Creating Valuable Business Strategies

Shiv Mathur, Alfred Kenyon

• Publisher: Routledge
• Year: 2008
• Print ISBN:
  9780750685481
• eBook ISBN:
  9781136413476
• Topic: Business
• Subtopic: Business General
• Index: Business

Creating Valuable Business Strategies will change existing mindsets about strategy. Here is an answer for the strategist who asks, 'What should I do differently next Monday morning?'.

The object of strategy is to create financial value and the offering-centred approach of Creating Valuable Business Strategies provides a novel and pragmatic framework for setting strategic direction: choosing which markets to contest and how.

This book:
* Identifies the individual offering as the fundamental unit of strategy--the choices that customers make regarding individual offerings are at the root of a company's financial success.
* Provides an innovative and comprehensive approach to profitable business strategy--designing each offering and also the collection as a whole.
* Explains that strategy is a task for all businesses with offerings, even the smallest, not just the giants.

The book first sets the scene and makes the case that each value-adding offering needs a competitive strategy: it must have a winning competitive position and use one or more winning resources. It provides the reader with a rich classification of how an offering can be competitively positioned vis-à-vis rival offerings and customers. Winning resources and why offerings need them is discussed next. Corporate strategy, i.e. the managing of the company's whole collection of offerings is then examined. This is followed by a discussion of the implications for organizing and structuring for an offering-centred approach to strategy. Finally all the aspects of this new framework that may meet with resistance are explored.

Creating Valuable Business Strategies is essential reading for anyone who is involved in designing tomorrow's offerings: from the backroom specialist to the CEO. It has a clear logical presentation with a focus on practical implementation.

PART 1

Setting the Scene

Part 1 deals with the basics of this framework for business strategy. Chapter 1 introduces the framework and sets out why it focuses on the design of future offerings rather than larger units. Chapter 2 makes the case for financial value as the object of business and discusses rejected alternative objectives, such as ‘growth’ or the stakeholder view. Chapter 3 sets out the fundamental view taken of how a successful offering needs to be designed, with both a winning competitive position and the employment of winning resources.

1

The need to design future
offerings

Managers are bombarded with advice on strategy, but what do they really think strategy is about? Perhaps the ideas in circulation contain any or even all of the following topics:

• structuring companies for success;

• leadership;

• corporate governance;

• relations with investors and other stakeholders;

• growth, market share, acquisitions;

• financial control of costs and capital investment;

• investment project analysis;

• technology and innovation; and

• marketing.

‘Strategic’ has almost become an attribute of any topic of interest to managers or writers.

This book seeks to focus the agenda on the creation of financial value, which it sees as the fruit of identifying, attracting and satisfying profitable customers. This requires two main tasks:

1. finding promising customer markets and

2. exploiting the company’s own excellence in any such market.

Only in combination can these two efforts create value.

Figure 1.1 Creating financial value

The first of these tasks concerns issues outside the business, and the second issues inside the business. The decisive trick is to choose external markets that fit and exploit our internal points of excellence, as in Figure 1.1.¹

This agenda differs from the assorted topics in the above list and also from other current doctrines in three important ways:

1. Its more explicit focus on value.

2. Its much greater attention to choosing customers. Success depends on their choices.

3. Its balanced and targeted treatment of internal, non-marketing issues.

This approach differs from what we might call the managerialist one which seeks to treat strategy as far as possible as an inward-facing task: striving for excellence in manufacturing, R&D, operational efficiency, quality control and so on. We must also, however, dissociate it from the opposite approach, that is the extreme marketing one. This extreme marketing view appears to err in two respects:

1. It concentrates on customers to the exclusion of internal tasks, problems and opportunities.

2. It sees customers as practically the only focus of attention, but without stressing their key role as choosers.

This last view is of course the extreme, but not uncommon marketing view: more balanced writers and practitioners of marketing do not fall into either of these traps. However, marketing must always fall short of total business strategy as long as it fails to provide a complete guide to sustained value creation. Our task in this book is just that.

There is another important difference. Strategy is usually, but not here, tackled as though the business world consisted entirely of multi-unit companies, too complex for the head office or CEO to have intimate knowledge of the customers and markets served. Small and simple businesses are tacitly assumed to face the same strategic issues as large and complex ones. In complex companies that intimate knowledge of customers and markets resides in middle managers, who do not have the power to make the ultimate decisions about resource allocations or the company’s activities. Knowledge of markets and top direction are in separate hands.

Such complex businesses are not, however, the only kind of business. There exists a multitude of mainly small businesses, where a single entrepreneur operates in customer markets and in the internal resources and logistics that serve those markets. One person has both tasks. We call them ‘simple’ companies.

In this book we tackle the strategic task faced by any company with offerings. The additional difficulties of complex companies are of course addressed as extra issues. After all, not all companies can be simple. We do, however, stress the advantages of simplicity. There are those who passionately argue that ‘small is beautiful’.² We add that simple is beautiful, too.

