Why a post on good Strategy and Michael Porter’s Strategy model? Clearly, Agile at Scale makes it possible to fully align the delivery capacity to the objectives. Indeed, the Product Management Team at the level of the Tribe and the Product Owner at the level of the Agile Squad, define the prioritizes and validate the output. But are the priorities properly set? How to be sure that the focus is on what matters most? And how to define what matters most?
As a result, this is where Strategy gets in. Once you understand what is the competition in your market and how to build a competitive advantage, the next step is to actually to forge a good strategy.
Really, Strategy explains how an organization confronted to competition will achieve superior performance.
- What are the 4 common misconceptions with Strategy?
- What is a good Strategy? Discover Michael Porter’s 5 Strategy Model
- What’s next? Learn how to implement your strategy and review Agile at Scale model. Learn on digital platform Strategy
What are the 4 common misconceptions with Strategy?
What makes the difference between a good strategy and a bad strategy? Firstly, let’s review the common misconception with Strategy.
Fluff is the superficial restatement of the obvious combined with a generous sprinkling of buzzwords. In fact, it masquerades as expertise, thought, and analysis.
Failure to face the challenge
A strategy is a path through a difficulty, an approach to overcome an obstacle and a response to a challenge. Surely, if the challenge is not properly defined or is not defined at all, it is difficult or impossible to define a good strategy. In addition, it is not even possible to evaluate the strategy and improve it.
Mistaking goals for strategy
Many strategic plans are simply a three-year or five-year rolling budget with market share projections. Without a doubt, calling a rolling budget of this type a “strategic planning” gives people the wrong expectation that this could result in a consistent strategy.
Bad strategic objectives
Good strategy works by focusing energy and resources on few decisive objectives whose accomplishment will lead to a cascade of favorable outcomes. In contrast, a long list of things to do, mislabeled as “strategies” or “objectives”, is not a strategy. In truth, a good strategy is a focus strategy.
Why are there so many misunderstanding with what is Strategy?
Bad strategy is usually the result of the avoidance of the hard work to craft a real strategy:
- A first reason is the pain or difficulty of choice. It also require courage to make choices among competing values and parties.
- A second explanation is the mirage of strategy templates with vision, mission, values and strategies. Clearly, this one-size-fits-all format is not a substitute for forging a true strategy.
- A third cause is the belief that all you need to succeed is a positive mindset. To illustrate, this kind of fake strategy may be formulated as something like “be the best” and is supported by aggressive sales forecasts.
What is a good Strategy? Discover Michael Porter’s 5 Strategy Model
A good strategy supporting long term company profitability should pass the following 5 tests as described in Michael Porter’s Business Strategy Model:
A distinctive value proposition
The value proposition is the element of strategy that looks outward at customers, at the demand side of the business. On the contrary, the value chain as described in my post about competitive advantage focuses internally on operations. Furthermore, Strategy has two sides working together: the demand and the supply.
The key questions to describe the value proposition:
- Which customers are you going to serve? This allows to identify the customer segment.
- Which needs are you going to meet? The customers share their common needs.
- What relative price will provide acceptable value for customers and acceptable profitability for the company? The differentiation may involve extra costs, removing unnecessary costs to meet “just enough” of needs.
A common strategic mistake is being stuck in the middle. This happens when a company tries to serve all needs and all customers and is outflanked by cost leaders on one side, who meet “just enough” of their customers’ needs, and by differentiators on the other side, who do a better job of satisfying customers who “want more”. Surely, a good strategy is to start with a differentiation strategy to build a competitive advantage.
A tailored Value Chain
The company should choose to perform activities differently or to perform different activities from those of rivals. Choices in the value proposition that restrict what a company will do are key to strategy because they make it possible to customize operations in a way that best delivers the targeted specific value.
Trade-offs different from rivals
Trade-offs are the same as a fork in the road but for Strategy. If you choose one track, you cannot at the same time go for the other. Certainly, Strategy is about making choices between strategic options.
- Firstly, product features may be incompatible. That is, the product that best meets one set of needs performs poorly in addressing others.
- Secondly, there may be trade-offs in activities themselves. In other words, the configuration of activities that best delivers one kind of value cannot equally well deliver another.
- Thirdly, trade-offs may lead to inconsistencies in image or reputation.
- As a matter of fact, the role of trade-offs in strategy is deliberately to make some customers unhappy.
- By their very nature, trade-offs are choices that make a strategy sustainable because they are not easy to match or to neutralize.
Amplifier across the Value Chain, also called Fit
The value or cost of one activity is amplified by the way other activities are delivered.
- First, basic consistency, when each activity is aligned with the company’s value proposition and each contributes incrementally to its strategy. When activities are inconsistent, they cancel each other out.
- Second, when activities complement or reinforce each other. This is real synergy, where the value of each activity is raised by the others.
- Third, substitution. Here performing one activity makes it possible to eliminate another and potentially lower costs.
- All three types of fit are common, and they often overlap. In companies with a good strategy, fit tends to be both widespread over the whole company and tightly interconnected.
- Fit makes Strategy more sustainable and deters imitation
Continuity over time, Strategy isn’t a stir fry, it’s a stew
- Firstly, continuity reinforces a company’s identity. It builds a company’s brand, its reputation, and its customer relationships.
- Secondly, continuity helps suppliers, channels, and other outside parties to contribute to a company’s competitive advantage.
- Continuity fosters improvements in individual activities and fit across activities. It allows an organization to build unique set of capabilities and skills tailored to its strategy.
- For the same reasons that continuity is valuable, companies pay a high price for frequent shifts in strategy. These require reconfiguration of activities and realigning the entire system.
- Continuity of strategy does not mean that an organization should stand still. As long as there is stability in the core value proposition, there can be innovation in how it’s delivered.
What’s next? Learn how to implement your strategy and review Agile at Scale model. Learn on digital platform Strategy
- Check my other post on how to assess competition with Michael Porter’s 5 forces model and review competitive advantage.
- Check my post introducing Agile at Scale.
- Learn about competition and strategy in digital platform context.
To go further, sources of this post
- Good Strategy Bad Strategy: The Difference and Why It Matters – Richard Rumelt
- Competitive Strategy – Michael E. Porter
- Competitive Advantage – Michael E. Porter
- Understanding Michael Porter: The Essential Guide to Competition and Strategy. – Joan Magretta