The Essential Business Strategy
Essential Business Strategy
“Tactics without strategy is the noise before defeat”; Sun Tzu 540 BCE, “If you don’t know where you are going, you won’t know when you get there”; Yogi Bera 1950. All through the ages, great thinkers have commented on the value of strategy. Today, the world’s best-known business academic is Michael Porter, a Harvard Business School professor. His first book, Competitive Strategy: Techniques for Analyzing Industries and Competitors (Free Press, 1980), is in its 53rd printing and has been translated into 17 languages. He offers some good advice for the Vermont small business owner.Although the basic concepts of business strategy predates Michael Porter, his notions on strategy are preached at business schools and in seminars around the globe. However, his concepts of strategy are being replaced by expedient and easy fad-based notions of competition analysis and profit optimization. In effect, short term tactics and an emphasis on operational effectiveness are replacing strategy and long term planning. To understand this, we have to look at the difference between business tactics and strategy.
Strategy consists of making decisions and choices, trade-offs; it’s about deliberately choosing to be different; delineating how a company seeks to be unique. The essence of strategy is that you frame and limit what you’re trying to accomplish. You can’t be all things to all people. Strategy defines the basic value you’re trying to deliver to customers and who your customers are. It serves as the map to optimum sales.A company without a strategy is willing to try anything. If you’re strategy is to do the same thing as your rivals, then it’s unlikely you’ll be successful. It is, in fact, incredibly arrogant for a company to believe that it can deliver the same sort of product that its rivals do and actually do better for very long. That’s especially true today, when the flow of information and capital is incredibly fast and the consumer is more informed and mobile than ever before. Only strategy can create sustainable advantage.Business tactics or operational effectiveness, is about how to do the things that you do in the best manner possible; it’s about what every business should be doing. In today’s market, you need to define how you’re going to be distinctive. Word processors repalced typewriters because it was operationally effective. Using computers to manage inventory, analyze sales and examine cash flow are all tactical functions. Tactics is a means, strategy is a direction. Unfortunately, the line between tactics and startegy is getting fuzzy.Porter says that companies have bought into an extraordinary number of flawed or simplistic ideas about competition and quick-fix, automated solutions that promise fast and easy increases in profits — what Porter calls “intellectual potholes.” These include TQM, JIT, TCO, BPR, BSC, ERP CRM and many others. The thinking is that these analysis methods provide immediate results and, as a result, many have abandoned strategy almost completely. To be sure, these tactics have their uses but not as a substitute for an effective strategy. Driving faster does not replace knowing where you are going.This focus on operational effectiveness actually creates a mutually destructive form of competition. If everyone’s trying to get to the same place, then, almost inevitably, that causes customers to choose based only on price. This is a bit of a metaphor for the rush to globalization of the labor market and big box retailing in which we’ve seen a widespread focus to lower prices. This leads to operations on such a thin margin that relatively minor market or economic fluctuations can be disasterous.There are those that will argue that such a form of destructive competition is simply the way competition has to be. Michael Porter believes that there are many opportunities for strategic differences in nearly every industry; the more change there is in an economy, in fact, the greater the opportunity.
Therein lies the challenge to business owners: Can the locally owned businesses adapt their strategy to remain competitive in the face of big box retailers, national chain stores and internet sales? We must, of course, assume that local governments will not favor the big box chain stores with massive development subsidies and tax advantages. Once they are on a level playing field, the local businesses must adopt strategies that differentiates them sufficiently that the consumer is aware and understands the benefits of “buying local”. The development of such strategies could benefit from guidence from Michael Porter and a clear understanding of the distinction between business tactics and strategy.