How To Think Strategically

I talked in the last part of this series about how more senior managers are often tasked with developing their strategic thinking. The first step to doing this is to be quite clear what strategy is. Strategy is all about the position your organization will take in its environment. The position should give it some competitive advantage against other organizations. Michael Porter defines strategy as a “broad formula for how a business is going to compete.”

For example, compare how Apple and Dell sell their laptops. Apple’s products are often nearly twice the price of Dell’s and yet they are still highly competitive. Apple has chosen to focus on creating products which are seen as high quality, creative, easy to use and sometimes more maverick and irreverent. People are more than willing to pay a lot extra for these qualities. It means that although Apple is selling the same basic product as Dell – the laptop – it is actually not competing directly with Dell. By its strategy Apple has positioned itself away from cheaper brands and made itself more competitive.

When I was younger I worked for Mars. I worked in the marketing division that sold Uncle Ben’s Rice. Rice is basically a commodity. You would think that, given a certain level of quality, people decide on what rice to buy based on price. However Uncle Ben’s – a highly successful product for many years – is usually around twice the price of its competitors. It has chosen a very unique position in the marketplace. It is the rice product, “that never sticks” and so it is very easy to cook. Using a special patented manufacturing process, Master Foods has positioned its commodity product to give themselves a very successful formula to compete.

Strategy also draws boundaries around an organization’s activities. A few years ago I worked with a software company. They had no discernable strategy, or maybe you could call it a knee jerk strategy. They sold a software product that held and reported on personnel data for an organization. Every few weeks one of their sales people would get very excited about a new opportunity. Maybe the opportunity was to sell a French version of their product, or maybe to sell a product to a large conglomerate or to sell specialized software that would run on a mainframe. Every few weeks this new opportunity would send their development team off in a new direction, developing new products.

The result of course, was that the development team were so busy going this way and that; the quality of all the products fell to an unacceptable level. Also they had no credibility in any of the niche markets they tried to fill. A conglomerate reviewing the personal software market, wants a supplier who has a track record in their marketplace, not a company that has just knocked up a version of their product to suit a large customer. Strategy provides a focus behind which all the rest of an organization’s activities are aligned and co-ordinated. Without it the organisation is rudderless, flailing about from one opportunity to the next.

I will talk more about Michael Porter’s ideas later on in this series of articles, but for now I’ll finish on a video of him giving his take on what strategy is. He mentions that he often hears organizations say that things like internationalising, outsourcing production or ramping up R & D expenditure are their strategy. But as we have just seen, none of these will give an organization a position from which it will better compete. These are all example of steps or tactics, which might help an organization towards whatever strategy they have decided upon.