4/25/2011 | 3 MINUTE READ

It's All in Your Strategy

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Abraham Lincoln once said, “If we can know where we are and something about how we got there, we might see where we are trending—and if the outcomes which lie naturally in our course are unacceptable, to make timely change.”

Even in the face of adversity, such as during a recession, there is opportunity. Many of us in the business world have had to go back to the basic tenets of business strategy to ensure our companies were on the right path to come out ahead of the game.

To start, we needed to ask a few basic questions. Who are our target customers? What product or service are we going to sell them? Why should they consider buying from us? How do we differentiate ourselves from the competition? The answers to these questions create the foundation in determining which of the four basic types of business strategies to employ. Because each strategy has its own unique set of merits and drawbacks, executing the right one for sustainable, long-term growth can be a daunting task.

First, let’s take a look at niche specialists. As the name implies, they specialize in a specific product or service. Niche specialists employ a small group of individuals with a concentrated expertise and know-how. Niche specialists typically enjoy a large market share in a small market: “Big fish in a little pond.”

Long term, the niche specialists will be confronted with the following decisions. They need to either expand their offering or merge into a bigger company, or they will become obsolete. When the specialty is no longer in demand, the business will be forced to close. Think about Smith Corona and the typewriter industry.

Next, we have the cost leaders. The companies that follow this model typically manufacture commoditized products. Cost-leader products have low switching costs and require little to no technical support to implement. The cost leaders differentiate on low cost by establishing efficient production systems and creating a low-cost value chain to get products to market in mass quantities at the most affordable price to the consumer.

While there is always a place for cost leaders in a market, they are dogged by a lack of product innovation and know-how. For mission critical products and services, seeking the low-cost alternative is not always the wisest decision. Ask yourself if you would ever bargain shop for a brain surgeon.

Then there are the innovation champions. This strategy puts an emphasis on research and development to come up with new products combined with a strong marketing effort to get these products into the market. The innovation champions work closely with their customers and their related technologies to develop a strong portfolio of products. In many cases, former niche specialists evolve into innovation champions.

Innovation champions can lead the way in bringing new products to market, but what they typically lack is the ability to have an efficient production system. With the high turnover in product life cycle, they can struggle with refining their manufacturing processes to achieve the scales of economy that the cost leader enjoys.

The final strategy is the competence leader. This strategy is by far the toughest to execute and sustain. The competence leader has the technology of innovation champions combined with an efficient production network and powerful sales and marketing. Competence leaders excel at building a team of employees with differentiated technical skills and know-how.

The competence leaders achieve long-term success by building a higher number of competitive advantages in value chain activities and delivering a consistent flow of innovative products.

Which strategy are customers gravitating towards? Gallup surveys have shown that customers are looking to reduce their number of suppliers by more than 70 percent. Customers realize a real cost savings by reducing the number of vendors to contact and the number of purchase orders to issue and by consolidating receipt of goods and the number of invoices to pay. In many cases, customers can go from four or more vendors down to one. This reduction translates into considerable savings and efficiency improvements. Competence leaders are the only ones who can meet this customer demand.

Do you have what it takes to be a competence leader?