I’ve organized this material to take account of inevitable uncertainties, proven principles, and the connection between strategy content (what is or should be the strategy of the organization) and strategy process (how to determine the strategy and how to best implement it). Strategy content and strategy process are treated with equal importance as two sides of a coin, creating a symbiotic relationship to help decision makers think and act strategically as the organization evolves over time.
This model is based on the above perspective and the four criteria for what makes for an effective strategy. In brief, an effective strategy is one that has (1) a clear focus and direction, (2) is informed through analyses of external forces, (3) is informed through analyses of the organization, and (4) can be implemented. The effective strategist has the necessary analytical and behavioral skills and knowledge to be able to carry out the analysis, decisions, and implementation. These factors increase the probability that leaders will allocate resources to create organizational value. This value leads to competitive advantage.
This approach applies to for-profit and not-for-profit organizations. Not-for-profit organizations have customers and stakeholders and are concerned about their competitiveness. A confusing aspect of not-for-profit organizations is to define who the customer is. Are customers the donors or the service beneficiaries? The decision about who are the customers are is a part of the organization’s positioning and deciding on what activities support that positioning. While these types of organizations may distribute profits differently from their for-profit counterparts, they still need to consider their competitive positioning and how they support that positioning. For example…
Habitat for Humanity’s Strategy
|Habitat for Humanity has a unique mission and clearly phrases its focus, as follows:
Our vision: A world where everyone has a decent place to live.
Our mission: Seeking to put God’s love into action, Habitat for Humanity brings people together to build homes, communities, and hope.
Who we are: Habitat for Humanity partners with people in your community, and all over the world, to help them build or improve a place they can call home. Habitat homeowners help build their own homes alongside volunteers and pay an affordable mortgage. With your support, Habitat homeowners achieve the strength, stability, and independence they need to build a better life for themselves and for their families. Through our 2020 Strategic Plan, Habitat for Humanity will serve more people than ever before through decent and affordable housing.
Decisions about Where to Win
These decisions are a result of the internal and external analyses. Analysts make at least two major decisions: (1) what segments will it serve and (2) what is the organizational scope.
Segmentation is an identification of specific markets to serve. The segments are best identified as customer groups that have similar characteristics. For example, a group of customers might only want basic services from your organization such as trash pick-up. Another segment might want data on their trash so that they can measure landfill diversion or opportunities for recycling. These two segments vary by value-added services and will vary depending on how you support each segment (see the section in this paper on How to Win).
Other segmentation variables include geographic location, buying patterns or attitudes, and willingness to engage with your organization. For example, customers located close to a business may be served differently from those located in distant locations. Some customers may be grouped by their willingness to buy or likelihood to purchase at a store as opposed to online. Each segment would be served differently, a topic covered in the next section.
Another decision about where to win is the scope of activities. How many products or services will your organization offer markets? How many channels will you use or what is the geographic breadth of your business?
Some of this analysis involves identifying which business segments deliver the most value and what scope offers the best opportunities for future growth. Most businesses serve a number of distinct customer segments. Each distinct product defined for a distinct customer group is a segment. For example…
Amazon and Whole Foods Link Up
|Why does a social networking company build a virtual reality headset? Why does an online retailer, Amazon, buy a grocery chain, Whole Foods? Amazon.com, Inc. made a bid to buy Whole Foods, a deal valued at $13.7 billion including Amazon paying $42/share which was a 27% premium as of June 15, 2017. This move gave Amazon a way to quickly get a bigger portion of the $674B U.S. edible groceries market. Tech companies see their core competencies as managing technology which allows them to manage diverse businesses. Apple, for example, became a phone company and is now working on self-driving cars, TV programming, augmented reality, and payments formerly controlled by banks. It’s ability to manage technology and design human-centered products could make it the first trillion-dollar company.|
Decisions about How to Win
These decisions are related to the business model the firm uses (see Figure 5 for a generic format for business models) and the various ways the organization pursues the market.
Business models are pictures of information on each business as the value proposition offered to the customer or customers, how the organization makes money, and several components needed to make the business operate. Organizations can find new ways to serve markets by changing one or more elements of the business model. For example, an organization can create a new channel to deliver services, such as the internet, to increase the business’ market presence.
Figure: Business Models
This table shows one way to define a business model. It works well for a single business. Once the business is defined, the analyst can change certain business model components to identify innovations.
Some activities are out-sourced and some are acquired outside the firm.
Sometimes a firm is dependent on the work of other organizations.
Some strategies call for a network of organizations.
