Strategy as position
Understand how a clear strategic position defines the value you offer customers, guides decisions and helps you compete, and how ambiguity creates conflicting priorities and weakens performance.
Summary ideas
Define your position
Strategic position defines the value you offer customers and provides a durable basis for organisational choices.
Focus on your market
Every strategy needs a clear customer focus; this is distinct from choosing customer intimacy as your strategic position.
Avoid the middle
Without a clear leading position, strategic ambiguity creates operational problems and undermines performance.
For any organisation operating with competition, clear articulation of strategic position is foundational. Strategic position defines the basic competitive nature of an organisation and primary source of value that will satisfy the needs of a target market. It is a shared understanding that aligns behaviour in an organisation.
When strategy is unclear, power and the foundational basis for decision-making is muddled. People are operating without an agreed compass. The loudest, most unreasonable or most charismatic voices will prevail. In environments without an agreed strategic position, there is conflict, decision inconsistency and a general uplifting of decisions towards the top of the organisation to resolve disagreements made more likely because of strategic ambiguity.
Strategic position
A challenge with the word strategy itself is the different meanings people attach to it. Strategy as position is the most fundamental choice about how to appeal to customers in a market and generate economic profit. This choice applies to for-profit, social benefit and public/civic organisations alike. Sources of funding care about return on investment (ROI) regardless of organisational purpose. Some basic principles from decades ago hold true despite suspicions that today is different and operates by a new set of rules.
There are two familiar models for strategic positioning available for use: one from Michael Porter of The Harvard Business School and one from authors Michael Treacy and Fred Wiersema. Both models present strategic positioning as a commitment to one of three alternative choices, each reflecting a different path to value creation. The Porter model discusses value from the firm perspective and economic profit. The Treacy and Wiersema model discusses value from the customer perspective. The latter is our preferred view because of its focus on value creation from the customers’ perspective.
Understanding your audience
Customer intimacy is not the same as customer focus
Every successful organisation must have a target audience and deeply understand it. Some customers value a low price for products and services that are seen as relatively undifferentiated. Other customers want personal attention and high levels of service in some categories but not others. It is these variations in customer interest and perception of value that allow for the adoption of different competitive strategies. Greater variation in identifiable customer interest allows for a greater number of players to thrive in a market. It is fundamental to understand variation in market needs.
Customer focus is not the same as customer intimacy. This is an important distinction. Customer focus is a requirement in any strategy. Every business requires a target market and must understand how that market defines value. Customer intimacy is a strategy to reach a specific target market willing to support higher prices in return for something valued such as high service levels, comfort, performance or maybe a type of psychological value found in exclusivity. Figure 3 attempts to make clear the difference between customer focus and customer intimacy.
Figure 3
DEFINING TERMS
Operational excellence is not the same as operational efficiency
Operational excellence is a possible strategic position for an organisation. The definitions between operational effectiveness, efficiency and excellence are often blurred in everyday use. It is important to keep these terms distinct to avoid unproductive debate and misunderstanding when used in an operational context.
Operational efficiency is about doing things right. It means ensuring the workflows are error-free, thus preventing delays and cost increases caused by delays and rework. It also means preventing below-specification products and services from reaching the customer. Operational efficiency entails the capability of an organisation to deliver products or services to its customers in the most efficient manner possible, while still ensuring the high quality of its products, service and support. It is not about cost-cutting – it is about how work is done.
Operational effectiveness is about doing the right things. It revolves around making sure that all the core work done by the organisation creates value to the end customer – that the core value stream is correctly designed. Organisational effectiveness denotes the concept of how effectively an organisation achieves the outcomes it intends to produce. It’s about what work is done.
Operational excellence is a value proposition to customers. It is a strategic position. An operational excellence strategy aims to accomplish cost leadership. It proves ideal for markets where customers value cost over choice, which is often the case for mature, commoditised markets where cost leadership provides a vehicle for continued growth. Operational excellence is about why work is done.
Given these three definitions, it becomes clear that effectiveness and efficiency are requirements found in any choice of strategic position. Neither is by itself a core value-creating position from a customer perspective. And organisations should never be discussing whether it must be effective or efficient. Instead, the only discussion should be about how to be more effective and efficient regardless of strategic position an organisation pursues.
STRATEGIC POSITION VS INTENT
Caught in the middle
Committing to one primary choice of strategic position is a big leadership decision that has many design and operational consequences. It is also a choice that is not frequently or easily changed. It is important to contrast strategic position with strategic intent. The latter is the set of concrete strategic objectives an organisation aspires to accomplish in the next one, three, or five years. The former is the very core of your organisation and the fundamental way in which it will create value. It will not change frequently or easily.
Strategic position is at risk of drift because of dynamic market pressure. A useful consulting principle is to assume an organisation is caught in the middle of strategic positions until it proves itself to be otherwise. An assessment of current state among the three competitive positions will almost always produce a distribution where two compete for the primary strategic position with one an agreed third. This outcome is commonly the result of pressure for growth combined with a lack of strategic discipline or understanding of future consequences.
The consequence of strategic confusion presents itself in operating uncertainty. Decision-making becomes difficult because of weakness in strategic framing. Divergent political interests increasingly come to the surface in the form of visible conflict. Budgeting becomes contentious. Being caught in the middle is the root source of many organisational problems, including wasted effort and underperformance and there is often persistent temptation to blame those involved in the conflict.
Finding strategic clarity does not mean choosing one strategic position and neglecting the others. Organisations must remain proximate to the market in the remaining two dimensions while organising around a leading position. One position must be king or queen. Successful firms develop a clear sense of primary strategic position and build an operating model to deliver the requisite organisational capability derived from this position. What will it take to win?
CASE EXAMPLE
Resolving competing strategic priorities
"They’ve done it again. They’ve developed a significant new product feature that our customers don’t want, yet we’re preparing to launch it as a major initiative. It makes us look out of touch with customer needs."
This was the internal conversation in a company that was trying to compete in an increasingly competitive market. Power and decision-making were both confused. The product development group was pushing technical priorities based on engineering interests. The sales organisation did not have a good understanding of its customer segments but knew far more about their interests than the engineering function. It was apparent there was a lack of cohesion between strategic prioritisation and organisational alignment.
A review of strategic positioning identified that the organisation was split. Half felt their organisational lens was product leadership, while the other half saw this as being operational excellence. The lack of clarity showed itself in organisational confusion and dysfunction. The first step towards resolution was clearly defining how the organisation would compete in the future with a clear strategic position.
SOURCES
- Magretta, J. (2011). Understanding Michael Porter: The essential guide to competition and strategy. Harvard Business Review Press.
- Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 78.
- Treacy, M., & Wiersema, F. (1993). Customer Intimacy and Other Value Disciplines. Harvard Business Review, 83–93.