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Vol. 4 — No. 7 Escape
Velocity: Defying Business Gravity With a Differentiated Strategy Escape Velocity:
The minimum velocity an object must
have in order to escape the gravitational field of the earth Business Gravity:
The factors that hold your business
back from accelerated growth Development: The creation of the strategic framework
that guides business decisions and aligns company activities In the first four issues of this
newsletter series we have laid the groundwork for the selection of strategy.
As we engage in the development phase of growth planning, we define the
strategic direction that will guide our company in the coming years. What is strategy?
Strategy is an integrated overarching, externally-oriented concept for how
you will obtain your business goals. As you can see from the chart
below, strategy is the driver for all key operational decisions and must work
successfully in the environment created by the market and the culture.
Strategy is by definition a
choice. It rules out certain paths and includes others. It will define where
you invest, who you hire and how you sell. A plan that focuses on
operational improvements will contribute to bottom line and possibly even top
line—but it is rarely a strategy. A strategy is a focus for how you will
compete. Wal-Mart competes on low price
and wide selection; Southwest Airlines offers the best value, featuring a
combination of low fare and service; FedEx is about reliable service. Each
has established a clear strategy that guides all the decisions that follow on
various operational policies and behaviors. The strategy is the core
principle from which all other decisions flow. A growth strategy is created in
two parts. The first, which we deal with today, is determining the space in
which you will compete. What you sell, whom you serve, how you are different,
how you deliver and how you will obtain your return are key decisions which,
collectively, capture your strategy. Choose the space where you can be a rock
star. Your goal is to select the space where there is room to grow and is a
good fit with your resources and competencies. The second part of developing
a plan for growth is the determination of the specific initiatives you will
pursue to achieve your targets and will be covered in the next newsletter. Before you start on defining your
space, there are two key things you need to decide. First, what overall
strategy can you best compete with—for example, product excellence (like
Apple), customer service (like Nordstrom) or low price (like Wal-Mart). This is largely determined by a combination
of what the market opportunity is and what your company strengths are. Secondly, once you have
determined the platform that offers you the best space in which to compete
you need to determine what will make you stand out in that space. What is
your basic promise to the customer? For Fed Ex it is about delivery by 10am
the following morning. For Nordstrom it is their legendary return policy. How
do you create an advantage that makes you stand out in your market in the
eyes of the customer to whom you are trying to appeal? Once you have defined
those factors you are ready for the following steps: 1) Develop a strategic
positioning statement:
This statement need only be one sentence long to capture the essence of the
strategy. It defines the company’s role in the market and describes what you
“sell.” It may help to give some examples.
• First, stay away from generic
statements that can fit you and everyone else. Far too often I see statements
similar to this one: “Be world class at making the highest quality widgets
and offering exceptional customer service.” • Instead be specific such as: - Be the best family-friendly
great-value airline
-
Best at running a bank like a
business
- Move from automating health care
one hospital or physician at a time up the health care financing stream to
employers, insurers, governments and into a research role offering stored
data for analysis of health trends around the globe. 2) Identify the target
customer:
You know by now that all customers are not created equally. You did your
homework and discovered what portion of your customer base is contributing a
disproportionate share of profits. Your strategy needs to be right for your
target customer. After all who they are, and what it will take to appeal to
them, will, to a large extent, define the solutions you will offer in the
market place. Be sure to determine who they will be tomorrow, not just today.
Ask these three questions to help identify your target: • Who do you make money on? • Who do you best satisfy? • Who is growing? 3) Create a value
proposition:
Be specific in defining the benefits you deliver to the target audience that
supports your strategic position. These are the specific ways you operationalize your positioning—it is what the customer
experiences that causes them to agree that you are indeed what you claim to
be. If you are going to offer best value air fare, then you might have the
following benefits: • A simple and easy to understand
fee structure - No fee for ticket changes - One price per leg—no up-charge
for one-way tickets - No extra or add-on fees • Customer service with the
customer in mind - Can cancel tickets issued within
24 hours - Easier to understand loyalty
programs with lower reward levels - Award compensation for customer
inconveniences—at the gate and in-house committee • On-time and efficient travel - Less total travel time - Faster turnarounds - On time arrivals 4) Set the
distribution plan:
Determine how you will get your product to market. It used to be fairly
simple—there were bricks and mortar or direct selling (door-to-door). Now
there are many more alternatives and combinations, including catalogs and the
internet. Many companies combine all of them. Some companies market through
some channels and distribute through others. Once you determine your distribution
plan, you can determine your channel mix goals. If department stores were a
large part of your bricks and mortar volume in the past, will it stay that
way or be replaced by big box stores or internet sales? Getting a good handle
on where your goods will be sold will help you make important investment
decisions. In today’s world the distribution decision can provide an
important distinction and great advantage. 5) Clarify the
economic driver:
In order to be successful you must consider how you intend to make money
repeatedly and consistently. Your economic driver and your strategy need to
work hand-in-hand to maximize return. If you have low margins you are going
to need to sell volume. What does that suggest for your strategy? If your
economic driver is return-per-customer, how does that cause different
business decisions than if your driver is return-on-item-sold? What about
total lifetime volume of customer? The economic driver has to work
hand-in-glove with your strategy.
Defining a strategy is admittedly
not easy. It is highly dependent on having a good knowledge base about your
market and your company, with a handle on the anticipated changes expected in
your industry. It is easy to see now why we placed so much emphasis on the
discovery phase. Once you have that background of information, you can use it
to filter your choices down to the few that fit what you do, how you do it
and who you do it for. Reynolds
Consulting, LLC brings a variety of methodologies and tools to the table for
helping companies evaluate these key strategic decisions and make the ones
that will work best for them. Please call us if we can help you! You can
reach
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