Business Strategy And Innovation By Dr Valentine Obi

What is Strategy?

In very simple terms, it is what's going to make a particular organisation different and provide a competitive advantage.

When you ask a company, what does success looks like? The answer that you get is usually, I want to be the best company in my industry. I want to be the best bank, I want to be the best insurance company, I want to be the best IT Service company in this category, the best car company, etc. But in business competition, that's actually not the way to think about success.

The reason is that there is no best company. So it's pretty hard to try to do something that's impossible. There is no best car company. There is no best insurance company. It all depends. It all depends, because there's no one way to compete. It is a mistake in strategy formulation, is to think that there's only one way to compete in every industry. There are different ways to compete and it is dependent on what customer and customer needs, you're actually trying to meet. 

So when you ask the question, What's the best car, or the best car company. You can't answer that because, being the best all depends on who you're trying to serve. If you're trying to serve the student community, being the best is different from if you're trying to serve working class people with families, etc. There is no best way to compete. There are lots of good ways to compete depending on who you're trying to serve.

The thinking should be. How can my company be unique? How can I create unique value for the set of customers. I choose to serve. Strategy is essentially about competing to be unique. It is fundamentally about making choices. And the most fundamental choice: Who am I trying to serve?

MISTAKES IN STRATEGY FORMULATION

One of the worst mistakes in strategy is to try to serve everybody. You can't meet the need of every customer, it's impossible. You can't meet all the needs of every customer. Fundamentally, if you have a strategy, you've got to decide which needs, of which customers, you're actually going to seek to meet. 

Another tremendous mistake in strategy is to get into a competition with your competitors on the same thing. If your competitor is trying to be the lowest cost, it's pretty unusual to win, if you then try to chase them and be low costs.

The essence of strategy is to find a unique position in your business that delivers unique value to the customers you choose to serve.

 

Strategy is Not

Simply implementing best practices, buying the latest machine, using the internet to communicate with your customers. Doing lots of things to actually keep making the company more productive and more efficient. All those things are a necessity, but they're not strategy.

Strategy is not about doing the same thing better. Strategy is about finding that different place for the organisation to deliver value.

 What makes it challenging, however is that, you have to do both of these things at the same time. You have to keep adopting best practices, but at the same time having real clarity about what is going to make you different in the marketplace.

Strategy is Holistic

When we think about strategy, we also have to recognise that strategy is holistic. It's not about any single action that you might want to take. It is not just one thing one steps. Strategy is not to go international, that's not a strategy.

Raising R&D is not a strategy. Strategy is holistic.

It's the whole set of choices that you make collectively in order to position the company for success, over time. 

THINKING COMPETITION

When we think about strategy, we must ask, what kind of competition are we creating in our industry. The wrong answer is we're creating a zero sum competition, we're all doing the same thing and beat each other up on price. That's not the competition we want. What we want to create is more of a positive sum competition, where we all have a different strategy. We're all trying to do something a bit different, serving different customers and trying to meet different needs. That's the kind of competition we want. That's the competition where the whole industry can be more attractive and competitors can do well in terms of their choice of strategy.

Distinct Competition

Competition is destructive, when companies are basically competing on the same thing. That forces

competition to gravitate to price strategy. It is finding a different way to compete, to create a different sort of value for the customer which allows a company to prosper and achieve superior profits.

STRATEGY FORMULATION

The Five Forces

The Collective Strength of the five forces, determines ultimately the profit potential of an

industry. It is a systematic way of looking at industries and helps in decision making and positioning.

VALUE PROPOSITION

The Value Proposition

A value proposition states why a customer would choose your product or service and. communicates the clearest benefit that customers receive by giving you their business.

We can't just be trying to do the same thing as our competitors. We have to be doing something unique, and that involves serving a different set of customers.

WHAT IS YOUR COMPETITIVE ADVANTAGE?

And really the broadest thinking about strategy starts with, which path are we on?

Are we on a

1. Path to Differentiate or

2. Path to be the Lowest Cost

COMPETITIVE ADVANTAGE AND

THE VALUE CHAIN

A value chain is a term that describes the full range of repeated or iterative activities a company uses to create a product or a service. The purpose of value-chain analysis is to increase production efficiency, so that a company can deliver maximum value for the least possible cost. This perspective about how value is created forces managers to consider and see each activity not just as a cost, but as a step that has to add some increment of value to the finished product or service.

Integrating best practices into the value chain is essential. But doing things effectively is not the same as doing things differently. Strategy is fundamentally about choosing who exactly you are trying to please. And then engineering a value chain in order to deliver on that.

THE CONCEPT OF TRADEOFFS

The essence of strategy is what you choose not

to do, is the service you don't offer, it's the

functions you don't provide. It's the benefit you

don't offer. That's the essence of strategy.

- Michael Porter

And the concept of trade offs is that in order to be uniquely good at delivering some kinds of

value, you have to be deliberately willing to choose not to offer other kinds of value. So, in order to deliver one benefit, you give up on another benefit. 

INNOVATION STRATEGY

Michael Porter describes innovation strategy as determining how, and to what degree, firms use innovation to deliver a unique mix of value and achieve competitive advantage. The goal of innovation strategy is to leapfrog other market players by the introduction of completely new or notably better products or services. This strategy is typical for technology start- up companies which often intend to “disrupt” the existing marketplace, obsoleting the current market entries with a breakthrough product offering. It is harder for more established companies to pursue this strategy because their product offering has achieved market acceptance.

“As long as you are satisfied with the status quo;

innovation and creativity disappears from your

horizon.

But a desire and hunger to excel is what always

provides the impetus to explore, discover and

innovate.”

- Valentine Obi