Fundamentals of strategy – focused methodology for maximum advantage

It occurs to me that we make strategy formulation more difficult than necessary. Many consultants assist companies in their quest to build strategy with detailed and complex systems, questions and processes. They use models, disciplines and techniques that appear to be constructive but, in the end, seem overly detailed, require extreme intervention and often arrive at a very soft strategic focus. Business strategy consultants seem similar to government politicians as they both boast… “I know what’s best for you, so please step aside.” And, we do! Business leaders turn over the “keys” to the outside consultants who, in turn, drive the strategic development process.

My point is that strategy development is much simpler than we’re led to believe and no one is better at developing a firm’s strategy than management itself. Why? First, a good strategy has the best chance to succeed with an organization that is immersed in the strategy development process and clear on the executional elements required to succeed. Second, great strategy reflects a deep knowledge of both the external market situation and internal company competency. Finally, strategy is simple. We just make it complex by failing to employ a clear, concise methodology and a strong discipline to stay on track. The internal organization is most capable of running the strategy process; it simply needs a few techniques along the way to maximize each input.

We all maintain that a firm with a sustainable competitive advantage is situated to succeed. If a firm maintains an advantage over competition and it can be sustained over time… that seems like a strategic win. However, fundamental questions erupt from this perspective; such as, a) how does a firm build a competitive advantage and b) how does a firm sustain a competitive advantage? Most of the time, the answer lies within the organization itself.

I contend that a superior strategy reflects a clear sustainable competitive advantage. But to create an advantage and sustain it, several key principles should be followed:

  • Formulate a simple discipline that identifies new strengths that capitalize on competitive weakness and supersede a homogeneous market;
  • Develop a deep knowledge of the firm’s tactical capability that leads to building real coherence and distinct competencies throughout the firm’s value chain; and
  • Mold and adopt a dynamic culture of strategic evolution with the understanding that successful strategy is not a one-time, static exercise.

Strength equals power and the best example of this is Hapkedo, a form of Korean martial arts. This ancient, hand-to-hand combat technique uses three principals: water, circular motion and harmony. Water denotes meeting a force with minimal force to deflect and not clash with an adversary’s power (which also is a key strategy of Sun Tzu to preserve, and not deplete resources). Circular motion signifies countering and attacking the opponent’s efforts. Harmony designates the total penetration of the opponent’s defense. Thus, we can build strength and power specifically within the firm by deflecting, countering, attacking and penetrating the opponent’s defense.

In his 1994 article, Toward a Dynamic Theory of Strategy, Michael E. Porter offers three reasons why firms succeed, asserting they:

  • Possess an internally consistent set of goals and functional policies that collectively define its position in the market. Porter contends that strategy integrates the activities.
  • Align the goals and functional policies with their strengths and weaknesses along with external market opportunities and threats.  Porter explains that strategy must maintain a dynamic, not static, balance.
  • Concern strategy with creating and exploiting so-called “distinctive competencies,” theunique strengths (originated by Selznick in 1967) that make competitive success possible.

Richard P. Rumelt, a Michael Porter collaborator at the time of the 1994 article, authored a book in 2011 titled Good Strategy Bad Strategy – The Difference and Why It Matters. In it, Rumelt acknowledges the power of “advantages,” but he moves beyond the typical ones of scale, scope, first mover, brands and patents. He focuses on two areas of Good Strategy. They involve moving the discipline of strategy development from drawing on existing strengths to creating new strengths through coordination of policy and action, and challenging the process to build these new strengths by reframing the competitive situation. Rumelt contends this process can create whole new patterns of advantages and weaknesses and believes the most powerful strategies emerge from these game-changing insights.

In the ensuing 17 years, the central principles of strategy haven’t changed. Porter detailed it in 1994, and his contemporary, Rumelt, published a book about it in 2011. And today, I contend that the principles of successful strategy development are simple, clear and best executed by a firm’s management.  First and foremost, strategy is the process of:

  • Suspending current paradigms to reframe the future competitive set (thinking out-of-the box for new insight);
  • Building fresh strengths to attack competitive weakness (to be the counter attacker and avoid competitive counter attack);
  • Shaping distinct competencies (using individual parts of the value chain as a unified system to build a comprehensive advantage); and
  • Developing a culture of dynamic strategic evolution (constantly modifying to sustain the advantage gap within a dynamic competitive set).

This graph illustrates these strategy principles, interaction and flow:

Apple serves as an example of each of these principles and illustrates the concepts easily.  In terms of building new strengths, Apple clearly developed several new potencies from its existing platform, such as superior touch-screen navigation; a closed system to access movies, music, books and the like; and a retail distribution system of dedicated stores. These all capitalized on Apple’s strength and attacked competition where it was weak and asleep.

It used elements of the value chain to build a comprehensive strategy that exploits distinct capabilities. For example, Apple used the “i system” itself to conduct transactions in the store, which to this day is viewed as a distinct competency attributed to Apple. The stores also became a platform for sales, marketing and interactive service centers – clearly leveraging a “store” to use many elements of the value chain to create a unique experience.

And Apple sustained its advantage through a culture of strategic evolution. They are now moving to the iPhone 6 and they just launched a new improved iPad 2. They move so quickly that competitors cannot close the gap. Apple serves as an excellent example of creating a dynamic process of quantum and incremental innovation that sustains a competitive advantage.

Great strategy is not easy. But if you structure the process around several key questions, follow the basic principles and use internal resources, I believe you possess the best chance of success.