The world economy is in choppy waters, how can businesses react to ensure they remain competitive?
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We live in a complex world, no one can predict the future and we can’t anticipate the ultimate impact of any actions we take. These realities make the task of successfully leading a business incredibly challenging.
Businesses need an approach to this challenge that works with the realities of a complex world. Our seven competitive strategies set out the broad direction a firm should head in and the change processes that work with this reality.
A competitive strategy aims to shape the direction of change in the firm. It guides the selection of change initiatives, and as a consequence, the chosen initiatives are more likely to provide additional synergies between them. These synergistic outcomes embed the strategy into the firm.
Each strategy creates competitive advantage in a particular way. Choosing among the strategies requires thinking through the additional benefits that may ensue to customers, the capabilities required to execute the strategies, and the relative competitive position and intentions of rivals.
A brief introduction and summary of each of the seven strategies is as follows:
The low-cost strategy aims to deliver equivalent product quality compared to competitors but with a continual and relentless focus on cost reduction. The low-cost strategy is particularly effective in markets where products have long life cycles and customer needs are relatively stable.
Here the focus is on competing through product innovations. The innovation strategy is suited to circumstances where customer needs are relatively stable and there is scope to meet those needs in novel and superior ways.
Typically it costs money to innovate so this strategy targets customers who value new product solutions and are prepared to pay a premium price to get them.
With specialisation the business focuses on a single product or product group and competes through superior product performance. Growth comes primarily from expanding the range of markets we serve.
A perfect example is WD40 which has unique qualities that continue to attract a broad range of customers – home owners, mechanics, aero engineers – and is an outstanding example of specialisation and market dominance built around a niche product.
The adaptive strategy is about increasing your ability to respond to changing circumstances, particularly to changing customer needs. Zara, the fashion clothing retailer, is a stellar example of how to adaptive to fast changing fashion trends.
Excellence involves the continuous incremental improvement of product or service quality. Similar to the low-cost strategy, it fits situations where customer needs, products and technologies are relatively stable. The excellence strategy embeds professionalism in the system, Lexus being a good example.
The no-frills strategy involves shifting the business to serve price-sensitive customers with a stripped down alternative product or service. This may require changing the customers we serve, the products we sell and the processes we use to make them. ALDI is a prime example of a no-frills strategy.
Here the business targets a specific market segment and serves the needs of these customers more effectively than less focused rivals. Like the no-frills strategy the target customer’s needs may be relatively stable, but our products have to be developed and refined to meet their particular requirements.
An example would be Long Tall Sally which supplies clothes exclusively for taller women “where style starts at 5’ 8’’ and shoe size 7”.
These seven competitive strategies represent a comprehensive set of feasible directions that the firm may move in. Competitive strategies are about the process of changing the firm; they are not a simplistic idea of a destination. The firm is in a continual state of becoming, the strategy can only provide some shape and direction to this emergent process.
In a competitive marketplace, incremental improvements in the firm’s capabilities can deliver significant rewards. In markets where firms typically compete through product innovation, a firm may gain advantages by becoming more efficient.
Or, in a market where excellence is the norm, for example professional services, advantage could be gained by becoming a little more adaptive and responsive. We refer to this as layered competitive strategy which can be a very effective and novel approach to building competitive advantage.
Some strategy choices may be ruled out because we are not able to develop or acquire the resources or capabilities to successfully pursue the strategy. Therefore, in selecting a strategy we need to have some idea of what capabilities would be necessary to embark on this trajectory.
For example, were the firm currently to be orientated to a low-cost strategy, selecting innovation would involve considerable change over a range of organisational dimensions, such as structure, systems and culture.
In contrast, were a no-frills strategy to be selected, the extent of required change from low-cost to no-frills would be relatively small in scale and scope.
It may be that there is a strong consensus that a particular strategy is the right one for the business. But because the choice of strategy is critical to the development of the organization, we suggest that all strategy options should be explored before selecting one to pursue.
Paul Raspin and Cliff Bowman are co-authors of What's Your Competitive Advantage?: 7 strategies for running a more profitable business, out now, published by FT Publishing, priced £19.98.