Wednesday, November 30, 2011

How to know the right strategy to be adopted?

This week's readings focuses on the various types of strategies which fits a particular business model. That is quite true, as a particular strategy might work wonders for a specific business model, however, the same could be devastatingly bad for another business model. Some could be very effective for Non-Profit organizations while the same might be lame for a profitable one. So, the next question that arises is how do we determine which strategy would best suit a particular business model. To be honest, there is no one single answer to this question. Instead we can focus upon some of the most popularly winning strategies which has changed many company's fortune .To start with, one such strategy is to be a low cost market leader. The concept is very simple wherein we know that people in general are very sensitive to prices .So, the lower the prices are kept compared to the other competitors, more quantities are sold generating more profit and thus generating more profit. However, what we should be careful out here is some of the general rules of economics that a higher revenue does not necessarily always guarantee a higher profit. Plus there is always this chance of the commodity being referred to as "cheap" and thereby losing some of its valuable customers. And this is a constant challenge as pricing really holds the key to success here. Also, the reduction in price should not compromise or sacrifice some of the core values of the company. Next comes the strategy of having a "Unbeatable Supply Chain" like Wal Mart's or a great Inventory management system like Mac Donald's or an extraordinary product design like Apple's. As we have discussed in some of my earlier blogs that the bottom line is however to have one distinguishing factor for yourself which will differentiate your company in general and set your product apart from the rest. Another distinguishing attribute with regards to this is having a good relationship with your customers. The Tata's back in India have made this their main mantra holding the key to their corporate success. It is nothing but making the customer understand as to what is different either about their company or about the product which might allure the customer in buying that product or service of their company and not anybody else's which might also be called as the "Unique Selling Point" in today's modern day corporate terminology. Another typical example would the network externality strategy wherein one buyer gets influenced by another buyer and together increasing the value of the product for the third buyer. All telecom companies with hardly any exception typically imbibes this strategy to get the initial critical mass.

However, sometimes the competition might be so fierce that there hardly any factors left based on which you can distinguish yourself in the market. It is at that point of time that the organization should research and come up with a new strategy to create a huge market space for themselves which the author refers to as the "blue ocean of market space". And just to refresh our memories ,we learnt it in the last class that there is a difference between industry and market space wherein market space has a three dimensional concept as opposed to industry. The other article talks about the lessons learnt from some of the business failure cases. The author states that there are mainly seven ways which might lead to a failure. It might be caused by a forceful merger, faulty financial engineering, by being resistant to market changes, changing products, suppliers and buyer bases, adopting wrong technological base, being hasty in reducing overhead costs and or "combining huge numbers of small businesses into a large one to increase purchasing or brand power". So, coming back to our original question as to how do we know whether the strategy that we adopted is a weak or a strong strategy? And to this we get the answer from Robert Simmons who talks about the seven questions based on which we can gauge whether the strategy is focused on the right areas or not? The questions focuses on areas like primary customers, prioritization of shareholders, employees and customers, etc. However, I want to end the blog by posing a question at you as to what do you think some of the other important factors are apart from the ones mentioned by Robert Simmons which might gives us a good insight to measure whether the strategy adopted is focused on the right area or not?

Citations

# Article: Types of Strategy: Which Fits Your Business? (Excerpted from: Strategy: Createand Implement the Best Strategy for Your Business (HBS Press), 2006)

# Article: Blue Ocean Strategy (Kim and Mauborgne, Harvard Business Review, Oct ‘04)

#Article: Seven Ways to Fail Big (Carroll and Mui, Harvard Business Review, Sept ‘08)

#Article: Stress-Test Your Strategy: The 7 Questions to Ask (Simons, Harvard Business

Review, November 2010)

#Article: The Perils of Bad Strategy (Rumelt, McKinsey Quarterly, June 2011)

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