Strategy – Probably the Most Overused and Misunderstood Word in Business

How many times have you heard someone talk about successful business strategies or ‘taking a strategic approach’? What do you think they actually mean by the use of the word strategy? Most often the people using it are trying to convey the fact that they have given the subject a bit more thought than usual, that they have looked a little further ahead than normal. If a consultant uses it be very wary. Strategy costs more than mere ideas or tactics. How much would you pay for consultants who have’ kicked around a few ideas’ or ‘come up with some tactics they think might work’. Depends how good they are. But if they come back with ‘strategic business advice’ you expect it to be very good and of course very expensive.

Why expensive? Because you would hope that a consultant or colleague would have used some kind of intellectually robust framework, that they would have tested their assumptions and developed more than one solution which they evaluate rigorously before making their strategic recommendation. This takes time and expertise and both are expensive. Let’s assume they have done all of this – does that make it strategic business advice rather than tactical advice?

Not according the dictionary. The dictionary definition of strategy is very clear and military. It defines strategy as “the art of war – disposing troops etc in such a way as to impose upon the enemy the conditions for fighting (time and place) preferred by oneself”. If we accept business is in effect a war – you develop successful business strategies because you define success as beating the competition – there is no reason why this definition of the overused word, strategy, is not appropriate for business strategy. It requires all that planning and testing of assumptions discussed already. Some kind of robust intellectual and very honest framework will certainly help to develop and evaluate options. Even the lazy use of the word strategy – giving it a bit more thought and thinking ahead – would be implied by the military, dictionary definition. But there is an extra dimension to real strategy. It requires you to do all this and come up with something that changes the rules in your favour – in other words it requires creativity.

And there is one other aspect to this more demanding kind of strategic thinking. It is about people and their behaviour. In order to ‘deploy the troops’ and change the rules you have to understand how people tick. If being creative involves changing behaviours then you have understand how those behaviours were formed in the first place and how they might be changed if you want a successful business strategy.

Before putting the dictionary away (the definition of strategy above was taken from the Oxford English Dictionary) just go forward to tactics. You will discover that the definition is exactly the same as for strategy with one addition. Tactics involves the all-important stage of implementation, putting the strategy into practice. So it turns out that far from tactics being less weighty and valuable than strategy they are actually the most valuable thing of all. A sound strategic plan that is successfully implemented includes, indeed demands, tactics.

The use, and overuse, of strategy in business is more often than not pretentious over-claim by people who do not really understand what they are talking about. It certainly does not mean giving something a bit more thought or thinking a bit more long term. It absolutely demands a thorough and honest assessment of your assumptions and your options. At the risk of being melodramatic, sloppy thinking in military strategy costs people their lives. In business it just wastes time and money. Strategic thinkers will of course use frameworks based on their experience. They will break a problem down so they can think about each component of it but they will look to change the rules not just apply them. And the true strategist understands that strategies are aimed at people and changing their behaviour. Their strategic business advice will be based on an understanding of human behaviour. Just as in war, a strategy does not just get the job done, it enables you to beat the competition, to deliver higher returns than ever before, to win and win big for the least expenditure of resources.

So whether you are undertaking a brand planning strategy, a new business launch strategy or any other kind of strategy remember what this really means and remember to include the tactics which are just if not more important. Then you can charge accordingly.

Related, Unrelated, and Multinational Diversification As Forms of Business Strategy Planning

Business strategy planning is involved in crafting a path for the business in its chosen product market, to position the product such as to gain a competitive advantage over its competitors and as a long-term phenomenon to enter a new market or develop a new product all in a bid to sustain its competitive advantage. As pointed above in a bid to sustain a competitive advantage or increase the value of the business, some firms diversify. Diversification moves away from its present markets and its present products at the same time. In this article diversification would be discussed under three forms related, unrelated and multinational diversifications.

Related diversification comes about when the organization moves or diversifies into a new product and new market which are considered as related business activities. For example a paper producing company may diversify into book publishing known also as concentric diversification, it is sometimes argued as to whether this is a true form of diversification. The spate of companies using diversification as a form of expansion cannot be over emphasised due to the advantages and the likelihood that similar customers in similar markets might be reached. Some of the reasons for related diversification are discussed here.

