Strategy Highlights -
Harvard Business Essentials
Harvard Business Essentials
Strategy Highlights - Harvard Business Essentials
What is a Strategy?
It outlines how an organization will obtain a competitive advantage. Harvard professor Michael Porter defined it as “a broad formula for how a business is going to compete.” Bruce Henderson, founder of The Boston Consulting Group, defined it as, “a deliberate search for a plan of action that will develop a business’s competitive advantage and compound it”…”competitive advantage is founded in differences.”
In 1993 when Lou Gertsner took the reigns at IBM, it was sinking at a scary pace. He emphasized that a new vision wasn’t needed. (Vision tells where you want to go. Strategy outlines how you will get there. Execution is the work to get to the vision.) At the time, IBM was a monolithic giant that was inept at adjusting based on changing markets and customer needs. Instead, what was needed was practical, dynamic strategies and outstanding execution.
Finding a Winning Strategy
Southwest Airlines founder developed a niche that enabled it to become the most profitable airlines since 1973. It did not follow the leaders, and didn’t adopt the “hub-and-spoke” approach used by other major airlines. Instead, it decided to focus on short haul, point-to-point flights. It focused on low fares and providing incredible customer service.
Ebay developed the online auctions model. Ebay was founded in 1995, and today is a worldwide company with hundreds of millions of registered users and 15,000+ employees.
Strategy vs. Business Model
Many confuse strategy with business model. The two are related but are different. A business model focuses on how work is performed to deliver products and services. It describes how processes work together as a system to generate profit. The strategy focuses on what is needed to earn a competitive advantage and become successful.
The Strategy Process
The first step in formulating a strategy is to conduct a strengths, weaknesses, opportunities and threats analysis (SWOT).
- Strengths: Abilities you can leverage
- Weaknesses: What’s getting in your way?
- Opportunities: Trends, forces, events and ideas that will help you advance
- Threat: These may be outside your control, but you must respond to them
Start by looking at opportunities and threats is helpful. Markets are changing quickly. Understanding that first, helps you to look at strengths and weaknesses from that perspective.
Basic Strategic Approaches
There are four generic strategies that business can focus on:
- Low-cost leadership: This strategy requires highly efficient business model. Wal-Mart is the perfect example of a low-cost leader.
- Product/service differentiation: There are many automotive manufacturers. Toyota has differentiated itself as producing the most reliable cars.
- Customer relationship: This strategy focuses on providing outstanding customer service.
- Network effect: As customers become competitive with a products or company, a network can begin to develop.
Translate Strategy into Action
Executing on the strategy may be more important that the strategy itself. Keys to effective strategic execution include:
- Provide leadership energy and support
- Keep it simple
- Align the business units and all employees
- Develop game plans
- Establish SMART goals
- Determine steps to get there
- Look at resources
- Identify and address training gaps
- Provide incentives
Stay the Course
Typically we don’t achieve the results we hope for in the timeframes we outline. Often the problem isn’t the strategy, but implementation of steps to get there. To assume that by developing the perfect, foolproof plan is not practical. Regular progress reviews are important so that lessons are learned, best practices are adopted, and needed adjustments are made early in the process.
Internal resistance is to be expected. Change scares or upsets people.