This is the comprehensive test. To capture and retain economic surplus you need a competitive advantage. Good strategies emphasize difference versus direct competitors, potential substitutes and potential entrants. Advantages have to be robust and responsive in the face of onrushing market forces (divergent strategy).
Advantage comes from 2 sources of scarcity: positional advantages and special capabilities.Positional advantage: gained by understanding the relationship among structure, conduct and performance.Special capabilities: tradeable and non-tradeable.If you bundle the activities that create the advantage then it is difficult for competitors to identify and replicate the source. Must be dynamic.
The degree to which you segment the market significantly influences resource allocation and thus the likelihood of success.Push within reason for the finest possible objective segmentation: think 30 to 50 segments rather than 5 or so. Focus on location and demographics.Reallocate resources as opportunities shift within and between segments.
Many strategies continue with the status quo because they extrapolate from data relating only to the past 3-5 years. This period is too brief to capture the true violence of market forces.It is vital to take trend analysis seriously: watch how the early adopters are acting, work through the possible affects of outside forces to their conclusion (down to P&L). How does this result line up with today's investment position?HowAnalysisOther markets (i.e. OS)Other industriesPersonal insightCustomer behaviourExamplesNDIS:Cloud – but do you remember ASPs?
Data today is cheap, accessible and easy to assemble in a way to comfort executive decision-makers. Mostly it's just noise.Developing insight that your company has that others do not is not easy. Instead of relying on industry reports, search for problems in your strategy, including assumptions (implicit and explicit) behind the business model to see if it still fits with the current environment.Elect primary over secondary research. Put yourself in your customers' shoes.
Have to make decisions now when we don't know the future. A critical step to embracing uncertainty is to characterize what variety of it you face. 4 levels of uncertainty: 1. reasonably clear view of the future with a range of outcomes tight enough to support a firm decision, 2. a number of identifiable outcomes for which a company should prepare, 3. possible outcomes represented by a range that can be understood as a probability distribution, 4. total ambiguity. List variables that would influence a strategic decision and prioritize them according to impact. Focus early analysis on removing uncertainty then apply tools such as scenario analysis.
This inverse tension is a core problem of strategy.Only those decisions that involve commitment through hard-to-reverse investments in long-lasting company-specific assets are truly strategic. Strategy is not only about where and how to compete but also when. This is where flexibility is important – allows companies to make commitments when the risk/return trade-off is advantageous.A market beating strategy will focus on just a few crucial, high commitment choices to be made now, while leaving flexibility for other choices to be made over time.
The behavioural economics view. Overoptimism, anchoring, confirmation bias, loss aversion, herding, champion bias.Strategy is particularly prone to faulty logic because it relies on extrapolating ways to win in the future from a complex set of factors observed today. 2 big inference problems: attribution error and survivorship bias.Ways to de-bias: developing multiple hypotheses and potential solutions, bring fresh eyes to issues and retain a culture of challenge, specify objective criteria in advance and examine the possibility of being wrong, premortem assessment.
This regards the investment made to implementing your strategy. You need a process that openly questions the old assumptions and allows managers to develop a new set of beliefs in tune with the new situation. Group formation, Building shared meaning, Exposing and reconciling differences, Aligning and accepting accountability.To ensure you have employee "buy-in" need to take decision-makers on a journey of discovery that will make them understand the problems with the current strategy. Videos, customer visits etc can help with this. w
Imperative to clearly define what you are moving from and to with regards to business model, organisation and capabilities. Need to develop a clear view of shifts required and make sure you have process and mechanisms (with who is responsible) to carry out the change. Ensure resource allocation/ budgets are aligned to the strategy.
Testing your Strategy & Business Planning Process, the 10 most critical factors