The company spreads the risk by engaging into a related product and market using in most instances the same experience. To ensure continuity of supply, a manufacturer may try to own its own supply outlets; say a car manufacturer produces its own components. The aircraft manufacturer, Boeing’s Integrated Defense systems, for example is a subsidiary established to integrate and provide instantaneous, accurate and protected information to decision makers and soldiers in the field when they need it, anytime, anywhere.

Sometimes it is difficult to distinguish when a strategy is a generic differentiation or a related diversification. The rationale for related diversification is strategic. This is to say that firms diversify into businesses with strategic-fit thereby sharing opportunities that may exist in the businesses’ value chains. By strategic-fit is meant when the business identifies the opportunities arising from the environment – shared technology, common labour skills, common distribution channels, similar operating methods – and adapting resources so as to take advantage of them which invariably leads into gaining a competitive advantage to achieve the desired goal.

Another reason for related diversification is that it helps the firm achieve economies of scope. These economies of scope arise from ability to eliminate or reduce cost significantly by operating two or more business under one corporate headquarters; or when cost-saving opportunities can stem form interrelationships anywhere along business value chains. Synergy is another reason for related diversification. This occurs when the combined effect of the two is greater than the sum of the parts. This is a claim by Benetton in 1995 that there were synergies resulting from its diversification.

Unrelated diversification is based on the dominant concept that any company that can be acquired on good financial terms and offers good prospects for profitability is a good business to diversify into. It is basically a financial approach. This is to say that the strategic position of the business gives it the advantage to diversity into an unrelated business expecting financial gains compared to strategic-fit as in related diversification. Firms usually pursuing unrelated diversification as a strategy are referred to as conglomerates with no unifying strategic theme. Until recently the literature on diversification has only been on environment-led perspective thus portraying a narrow benefit beyond the current product and market base of the firm and outside their value chains. The introduction of resource-led perspective broadens the degree of relatedness and its attendant opportunities. Unrelated diversification can be approached by any of the following methods.

Exploitation of the current core competences of the organization by extending existing markets into new markets and new products. It could also come about by the creation of completely new markets. This is usually seen as opportunities coming as a result of the core business, for example Kwik Fit offering insurance services.

The other approach is developing new competences for new market opportunities. Some of the advantages which come with unrelated diversification may include spreading of business risks over a variety of industries; providing opportunities for quick financial gain if bargain-priced firms with big profit potential are spotted thereby enhancing shareholder’s wealth. Again, profit or earnings are greatly stabilised as one industry’s hard times is off set by good times in others.

Nevertheless, certain drawbacks are prevalent in going that path. Achieving these aforementioned advantages, places big demand on corporate management. They had to be extremely small to spot problems. More businesses in a conglomerate, the harder it is for management to judge the strategic plans of business manager in any subsidiary or business unit. It is finally argued that consolidated performance of unrelated businesses tends to be no better than sum of individual businesses or their own or may be worse; unless managers are very talented and focused, unrelated diversification cannot be used to increase shareholder wealth compared to related diversification. It must be noted here that development into new related or unrelated businesses can take any of three forms: internal development – where strategies are developed by building up the organization’s developed resources and competences by taking over another one; and joint developments or strategic alliances where two or more organisations share resources and activities to pursue a strategy.

Multinational diversification is considered as one of four strategic paths for improving a diversified company’s performance once diversification is accomplished. Multinational diversification involves diversify of businesses and diversity of national markets. It presents a big challenge to strategists. Management must devise and execute substantial number of strategies (at least one for each industry with as many multinational variations as is appropriate). In spite of the challenges it poses, multinational diversification strategies have considerable appeal. They offer two avenues for long-term growth in revenues and profitability-one is to grow by entering additional businesses and the other is to grow by extending the operations of existing businesses into additional country markets. Virgin could be said to be pursuing such a strategy.

