Many companies, especially those in the U.S., believe that strategy is about being better than the competition. When you think about “being better” in the context of sports, sometimes you can win by one point, or if you’re a gold medalist, by a hundredth of a second. In sports, you can win with incremental differences. However, in business, such tiny increments do not help you to win. They merely help you to fight it out with industry competitors at the expense of purpose, growth and profits.
The reason why being “better” became confused with strategy was due to the extraordinary success of Dr. Edwards Deming’s work with Japanese firms during the 1950s. Deming taught companies about efficiency: doing things better, faster, cheaper. That is, achieving excellence in the key capabilities of the organization. As companies learned how to drive down costs, they mistook operational excellence for strategy; however, as more companies picked up on Deming’s efficiency models, the differences among competitors faded. Ultimately, the customer won as competitors kept dropping prices in order to compete. The race to operational excellence ultimately made quality goods and services more affordable (good for the consumer) but caused margins to shrink (not good for businesses). Today operational efficiency is essential, but as a “pay-to-play” requirement, not as strategy.
Strategy is not about being better. Strategy is about being different—unique. It’s about finding the “whitespace” in your industry where little or no competition exists. Every industry has certain attributes, (aka characteristics or competitive factors) that define its marketplace. The “great” companies build business models highlighting a unique set of differentiating activities that matter most to a unique group of core customers. As a result, they win big.
Finding the whitespace in your market requires knowing your “perfect customer” and the differentiators they value most. Winning big requires that you create a unique and valuable position based on the three to five differentiators your perfect customer deeply appreciates and is willing to buy at healthy margins. The attributes that don’t matter to your perfect customer should be eliminated and/or minimized in your service or product offering. Thus, instead of competitors, your whitespace is comprised of a core group of customers who are uniquely suited to you because they value the differences your offering represents. Great strategy, in effect, makes your competition irrelevant.
For example, in the hotel industry there are companies that build their business models around affordable pricing. Meanwhile, others focus on amenities while still others focus on quiet, comfortable and hygienic sleep at a reasonable price. In creating a unique, differentiated position by focusing on the areas of specific interest to your perfect customer, you strengthen both your position and your margins.
The tools and techniques that help you develop your strategy include:
- Know Your Customer: Define the geographic, demographic and psychographic characteristics of your perfect customer.
- Know Your Market: Understand the attributes of the marketplace. Build a business model around the attributes that are most important to your perfect customer.
- Know Your Business Model: Identify the four to five differentiators that matter most to your perfect customer and build your delivery system to support them.
Your differentiated position in the marketplace, i.e., your strategy, is akin to having a moat that surrounds your core group of customers and defends them from predators. The unique differentiators and tactical activities that support them makes it difficult for competitors to replicate, especially when they are pursuing the market at large. For example, Ikea’s business model appears very complicated at first glance. On closer observation, it becomes obvious that Ikea’s unique position in the marketplace is flat-pack furniture and those customers who are attracted to the convenience and price point of readily available furniture. Although Ikea claims only 6.43 percent of the marketplace, it dominates 45 percent of the market’s profits. More important than the size of your market is the willingness of your market’s customers to pay for the goods and services you provide.
Another extremely important aspect of strategy is the decision to say “No!” to opportunities that deviate from it. The importance of this decision is embodied in a famous quote by Steve Jobs:
“People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying ‘No’ to the hundred other good ideas that there are.” For example, Southwest is known as the “no-frills” airline. Southwest says “No!” to food, baggage transfers, and central hubs. Instead, Southwest travels from point-to-point where competing airlines seldom fly. Because of their strategic decision to say “No!” to a lot of frills and instead serve the customers who wanted the simple convenience of flying point-to-point, Southwest became more attractive to its core customers and consequently the first profitable airline in history.
Inability to execute on strategy is the number-one reason why companies fail. This stems from a failure to structure organizations with, as author Jim Collins in “Good to Great” explained, “putting the right people in the right seats.” It also comes from a lack of understanding expectations. It is essential that everyone on your team understands the value of their role in achieving the Company goal and what they must do to be excellent in it. In sports, everybody on the team understands their role. They know their team’s chance at winning depends directly on how well they perform. For some reason in business, leaders tend to lack focus; i.e., attention to detail, and sophistication in the definition and performance of roles. A legend about medical giant Medtronic has been circulating in recent years. The legend claims that if you ask the janitors the purpose of their job, they will tell you it is “to save lives.” The janitors at Medtronic understand the valuable role they play in helping Medtronic win at saving lives. People in all roles and functions are the cornerstone of executing strategy.
The failure of past generations was to create a strategic plan and then put it on the credenza where no one would ever see it again. In the growth models that exist today, which is where I spend much of my time as a coach, we take the strategic plan and break it down position-by-position throughout the organization. Every quarter, we review whether we accomplished the objectives we established for ourselves in the previous quarter. If not, we evaluate the reason why so that we will improve next time. It’s analogous to our being a sports team that is looking at the tapes of the previous game to determine how well we did and how we can continue to improve. We do this at all levels of the organization; department-by-department. We then reassemble as a team in a quarterly planning meeting and set priorities for the next quarter.
As leaders, it is our responsibility to our teams to know and communicate the priorities for the next 90 days, and then ensure that every person on the team knows how their position aligns with those priorities. It is through daily, weekly and quarterly meetings, metrics, and priorities (knowing when to say “No!”) that we are able to prioritize, focus and execute our strategy.