounds it. Apple is just one of many manufacturers of smartphones but it has been able to make a profit while other smartphone-makers have not been so lucky. The iPhone’s success is due to the fact that it is tied into an industry ecosystem that contains hardware, software and content, and proprietary technologies all controlled by Apple.

THREAT OF ENTRY

A threat of entry occurs when a new company or individual enters the same industry as an already established firm. New entrants bring with them new capacity and a desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete.

New entrants to an industry bring opportunities for growth and innovation. Their ability to finance investment that exploits cost advantages over their older rivals forces the existing players to reduce costs, improve productivity, and compete on price. This puts pressure on prices and profits, limits the rate of investment, and alters the structure of the industry. New technology can enable economies of scale that reduce unit costs and make it profitable for new firms to enter an industry where they previously would not have been competitive. However, these processes also may lower demand or lead to a surplus of capacity among the old firms, with consequent overproduction and falling prices or profits.

Research indicates that significant entry barriers normally include high capital requirements or sophisticated, proprietary technologies. The height of entry barriers that exist in an industry is one of the main determinants of the threat of entry. In fact, it is often claimed that the existence or non-existence of entry barriers is what largely determines a firm’s “market power.” Indeed, many firms set about erecting entry barriers all over their business as a way to deter potential entrants.

If an industry has very high entry barriers, a potential entrant will have to invest very heavily in order to compete effectively with the incumbents. Thus, under such circumstances, a potential entrant would find it unattractive to enter unless the expected payoff from entering is high.

Industry structure drives competition and profitability, not whether an industry is emerging or mature, high tech or low tech, regulated or unregulated.

The debate as to whether a particular industry is emerging or maturing, high tech or low tech, regulated or unregulated is largely irrelevant from an industrial organization (IO) economics standpoint. The structure of an industry has a much greater effect on competition, economies of scale and scope, and profitability than other factors.

Smart Strategy:

There are two types of companies in this world, those that use strategy and those that don’t. The companies that win have a reliable strategy they can rely on to succeed. Smart strategies start with a step by step approach. If you’re going to get anywhere in business, you need the right perspective. Having the right perspective is what it’s all about.

Strategy is harder than most people realize, but it’s also the most important thing in business. Smart strategy is hard to do, because so few companies know how to think about strategy. Good strategies feel obvious afterwards. At the time they don’t. They make you uncomfortable — that’s a sign you’re on the right path.

Everything in business can be thought of as a game, which means that it takes strategy to win. Businesses, like games, are better played by strategists. Strategy helps you figure out what is going on and how to use this information to your advantage. Strategy helps you act effectively so that everything you do is an improvement over what your competitors are doing. Your strategy guides which opportunities you pursue and which ones you let pass. You are the chess player and the business game is your board.

`You can’t improvise a growth strategy. You have to think it through and be very clear about the big decisions. … A startup is as much about what you don’t do as what you do … Strategy is the ability to look around corners, to see things coming that others don’t see yet.

`Is there a secret to Google’s success? One explanation is that the company has benefited from smart strategy. Where some firms, lacking foresight, pursue only what is directly profitable, Google has invested in projects with indirect benefits as well. Google’s system for storing and searching book content may have helped it master language translation–an astonishingly quick process that the translation companies themselves are hard-pressed to match. The same venture capital division spawned YouTube, which in turn uncovered a gold mine of innovative marketing tools

Here’s a fact that you might not realize: Most startups fail because of strategy. It’s only in recent years that people have become aware that you have to think about growth in order to create a successful startup.