Furthermore, multinational diversification offers six ways to build competitive advantage:

I. Full capture of economies of scale and experience curve effects. As the firms market and product base increases, it is able to spread cost

Ii.opportunities to capitalise on cross-business economies of scope using the talent available in the business’s value chains

Iii.opportunity to transfer competitively valuable resources from one business to another and from one country to another

iv.ability to leverage use of a well-known and competitively powerful brand name

v.ability to capitalise on opportunities for cross-business and cross-country collaboration and strategic coordination and

vi.Opportunities to use cross-business or cross-country subsidization to wrestle sales and market share from rivals.

It is worth commenting that diversification s one of the most frequently researched areas of business with some research studies specifically attempting to investigate the relationship between diversification as a business strategy and the organisation’s financial performance. For quite sometime researchers suggested that unrelated diversification were deemed unprofitable in comparison with related diversification. Such as car makers’ diversification into car rental. These early research finding were later questioned as to the linkage of diversification to an organisation’s financial performance, However, the main problem has been the failure of organisations to determine the nature or degree of relatedness.

Nagyar (1992) identified two areas of potential relatedness:

i.opportunities for resource leveraging: He argued that two businesses are related if all types of tangible and intangible resources can be achieved by physically transferring resources from one business unit to another; by copying resources form each other and using resources simultaneously e.g. using same brand name.

Ii.Opportunities for strategy alignment: He argued that two businesses are related if the alignment of their market strategies creates benefit. In other words, coordinated behaviour between businesses gives them the needed competitive advantage. For example horizontally related businesses team up to multiply their effective market power on competitors as well as vertically related businesses units may be preferable to independent buyers and suppliers.

Though, diversification may be difficult to achieve fully in practice, diversification may simply be necessary to achieve continuing growth when the current markets become saturated.

PIE: The Simple 3-Step Process for Creating Your Strategic Business Plan

Many business owners (especially those with a non-business background) struggle when it comes to creating a strategic business plan for their business. Chances are they’ve never ran a business before, and even in their “employment” days were not involved with the day-to-day business management.

So when it comes to running their business they struggle!

“Still need to figure out (sit down and actually learn) how to do this!” said one business owner to me earlier this week.

They have a dream for their business, are an expert in whatever it is they do, but have no idea how to take that idea/dream and turn it into a viable and profitable business… so they continue in a state of overwhelm and frustration, with a slow growing business.

Spending some time planning all of your business activities is crucial if you are to succeed long-term. It’s not just about planning your business – you need to understand the strategy behind what you’re going to be doing. And you also need to understand how all the different pieces of your business fit together to create one coherent business.

Today, I’d like to share with you my simple, 3-step process, for sitting down and crafting your own strategic business plan.

PLAN – schedule some time in your calendar to work on your business plan. Some people opt to take a mini-retreat away from their office. It could be spending the day in your local coffee shop, or actually going out of town for a few days. Or you could just schedule one or two hours and sit quietly in your office planning out your business (that advantage of doing in your office is that you have all your business information right there with you). Whatever works best for you is going to work best for your business. But the important thing is, you to schedule in the time to create your plan!

INVESTIGATE – what is it you’re going to be offering over the coming 90 days; 6 months; 12 months? I like to have a loose 12-month plan, but then have a very specific 90-day plan in place. It’s much easier to focus and implement with a shorter time-frame than it is to do so over, say, a 12-month period. Sometimes planning out so far ahead can feel overwhelming. But it is important to have that “big picture vision” in place so that you know where you’re heading.

Also when you’re deciding what it is you’re going to be offering ask yourself, “Does this make sense? Does it fit my big picture vision?” This is where understanding the strategy behind your business comes into play. It’s no good deciding you want to do a live event, or offer an online training course, if you don’t understand how this fits into your “Big Picture Vision”. All paths must lead you to that “Big Picture Vision”.

EXECUTE – now that you know what it is you’re going to be offering and when, it’s time to put that plan into practice. One thing that I do in my business is “reverse engineering”. I always start with the end date in mind and then work backwards. For example, if I’m offering a 4-part live training class on a specific date, what do I need to do to promote that training class, and when. It’s much easier to plan out the promotions if I work backwards from the start date of the class. That way too, I can see if I’m leaving enough time for the promotions or if I need to adjust something in some way.

So there you have my simple 3-step process for creating your strategic business plan. No go ahead and create your own!

(c) 2013 Tracey Lawton