Your business is ‘funked’ without a competitive strategy!
Having founded and worked within a range of amazing businesses over the years (and perhaps especially as a strategy consultant) I am always amazed at the lack of both an understanding of what a competitive strategy is and an actual document to point to. This is not meant as any derogatory attack on the businesses I have worked with, more an observation – and I suppose something that keeps Daleth in business – helping other businesses design, develop and implement competitive strategies.
This post should therefore act as a starting point only, with a range of simple definitions and basic frameworks for consideration. It is not a demonstration of being erudite, and quite obviously more information is required to begin to develop approaches and frameworks to undertaking the work of designing strategies (this will come in future posts, I promise).
What is Competitive Strategy?
Before we begin any comprehensive evaluation of competitive strategy development we need to know what we’re talking about. Strategy is not tactics, but often the two are used interchangeably and without much thought to the impact.
It is critical to understand the difference between the 2, so we can frame the challenge properly and define the solution more accurately.
A Competitive Strategy is an integrated set of choices that positions your business on a playing field of your choice, in the way you want, to increase your chances of winning. Strategy is very ‘big picture’, and inherently aware of the competition and focussed on winning over the longer term.
Tactics are specific actions your business takes to implement this strategy. They are typically the ‘how’ of achieving the strategy, and are often more focussed on short term goals and objectives. These can be planned as an approach to implementation, but can and should also be reactive based on market conditions and tactical learning relating to performance and customer feedback.
Competitive Strategy Development
Note in the description above we refer to strategy as the ‘positioning’ of the business where we want it. Throughout my career this is perhaps the most important facet of competitive strategy I have learned; choose to fight where others are not.
You can make your life that much easier by consciously evaluating and choosing the right place to compete. In their 2004 book, Blue Ocean Strategy, How to Create Uncontested Market Space and Make the Competition Irrelevant, Kim and Mauborgne introduce us to Red and Blue Ocean Strategy Theory.
Blue Ocean Strategy(BOS) refers to the pursuit of differentiation and low costs to open up new markets and demand, in these spaces there is no competition and untapped demand.
Red Ocean Strategy (ROS) relates to competing within known industry and market parameters, with a focus on capturing more of the existing demand. Here competition is fierce.
It is often proposed that BOS are better than ROS. I don’t specifically disagree, but seeking a risky BOS at the expense of a highly competitive ROS is silly, especially as the business strategy might well move from red to blue over time as it develops more capability and capital.
Whether the Red and Blue Ocean Strategy Theory is correct or not is irrelevant, it merely helps me make a point; ultimately we’re aiming to identify where and why we have the upper hand. Basically choosing to compete where others are not, in ways others are not – gives us a competitive advantage. Whether this advantage is in new or existing markets doesn’t matter, so long as it’s oriented to increasing the chances of winning.
Therefore strategy can’t be determined without a clear understanding of the businesses’ relative position in any market – ie, if you don’t know what your competition is doing and where, you can’t build a strategy.
Strategy therefore can be thought about under 3 basic headings:
These categories are not static monoliths, instead dynamic elements of any strategy that require ongoing analysis and evaluation. The role of a strategist is to ensure superior performance relative to the competition, via integrating these 3 components of the strategic triangle.
Positioning your business to win requires a clear understanding of your competitors and what they are doing, plus what you think they would do in certain situations (I call this Perceptive Analysis). This requires ongoing analysis and synthesis of a company’s direct, indirect, substitute and potential competitors.
There are a range of analysis techniques and strategic development frameworks we use at Daleth to identify this, but in summary we need to know:
- Who are we competing with?
- What are competitors selling and at what price?
- Where are competitors selling geographically?
- Where do competitors sit in the network?
- Which customer segment are they selling too and why?
- What is the perceived strategy of the competition?
- What do we think will be their response to our competitive positioning?
To reiterate, we’re aiming to identify where the competition is low, enabling us to take a winning position.
No market is homogeneous, and their preferences and requirements will shift over time. The strategy should therefore seek to identify easily accessible vs hard to reach segments. The company should focus on segmenting the market to identify customer segments’ needs better fulfilled by the company than the competition.
There are a number of ways to think about segmenting, and the more proprietary the segmentation the more likely you have a unique segment to target and cater for (but again, don’t be complex for the sake of it, especially when there is a clear open customer segment using more simplistic segmentation). 2 basic ways to think about segmentation are:
- Objective oriented segmentation
- Coverage oriented segmentation
Objective orientation segmentation is geared towards separating users based on how they are using products. A famous example from Clayton Christensen is the discovery of 2 objective segments for a fast-food restaurant chain’s milkshake (mmmm, perhaps McDonalds?); one customer group wanted milkshakes with the meal to keep the kids happy, one user group wanted something other than bagel or donut for the morning drive to work. This approach can also be referred to as the ‘Jobs To Be Done’ approach which is more commonly known in the startup world specifically.
Coverage oriented segmentation is focused on discovering markets with limited/no coverage from other companies. This differential can take the form of geography, sales channels, demographics and other such simplistic parameters.
Understanding the company’s capabilities and resources is critical to proper strategic development. Without it, a strategist could easily define an unobtainable strategy – which we can refer to as a ‘pipedream’.
If a strategy requires the development of a software product without any software developers or the available resources for the recruitment of software development staff or agencies it is highly unlikely the company will attain the strategic objectives. This strategic thread is primarily about resource allocation.
The identification of potential opportunities, both for the development of new capabilities and the leveraging of existing capabilities, is key. Sometimes the right strategy is to scale up what’s working already.
Let’s say a company has a fantastic production line in relation to its competition, it should consider scaling this to make it a core parameter on which to compete.
It should be noted, the strategy should not shy away from identifying competitive opportunities the company cannot currently implement, but a strategy should not be agreed upon without those resources being made available by the company – otherwise we have another pipedream.
A company requires a Competitive Strategy to win. A strategy is not just a list of things to do (this is a plan), instead a vision of where it should compete, with whom and on what basis. It should be oriented to winning – as easily as possible.
Bringing together a wholly integrated perspective on the competitive landscape, its potential customers and what the company can deliver on from a capabilities perspective will produce a well rounded competitive strategy that provides the best opportunity for success.
Strategy is about the proactive anticipation and positioning of a company, based on thorough research and analysis, and should have far greater longevity than tactics.
A company without a solid, well researched competitive strategy is like a boat without a rudder – you can have as many oars as you want, but you’re not going anywhere fast.