Wednesday, December 7, 2011

How To Choose A Strategy (A.K.A Salmons Or Sharks?)


Choosing a strategy is undoubtedly one of the most important decisions that any organization takes and it is made arduous by the forces that determine good and evil in the industry. In this blog post, I intend to briefly examine 4 strategies and how to stray away from the trodden path to determine your own fate. Let me dive right in to the 4 types.

A. Low-cost leadership strategy

This particular type of strategy is known to all and focuses on primarily ensuring the lowest cost of goods sold. This is mostly viable for small to medium businesses, but it is equally used largely by big companies. For eg: in India, we see a large competition between telecom companies like Vodafone, Airtel, Tata Indicom, Reliance, Idea, etc, reducing the price of calls to 1paise/second. Imagine calling people at 0.02cents a second!

B. Differentiation strategy

This type of strategy aims at ensuring that customers look at your company differently from other companies. The best example of this that is easily understandable to everyone is Apple. Apple products like iPod, iPhone, iPad, and MacBook have created a niche for the company that is truly their own.

C. Customer-relationship centric strategy

This type of strategy is the most pleasing one to the common man since it creates a scenario where the organization is focused on the customer. This is employed by fewer companies in the manufacturing industries and more by service oriented organizations. This is self-evident, but I would like to point out the retail shops Dick’s Sporting Goods. Every time, I go to a store in America, I am met by emptiness and lack of service. However, Dick’s makes sure that I am met by a guy who points me to where I want to go.

D. Network externalities strategy

This type of strategy is the least accessible to the common man, but is the most obvious to the geeks out there. Every user of this service needs other users to use the service. Skype used network externality to the extreme similar to AT&T in the early era of telecommunications and ensured that their business is backed by the enormous customer base that they have. Network externalities ensure fewer new entrants and give the incumbent the advantage.

Blue Oceans And Red Oceans

I propose two options for you today:

i. Stay on the same path that everyone has been following since time immemorial?

ii. Beat your own path, do your own thing and make your own destiny?

Which one would you take? What are Blue Oceans? What are Red Oceans?

Red oceans are the environments that you see around you that have always been there. Blue oceans are the ones that you make for yourselves. In my opinion, true success and large money lies in the for-profit sector in innovation. For everyone who has downloaded music illegally, Napster is a household name. Napster made a new market where none was earlier available. Many other companies like Facebook, Google, and Tata (Nano) found crevices, nooks and niches while other companies were too busy fighting in the open market. These are the organizations that really make a difference in the world. The trick is to find the perfect rapport of low cost, innovation, and buyer value. Would you rather be a salmon in the old sea or a shark in the new sea?

Citations

1. “Types Of Strategy – Which Fits Your Business?” – Excerpted from “Strategy: Create and Implement the Best Strategy for your Business”

2. “Blue Ocean Strategy” – W. Chan Kim, Renee Mauborgne

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