Monday, March 19, 2012

Are You Sure You Have A Strategy?

Two strategy experts named Hambrick and Fredrickson wrote a scholarly article titled Are You Sure You Have A Strategy? in 2001. In this article they discuss five key components to creating a strategy. The article isn't that long and really is worth reading if you have time. But if you don't, here's the short version.

When looking at the five, it's important to note that they're all highly integrated. You need to think about each at the same time and constantly iterate until you have a complete strategy.

Arenas: Where you will be active and with how much emphasis
This is all about where you will be competing. Which product categories, sales channels, geographic locations you'll be in. Which core technologies you'll use, and which part of the value chain you'll be playing in. At first, you want to focus heavily in one or two arenas.

Differentiators: How you will win!
Why will a person give you their money and not someone else? You need to create something of value. Be the best in the world at it! This is your secret sauce, that hopefully is very difficult for someone else to duplicate because of scale/scope advantages or unmatchable services/products.

Economic logic: How returns will be obtained
The simplistic equation I was taught: (Price x Volume) - Costs = Profit
Pretty simple right? Not always easy, but simple. This will all depend on your differentiators: One way to make a profit is by lowering costs through scale/scope advantages. Another way is from premium pricing due to unmatchable service or propriety product features.

Vehicles: How you will reach your arenas, differentiators and economic logic
These next two are where Hambrick and Fredrickson made their biggest contributions. Vehicles and staging were two gaps in the literature before 2001.
The examples they give for vehicles are: internal development, joint ventures, licensing/franchising, alliances and/or acquisitions. If possible, you want your differentiators to be from internal development so you own them. Otherwise you could be at great risk in the future if one of your partners changes their mind.

Staging: Speed and sequence of moves
You need to choreograph each part of your strategy. Make sure you can win at each different stage with your resources and talents given the competition. Also, don't just think about your next move. I learned the mantra: "Firsts, Thirds, Fifths". You make the first move, your competition makes the second, you make the third, they make the fourth, you make the fifth. The idea is to anticipate what they're going to do, and have a plan in place for when they do it.

Pretty awesome, right? Each of these five components should be fairly detailed, and again, it's an iterative process. If you do this though, you'll have a complete strategy. When I get up the energy, I'll write more about other aspects, like a value proposition and the 4+ P's of marketing.


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