Sun Tzu, The Art of War
This quote comes from the first book ever written about strategy and it capture the essence of why strategic planning is important. Victory (or success) evolves from strategy. Yet, we often admire success but rarely consider the design behind it. In this guide we are going to show you how this design works and how can you come up with your own design of success.
Amid the current chaotic business landscape, a high-quality product or service is not sufficient to overtake competitors and gain competitive advantage. It takes more than that to differentiate yourself from the clutter. What you will need is a well-crafted strategy that takes into account the company’s aspiration, the external environment, and your capabilities.
We start this guide in Section 1 with an introduction to what makes a strategy good and what you need to end up with in order to say you now have a strategy that will lead you to success.
Section 2 identifies the design of purpose as the starting point of strategic planning and how can you conceptualize this with a mission statement. We will also show you how to avoid committing to an ill designed mission that is doomed to fail.
Section 3 discusses three different strategic paths choices and highlight the importance of understanding the tradeoffs you must face in order to follow one of the paths and stick to it. Coherent strategic choices significantly increase your chances of success.
In Section 4, you will look outwards and learn how to design your strategy to take full advantage of the prevailing market structure. We will discuss the 5 forces that shape your market so that you can navigate your way around them.
We then turn to look inwards in Section 5 and focus on internal resources. We show how your strategic plan needs focus on 4 important attributes of your resources. Since we cannot invest our time and effort in everything, this will help in choosing the resources and capabilities to invest in to maximize your strategic advantage.
In Section 6, we help you look sideways and learn how to drive an advantage form your business ecosystem.
Since we already looked outwards, inwards, and sideways; it is time to look out of the box and make breaking the rules part of your strategic planning. This is what we do in Section 7 and we offer a very helpful tool for designing an innovative business strategy.
Now that you are armed with a holistic strategic perspective, let’s move to Section 8 and craft your winning strategy on a page. We firmly believe that if you need more than a one-page strategy, then you don’t have a strategy. In this section, you will learn what components go on that page and how to combine them for maximum benefit.
In Section 9, you will learn how to analyze your resulting strategic situation in order to adjust and optimize your business model
We put it all together in Section 10 by learning how can you take your business model on a “Road Test” before implementing it.
Since we are writing about strategy, we start every section by paying tribute to Sun Tzu, the first person to ever write about the topic some 5000 years ago. We do that by borrowing a quote from the Art of War that summarizes the essence of the section.
Sun Tzu, The Art of War
Strategy must not be something difficult to explain. It is always almost simple to explain strategy without many matrices or charts. Good leaders identify one or two critical challenges and focus all their attention and resources on concrete action to overcome those challenges.
Sun Tzu, The Art of War
Archilochus
Circle 1: What are you deeply passionate about?
The first question is all about looking into and identifying what the organization is passionate about. You need to uncover what ignites your employees and understand in what area their passion lies. At this stage you need to ask:
Circle 2: What can you be the best in the world at?
The second question looks into another topic and sees to uncover what your company is best at. At this step, you need to understand where your current and potential core capabilities and competencies lie.
Circle 3: What drives your economic engine?
The last question that needs to be asked is what drives your revenue and profit up. This insight will identify where the potential for competitive advantage lies. You need to consider:
Creating a clear, well-defined direction for the long-term future and where the business is heading.
Providing a basis for crafting your business strategy and action planning.
Guiding employees internally by proving clear guidelines on the business approach and culture.
Establishing shared goals among the workforce and encouraging working together to achieve mutual objectives.
Communicating the business approach clearly to customers, media, suppliers and other parties.
Improving overall brand image by proving that you are professional, you are action-oriented and you have clearly-defined objectives of where you are heading.
Sun Tzu, The Art of War
Cost Focus: Here, firms are aiming for a cost advantage by tapping into a narrow market segment also known as ‘niche’ market.
Differentiation Focus: Here, firms aim to provide customers a higher perceived value for their products or services, usually at a premium price. This strategy is intended for a narrowly defined market segment.
Through his work, Porter has argued that a firm’s strengths fall into one of the headings discussed above and therefore the respective positioning should be followed. Yet, the choice of strategy depends upon the firm’s strategic objectives, orientation and long-term vision. All factors must be considered in order for a business to make the right choice of a positioning strategy without being ‘stuck in the middle’, as this according to Porter’s Generic Strategies, will lead to the lack of ability to compete effectively.
Threat of new entrants in the market: If barriers to entry are low there will be many players would want to enter and take a share in the profits. This will reduce the profits in the industry as many players will share the same pie. Semiconductor industry is a highly capital intensive and difficult to enter unless one has extremely deep pockets. Some businesses may use a hostile pricing strategy in order to establish barriers to entry. Other barriers to entry include economies of scale, exclusive technologies, natural resources advantages, etc.
Bargaining power of buyers: If the bargaining power of buyers is high then your price would have to come down leading to lesser profits. During the period between 1997 and 2012 the PC manufacturers were the primary buyers from the semiconductor industry and mainly demanded microprocessors for their personal computers. Intel Corporation derived significant value by supplying its microprocessors to the PC industry as it was the dominant supplier in the market. This factor is mainly influenced by the number of consumers in the market, the cost of the buyer to switch to another offering, and so on.
Bargaining Power of the suppliers: If the bargaining power of suppliers is high your cost will go up and the profits will come down. Intel was a dominant player its suppliers were not in a bargaining position. This factor is affected by the number of suppliers in the market how powerful suppliers of a business are and how easy it is for them to drive prices up, which as a result would lower a firm’s profitability. For example, when there are only a few suppliers in the market, then it is highly likely that they will possess a lot of control.
Availability of substitutes: When there are close substitute products in the market, consumers are more likely to switch to alternatives when price increases. When this force is high the strategist must examine current and potential substitutes and carefully set the maximum price appropriate for its products. The business should also differentiate itself by offering high quality products and services – this way the threat of substitutes decreases.
Intensity of competitive rivalry: If the rivalry between the competitors in the industry is high the players will drive down the price leading to losses for everyone. Intel was a dominant player in its sub segment of microprocessors. There was competition in the fabless subsegment, but the intensity was not very high.
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a. Market Structure Driven Advantage (section 4)
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a. Deliver on your value proposition
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Mission, Aspirations, Propensity for risk: Finally, this domain analyses the commitment and aspiration of the team and leadership. How passionate are you about starting up your own business? What is your mission and vision? What do you want to achieve? These are all sorts of questions you need to ask yourself and your team.