In business and strategy, there are always elements of chance, timing and luck which greatly contribute to the success in any strategic moves. Many years back I wrote a big research piece on evolutionary theory and business strategy and it was basically a piece of academic work. I wrote about how business and biological competition shares similar pattern on evolution but there is one big distinction-- businesses use "innovation" and "logical analysis" to accelerate change. That makes it more like a chess game. This is what business strategy is all about. What differentiates a player in an industry may be product performance, features, price, channel, reputation, service etc. , but what drives these tactical decisions?
Strategy is a continuous search for a theory supported by a plan of action that will develop a competitive advantage supported by many actionable ideas to sustain it. It is not about creating a strategy plan as an end state but an iterative process that begins with some ideas of creating customer value. This is where "design thinking" comes into play in business strategy development. Chasing market share is like chasing after gold at the end of a rainbow. Amazing how many business are chasing the same rainbow.
Not every business deserves to exist, this is a question every one needs to be asking. Unless your business strategy is based on a unique differentiation, it really has no reason to exist. It is very simple, a firm creates value for investors when it earns a return on capital in excess of their cost of capital. In a world of perfect competition, just can only earn a fair return and no more. Those who can break the rules of the game can earn a superior return and then attract other to enter. And drive down the rate of return again. So strategy is about constantly coming up with innovation to sustain that superior return.
It is a no brainer that everyone knows strategy is a pursuit of differentiation, but how many companies are actually doing that or doing enough if it. Differentiation needs innovation, and innovation requires design thinking.
The core elements of strategy are:
- ability to understand the basis of competition within your industry
- ability to see different futures and understand the key drivers of these futures
- ability to use imagination to see customer unknown and unarticulated needs
- ability to predict how a strategic move will rebalance the competitive equilibrium
- ability to manage risk and return with confidence to justify commitment
- ability to create a simple convincing story to mobilize internal and external players
People often asked me about what tools we use to create strategy, I created this deck ten years back for the training of my strategy team, so I share part one here. Have a great weekend.
Illustration: P. J. Crook. "The Chess Players."
