Formulating Long-Term Strategy To Capitalize On Competitive Advantage

Formulating Long-Term Strategy To Capitalize on Competitive Advantage

Many of today’s start-up and mature companies alike are prone to designing and implementing  “end justifies the means” unit and corporate strategies.  We’re seeing many self-proclaimed industry disrupting strategic agendas spawned and genius-level processes designed to implement them, yet insufficient time is taken to assess the relevance and potential of the strategy itself.

Strategy is an art as well as an exercise in the planning and execution of well-knit, coordinated task lists designed to drive a company’s Return on Invested Capital (ROIC).   It’s at best ambiguous and risky, and to further plunge into the mist of uncertainty by failing to assess the quality of a strategic alternative is to possibly invite extinction.

So when at the strategic planning table and subsequently laying the groundwork of the company’s ascent or future growth, research shows that the more time spent on research and planning translates to higher overall ROIC over the subsequent 5-year horizon.

Our research on the subject of corporate strategy suggests, among other things, that, first, either the Company needs to find something new in the market that they can exploit by being first to market or by being better than competitors in some respect (ie: better quality or service), or second, that the Company unearth a new opportunity within its own structure (ie: developing a brand into new branches or new ancillary offerings).

If you have young children out there who enjoy playing with Lego, consider the brilliant strategy employed by Lego to branch out its’ product into the “Chima” and “Ninjago” brands.  Children are lining up in droves for these items (as the author personally witnessed upon one Chima-purchasing visit to WalMart  recently).

This is not an article about Company Mission, but rather the strategy employed to carry out that mission at a particular point in time, or particular stage in a company’s evolution.   How do we articulate a corporate strategy that, as the title suggests, capitalizes on the Company’s competitive advantage?

David Dranove, and Sonia Marciano in their book “Kellogg on Strategy”, write that companies are engaging in discussion on strategy when they are “Describing in what respect your firm’s output is truly unique, or the process by which you achieve inimitable efficiency”.  [1]

It’s within this context that companies should consider their target, positioning agenda, and execution model.

Consider the Strategic Pillars in the form of the acronym “T.P.E (Target, Position, Execute)” to drive your company’s next strategic conversation and corporate exercises:

 

  1. Target

 Consistent with Dranove and Marciano’s description of strategy, the company’s target market must be that which benefits from the unique offerings of the company.  Be that unique products, or services, state-of-the art customer service options, etc.  So the question of who or where to target is itself a response to “what are we good at, and who will benefit from this”?

In an industry with multiple contestants, your Company needs to differentiate itself and then penetrate that target market which will benefit from that differentiation.  Many companies utilize surveys or questionnaires to determine just what that target market is, but in the case of most small organizations, there’s an intuitiveness that helps the companies establish who to concentrate on.

When Proctor and Gamble wanted to heighten the level of it’s Oil of Olay brand, it determined from various market surveys that the optimum price point was $18.99; for the department store (upscale) shopper, the product at $18.99 was a great value but credibly expensive, and for the mass shopper, the premium price signified that the product must be considerably better than anything else on the shelf.[2]

 


 

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 The potential for success from your targeting decisions increases when data are available to back-up pre-conceived notions about your market.  Smaller operations tend to have neither the time, resources, not the inclination to target.  The decision of where to target is therefore made on an understanding that the market segment which (the decision makers believe) will benefit most is the segment that the Company should penetrate.  This is valid, as long as the segment will be the receptors of a unique offering, or at least something which can be recognized as a unique component in the marketplace.

Hou ever gone out to eat at a restaurant, and been offered a small portion of a menu item while waiting for your seat?  Or been provided ancillary items at no charge that will enhance your eof another product, such as free advertising dollars on Google?

These are items which facilitate the unique experience such companies give to their target to differentiate themselves, with the ultimate goal to generate trust and loyalty.

Once the target is established and the company can confidently assess how it can differentiate itself from it’s competitors as it engages with the target, then the company can move on to the Positioning  (“P”) phase of the strategic conversation.

 

  1. Position

 Once the reason for being is established, thought turns to how to carry out the mandate of the Company.  How exactly do we do what we want to do?  Many companies have gone before and executed ill-fitting strategies sorely wanting in corporate “fit”, and a waste of time of Company financial and human resources results.  The generalist approach falls well short, because by trying to be somebody to everyone, you’re nobody to anyone.

You’ve established your target, and now the boardroom conversation turns to how to expose the unique offerings the Company provides.

Positioning the offering involves ensuring that your offering penetrates the need market in the needed location.  Therefore, good Positioning is premised on the assertion that you have what is needed, where it is needed.

Sam Walton understood positioning very well.  Wal-Mart started out by putting locations in rural areas where there were low options for low cost, quality goods.  Walton reconciled the target with the correct positioning strategy, and the results of the success story are for all to see.

Positioning is an evolution of the targeting exercise – in targeting the need is established, and the positioning strategy is designed to penetrate where the need is, in whichever way the target responds positively to.

The quest to establish what elicits a positive response is the tedious and grinding work of data mining and analysis.  Successful companies, both start-up and mature, recognize this, and will leverage this valuable information into profits and future strategic growth.  How ironic it is, then, that in the Information Age data and information themselves not only are presented as the end product, but also as the means by which profits and growth are generated.

 

  1. Execute

The concept of execution is an ongoing and continuous process which, if denied – or treated as an annual- or semi-annual project, may precipitate complacency at best, extinction at worst.

Consider Oliver Wendell Holmes’ apt quote:

 

       “To reach a port we must sail, sometimes with the wind, and

sometimes against it.  But sail we must, and not drift nor lie at anchor”

 

When speaking of cost cutting measures at Coca-Cola, former CEO Roberto Goizueta is often quoted as saying that “at Coke we cut costs continuously – there’s no end to it”

Execution, not just in terms of cost cutting, but in all aspect of strategic implementation, is a continuous process, most importantly for the execution part.  Execution must be continuous, because in so doing important lessons are learned and new ideas spawned that bring on long-term success.

There should be regular (in some cases monthly) reviews of execution and new iterations implemented to capitalize on what is working and what isn’t in penetrating the corporate strategy.  Without this continuous process, strategy becomes static and a “hit-or-miss” activity.  Companies can’t grow this way.  They need to be dynamic and continuously refining their approach commensurate with market variations.

This is not to say that the strategy itself is a shifting target.  The Company mission must be well-rooted – something for stakeholders and employees to anchor themselves upon.  But the changing times demand a flexible and dynamic approach to how that mission is implemented in different business climates.

 

 

[1] Dranove, David and Marciano, Sonia.  “Kellogg on Strategy”  (Hoboken, NJ: John Wiley & Sons Inc.), p8.

 

[2] Lafley, A.G, Bringing Science To The Art Of Strategy, Harvard Business Review, September 2012, p65.

 

 

Nicholas Kilpatrick is a partner at the accounting firm of  Burgess Kilpatrick.  He leads the firm’s consulting and strategy practice and works with companies to enhance their Analytics, Forecasting , and Data Optimization functions.  The practice’s focus includes quantitative forecasting, corporate and unit strategy and planning.  Please visit our website at www.burgesskilpatrick.com or on Facebook at www.facebook.com/Burgess Kilpatrick for more information on our firm.

 

 

 

 

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