Why Strategy is so important in Today's Business Decision Making?
The world is constantly changing; therefore, resources are more and more becoming scarce. That alone makes business organizations a non-stop changing mechanism finding and innovating tools to counter these constant changes, in addition, these changes put more pressure on global organizations to compete efficiently, have a vision to innovate, and satisfy all stake-holders at the same time. There are key tools making a strategy to last a decade and not till the next business cycle. One important tool is leadership and empowerment to vision and innovate next generation products that exceed customer's expectations, solve their daily problems, products containing features & benefits that the target market values in order to communicate and position the product and the brand to be accepted by its audience.
Companies that study their customers, finding what solves their problems, meet and exceed their needs, and answering the who target audience is, what product they need to solve their problems, the how to communicate and reach the product to them, and the where will be accessing the product at? Keeping in mind organizational trade-offs, sustainable strategy in mind, and a long term vision that is communicated and shared with the whole organization by empowering and leading employees to innovate and revolutionized products, ideas, and process in answering the who, what, how , and where product and brand questions. They are the most successful companies and vision driven organizations that can sustain any threat and always gain on opportunities.
What was the old strategy that is not today's most significant alone?
History has taught us total quality management and operational efficiency alone is not a strategy for many reasons. First it is mach-able, penetrate-table, and easy to imitate. It does not last a lifetime, and it can drive organizations to be bankrupt or near bankruptcy. To help understand more this scenario, looking back at the Japanese who invented the TQM and made operational efficiency their only strategy as a tool to deliver superior quality products at reasonable and low price compared to their European and American counter-part. It was successful at first, and the Japanese made history in organizational efficiency were they had the world benchmark their practices and helped make a race in the world global economy to reorganiz and concentrate on TQM as a key strategy to succeed in the Seventies all the way until mid Nineties. Having said that, and analyzing the situation from a financial perspective, history had shown us that profit to sales ratio has been higher in the seventies and eighties than that of the mid nineties.
The main reason is simple. Take this small example, Toyota and Honda is both Japanese know car makers that compete in their local markets and globally as well. They have matched each other's organizational efficiency and benchmark each other's activities until they have become alike and they run out of new ideas that you can not differentiate a Honda car from a Toyota only by price positioning. Based on price competition alone, organizations will have profit diminish year on year and operational efficiency alone can not save the organization from bankruptcy or near bankruptcy. For these reasons, organizations that compete globally should look into sustainable strategies as a key success to their survival and not operational efficiency as a strategy alone. Operational efficiency is a given in today's business and it should be a starting point to move to the next level of utilizing these efficiencies in a whole new vision and strategic thinking with a future forward plan shared and implemented with the whole organization to implement and create utilities with sustainable business units collaborating with internal and external suppliers by forming a global conglomerate sustainable enough to hold until at least a decade.
The role of leadership in strategy
The challenge of developing or reestablishing a clear strategy is often primarily an organizational one and depends on leadership to drive it into success. In many companies, leadership has degenerated into orchestrating operational improvements and making deals. But the leader's role is bolder and far more important. General management is more than the stewardship of individual functions. Its core is strategy: defining and communicating the company's unique position, making trade-offs, and forging fit activities. The leader must provide the discipline to decide which industry changes and customer needs that company will respond to, while avoiding organizational distractions and maintaining the company's distinctiveness. One of the leader's important job is to coach subordinates about strategy and lead them to correct decision making by learning about trade-offs needed to be associated with the organizational vision and customers demands into consideration.
Indeed, setting limits is another function of leadership. Deciding which target group of customers, varieties, and needs the company should serve is fundamental to developing as strategy; In addition, the choices made in deciding not to serve other customers or needs and not to offer certain features or services. Thus strategy requires constant discipline and clear communication. In fact, one of the most important functions of an explicit, communicated strategy is to guide employees in making choices that arise because of trade-offs in their individual activities and in day-to-day decisions. Study and learn about their customer's needs, asking the questions: what makes them happy, how can we improve the use of a certain product, how can we solve certain problem, how can we reach a niche-segment market within the core product range, what packages to make, how to differentiate our brands from imitators, how to counter in-store generic brands, how to build loyalty to the brand, and many more questions that teachers to be the leader and own innovative products and brands that generate sales.
Alternative views of strategy
The two main views of strategy is one, discussing the model of the past. The other one is discussing a sustainable competitive advantage of the present till the near future. Lets take a look at both models in the below diagram.
The Implicit Strategy Model of the Past
- Aggressive outsourcing and partnering to gain efficiencies.
- One ideal competitive position in the indust
- Benchmarking of all activities and achieving best practice.
- Flexibility and rapid responses to all competitive and market changes.
- Advantages rest on a few key success factors.
- Core Competencies
- Critical Resour
Sustainable Competitive Advantage
- Activities tailor to strategy.
- Unique Competitive position for the company.
- Operational effectiveness is a given.
- Sustainability comes from the activity system, not the parts.
- Competitive advantage arises from fit elements across activities
- Clear trade-offs and choices vis-à-vis competitors.
In the final thoughts understanding what strategy is in today's global business environment, one can say the improving operational effectiveness is a necessary part of management, but it is not strategy. In confusing the two, managers have unintentionally backed into a way of thinking about competition that is driving many industries towards competitive convergence, which is no one's best interest and is not inevitable. Managers must clearly distinguish operational effectiveness from strategy. Both are essential, but the two agendas are different. The operational agenda involves continual improvement everywhere there are no trade-offs. Failure to do this creates vulnerability even for companies with a good strategy. The operational agenda is the proper place for constant change, flexibility, and relentless efforts to achieve best practice. In contrast, the strategic agenda is the right place for defining a unique position, making clear trade-offs, a tightening fit. It involves the continuous search for ways to reinforce and extend the company's position. The strategic agenda demands discipline and continuity; its enemies are distraction and compromise.