(processes, systems and routines)
Solves customer problems and satisfies customer needs.
Embodied in a product or service; could be how the product or service is delivered.
Sometimes shows points of difference, points of parity, and points of contention.
Established and maintained for each segment.
An organization serves one or more segments.
For some organizations (such as not-for-profits) the beneficiaries may be different from customers. Or, one can consider having different business models for beneficiaries and customers (such as donors).
Assets required to offer and deliver products and services.
Delivered to customers through distribution, communication, and sales.
|Cost Structure||Revenue Sources|
|Social and Environmental Costs||Social and Environmental Benefits|
Some analysts point to generic business models to help summarize what most organizations pursue. One approach is called value disciplines. The authors of this approach advocate that companies focus on one of three business models (value disciplines in their words):
- operational excellence, providing customers with reliable product or services, delivered cost-effectively and with minimal inconvenience;
- customer intimacy, segmenting and targeting markets precisely and tailoring products to meet specific customer needs;
- product leadership, offering the customer leading-edge products or services that enhance their use, enabling premium pricing and rendering competitive products and services obsolete.
For example, private banking can have three different business models: (1) private banking that focuses on operational excellence and efficient servicing of clients; (2) private banking that focuses on product development, tailoring products to specific customers; (3) private banking that is customer facing and provides excellent advice and tailored customer service. Mixing these three in the same organization may make the organization less effective than focusing on one specific model. This means that an operationally excellent private bank would sell services to the organizations that develop products and are customer facing.
Another set of ideas about generic business models depends on broad versus narrow target scopes. If the “where to focus” decision is in broad markets, then organizations tend to have cost leadership or differentiation as their business models. Cost leadership does not necessarily mean charging the lowest price; however, it does mean the organization can defend the lowest price through cost cutting. Differentiation is a business model that allows the firm to charge premium prices because customers are willing to pay for product or service features. If the positioning is narrow, then the business model is called a niche, tailoring the model to specific customer needs.[v]
Finally, some analysts point to business model patterns. For example, the long tail is selling less of more, focusing on offering several nice products each of which sells relatively infrequently.[vi] This model is common for Netflix offering online video rentals, who licenses a large number of niche movies. Multi-sided platforms, another business model, is common among application providers. This model brings together two or more distinct but interdependent groups of customers. The platform facilitates interactions. Examples include shopping mall owners, credit card applications, and Uber. Other patterns are labeled open business models, free, and unbundled.
The benefits of these generic definitions and patterns is that they provide a way to describe business models and compare them to other organizations. The detraction is that generic descriptions may not be appropriate for a specific organization.
Google’s K-12 Strategy
|Google has dominated the K-12 classrooms in a short period of time. It enlisted teachers and administrators to promote Google’s products to new clients. It reached out to educators to test its products by-passing senior district officials. It provided low cost laptops (called Chromebooks) and free software. More than half of K-12 students use Google applications; Chromebooks account for half the mobile devices shipped to schools.
Google’s strategy is a clear example of having a unique business model sensitive to the customer. Unlike Apple and Microsoft, which make money primarily by selling devices and software services, Google derives most of its revenue from online advertising. The schools’ consumers win in terms of low prices for Google’s services and devices.
A useful variation on a business model is the Delta Model.[x] The Model provides guidance on how to support the business’ strategic positioning. It is a variant of the general model presented in Figure 5 and shows specific strategies to pursue markets. It starts with the assumption that the fundamental strategic objective is to obtain customer bonding, i.e., attract, satisfy, and retain the customer.
The Delta Model shows three options to reach the strategic objective: Best Product (attract the customer by the characteristics of a superior product);[xi] Total Customer Solutions (provide customers with customized solutions to their most pressing needs); System Lock-in (establish market dominance).
These three options can be expanded to identify more nuanced ways of serving the customer. For example, product excellence can be achieved through cost (the provider can defend the lowest price in the market) or differentiation (development of features and functionalities that make the product unique and command a price premium). Another example is enhancing the customer’s capabilities by offering integrated solutions to address the customer’s critical needs. This outcome can be accomplished by redefining the customer relationship to create closer proximity, transferring knowledge, or providing various products to the customer.
Strategies in the Delta Model presuppose providers have segmented the customer base to identify customers that share similar needs. Once customer segmentation is completed, a provider can define unique value propositions for each segment. Value propositions are offerings that satisfy customer needs AND provide a basis upon which customers choose a provider. Google is a great example of a company using the Delta Model in the K-12 market.