In the previous post we began talking about the three levels of strategy, which cascade from the top Corporate Level Strategy and cross across the whole organization. Business unit level strategies are sometimes called generic strategies. The point on this, though, is that for those business units that have specific PNL responsibility you may have different business unit level strategies throughout the organization. Sometimes you only have one, so there are some variations. Market level strategies are fairly more understood. You may have multiple market level strategies that support a business unit level strategy that support an overall corporate level strategy. The three strategies can cascade up and support the overall corporate level strategy.
Corporate level strategy is all about answering the foundational question of what you want to achieve. Is it growth, stability, or retrenchment? Business unit level strategy focuses on how you are going to compete. Will it be through customer intimacy, product or service leadership, or lowest total cost? What is the differentiation based on? Your market level strategy focuses on how you are going to grow. Will it be through market penetration, market development, product or service development, or diversification?
Most people get tripped up on the business unit level strategy, so let’s dive into that. When thinking about your business level strategy some things come into play:
- Where to play (Breadth of Scope): Regions, customer segments, service/product categories, and channels in which you operate.
- How to win there (Source of Advantage): Find a distinctive (lead) way to win on your chosen playing field. Choose specific approach(s) that are different from you competitor’s.
The three strategies here are product leadership, low total cost, and customer intimacy.
1. Product Leadership – Compete on Speed
- Good design, great execution
- Educate & lead the market
- Ad hoc, risk-oriented culture
- Organization designed for innovation
- Quality (Mercedes)
- Design (Apple)
- Image (Nike)
- Functionality (Sony)
- Special niches (Zitner’s candied apples; independent films)
2. Low Total Cost – Compete on Scale
- Low price, limited options, ultimate convenience
- Managed customer expectations
- Supply chain and infrastructure investment prioritization
- Processes & transactions continually redesigned
- Dell Computers (logistics, volume)
- Motel 6 (location, services, salespeople).
- Southwest Airlines (corporate culture, service)
- Software as a Service
3. Customer Intimacy – Compete on Scope
- Offerings tailored to customers & segments
- Deep insight into customer needs
- Problem solving service culture
- Full range of services, so customers stay
- Custom, unique solutions
- Narrow (Consulting practices)
- Segmented (Computer security, Financial services – Edward Jones)
Next, let’s look at what makes up a market level strategy. Where do you want to grow? The figure below shows the four areas of growth.
The most common growth strategy is to focus on what you do best by emphasizing your current products in your current markets. This strategy is also called the concentrated growth strategy because you’re thoroughly developing and exploiting your knowledge and expertise in a specific market with known products. Focus on what you do best and grow there. The common house hold item, Arm & Hammer Baking Soda may just look like baking soda used for cooking to some people, however, many of us know how many other uses there are for this product. The company has taken its own simple product and marketed it in several different ways, even though it is the same product. They have expanded their market from a simple baking must-have to a refrigerator deodorizer, a cleanser, toothpaste, used in deodorants, used in laundry detergent and many other uses beyond baking. They have reinvented their core product over and over again.
Here’s a quick checklist to ensure you have consistency and harmony in your overall strategy:
- Competitive Advantages: A winning strategy must build a sustainable competitive advantage, fit your situation, and improve company performance.
- Value Proposition: Ultimately, the value you provide your customers is the strategy you lead with in your organization-wide strategy.
- Objectives or Priorities: Strategies translate into specific actions in your plan, specifically your market growth strategies.