In today’s competitive business environment, having a well thought out strategy is instrumental for surviving and for achieving profitable growth. Realizing a strategy can sometimes be challenging and is likely to require the full attention of a company’s executive management over a long period of time. However, our experience tells us that even developing a good strategy often poses a challenge to companies.
Learning to recognize a good strategy is a pre-requisite for being able to develop one of your own. In this Insight on Strategy, therefore, we will share our perspectives on the five hallmarks of a good strategy.
1. Articulate choices of the company
A good strategy typically articulates several important choices that a company has made. It must clearly stipulate the market in which the company intends to operate, as well as the overall position targeted. A company’s position is preferably described through its choice of targeted segments (such as customers, markets, etc.) and through a high-level definition of the products and services with which the company intends to serve these segments.
2. Define competitive edge
A good strategy clearly describes the company’s competitive advantage; that is, what makes the company unique, how it should beat its competition and ensure that customers buy their products or services rather than those of its competitors.
3. Enable profitable growth
One very important facet of a good strategy is that is should allow the company to achieve profitable growth; that is, actually impact the bottom line. In order to understand whether a company’s strategy is set up to do that, there are typically two aspects to examine. First of all, a company’s strategy must be sizeable enough. It is not enough to find a unique position in the market; this position must provide a sufficiently large profit pool to allow profitable growth.
The second aspect to consider is feasibility. Feasibility means that it must be possible to realize the strategy at the end of the day. For example, if, through your strategy, you have decided to compete by delivering a high-end portable computer for less than 500 Euro, you must be able to deliver on this promise. Scalability is an important factor to consider when evaluating the feasibility of any strategy. In other words, we may be able deliver on the promise to one customer, but can we scale it across 1000, 100,000 or 1,000,000 customers?
4. Valid today and tomorrow
A good strategy should be valid in today’s marketplace and should not only be a future-oriented statement. There is no such thing as sustainable competitive advantage, yet we believe that a good strategy must have some viability over time. Expectations of strategy sustainability will vary depending on aspects such as the nature of the industry in which the company operates; for example, a fast-moving industry versus one that is mature and stable.
5. Honored through decision-making
A good strategy should have a direct impact on a company’s ability to generate bottom-line results. This means that a good strategy must influence decision-making in a company. A good strategy should be present in every decision made by executive management in the company, but also in every decision made by employees of the company.
About insight on strategy
Strategy is one of the most overused and misused words in the business community. It is a term that everybody loves to use but few dare to explain. 2by2 publishes Insights “On Strategy” to help companies improve their ability to create value through strategy by better understanding what strategy actually is, by learning how to spot the difference between a good strategy and a not-so-good strategy, and by gaining perspectives on the most common pitfalls when developing a strategy.
Previously published articles in this series:
- A definition: http://www.2by2.se/insight-on-strategy-a-definition/
- Competitive advantage: http://www.2by2.se/insight-on-strategy-competitive-advantage/
- Strategy context: http://www.2by2.se/insight-on-strategy-the-strategy-context/