In fact, the current fashion is to treat the topic of business strategy as mainly concerning the leadership and other qualities of the top managers, especially those in large and complex companies. That is a topic of critical importance. It is also validly treated as ‘strategy’, in the sense that it is what many people mean by that word. That, however, is not the original meaning of ‘strategy’, which is a metaphor taken from a military context. A brilliant general like Napoleon at Austerlitz prepares for a battle by disposing his forces so as to surprise the enemy and to exploit the weak points in the enemy’s deployment. It is those dispositions and plans, and not his leadership qualities, that represent the military usage of the word ‘strategy’. We are not using the word in that leadership sense.

Value is Created in Offerings

The purpose of business is to create financial value, that is to earn returns in excess of the cost of capital (see Chapter 2). A commercial business generates financial value in its customer markets. Hence those who run a company or a part of one should constantly be asking what it should be marketing to customers in the future, either along with present offerings or after those have reached their sell-by date.

The thing that is marketed to customers is an offering. That word includes both tangible ‘products’ and intangible ‘services’ and also the sales efforts and supporting activities that shape customer choice. We now apply the pattern in Figure 1.1 to each offering. Each new offering must create financial value for the company. To achieve that, it must meet two conditions as in Figure 1.2:

1. It must occupy a winning competitive position.

2. It must depend on one or more of the company’s very own winning resources.

We shall encounter Figure 1.2 again in Chapter 10, which discusses the scissors process.

Both these conditions must be met. They are firmly linked like the two blades of the pair of scissors in Figure 1.2. Much of the book will set out just what it takes to find a ‘winning’ competitive position or again a ‘winning’ resource. Both are rare and take some finding.

A manager who reads this may wonder why we ascribe winning characteristics to just two features: the competitive position and winning resources. What about all the things that managers worry about all day long: cost effectiveness, inventory control, the supply chain, employee relations, sales and distribution management, credit control, and all the other tasks of good management? Well, those topics concern day-to-day management, which includes the task of implementing strategies. This book is mainly about designing, selecting and planning a winning future offering. That strategic task is of course incomplete without the implementation process, and for that reason we discuss the implications of the offering-based approach for the task of implementation in Part 5. However, our central and pivotal strategic task is the identification and design of winning future offerings.

Figure 1.2 The scissors – the two conditions for value-adding offerings

In this book a single competitive strategy concerns the design of an individual future offering. The company therefore needs as many competitive strategies as it has offerings.

Most businesses have more than one offering, some have thousands. They must not only design individual new offerings, but also constantly monitor the composition of their list of offerings as a whole. They must ask which of them need to be removed from the list, and what new ones would add value. Part 4 deals with managing the totality of the company’s offerings. That task we call corporate strategy.

The book therefore asks, ‘what should be our future offerings?’ as its primary strategic question. We do not suggest that the answer is easy. However, the book is dedicated to it.

A Significant Question

We therefore hope to help our reader to make decisions about offerings to add or divest. Our company competes for customers with its offerings. No offering has an infinite life. Hence if we wish to stay in business, we must keep developing new future offerings.

Any decision to market a new offering is a strategic decision. It commits us to an objective, and to a way to attain it. It chooses a market to contest, for what customers and against what competitors. It updates or redefines our future place or places in the world of business. Each such decision also closes some alternative options.

Why This Decision?

There are many other strategic decisions, such as what business we are in, what facilities we need, or how we should structure our company for dealing with customers and other outside parties. However, decisions about offerings to add or divest are second to none of them in importance. These other questions face inwards at our own organization. Our question in this book is about our future place in our environment, in our markets.

At the same time, even if the other decisions are no more important than ours, they too are nevertheless important and strategic. Any decision is strategic if the answer to it commits our whole company to move in certain directions, and closes some options to move in other directions.

Non-strategic Questions and Answers

These reflections are not startling, but managers have been known to use the big word ‘strategy’ for some smaller decisions. There was the managing director of a medium-sized company who said his strategy was ‘to move the factory’ to a location some 10 miles from the current one. One hears of ‘strategies’ designed to save tax, perhaps by changing the group of companies’ legal structure. Such decisions do not in their own right change the business of the company. They are important, but not direction changing. We shall not call them strategic, nor do we see that usage as helpful.

Again, we prefer not to treat as strategic any decisions that would not face a simple or small business. A shoe repairer – a sole trader in more than one sense – is not concerned with how much responsibility should be delegated to subsidiary companies, divisions or profit centres. Shoe repairers have no such sub-units, only customers and suppliers. They too, however, must identify their markets, that is their customers and competitors. For example, should they repair orthopaedic footwear, a task needing more skill and time? Our concept of strategy applies to any size of business, however small.

There are also some gimmick uses of the word ‘strategy’ which express passing fads and fashions. As Nigel Piercy puts it in his book Market-led Strategic Change, strategy is about:³

Breaking free from an obsession with management tools that are spectacular and seductive in improving operational efficiency, but are not strategy – such as total quality management, benchmarking, time-based competition, outsourcing, re-engineering, lean supply chain management, efficient consumer response, and so on – on the grounds that while operational effectiveness and strategy are both essential to superior performance, operational effectiveness does not substitute for strategic direction.

These nuts-and-bolts tasks fail to cover what customers might want to buy from us, rather than from our competitors, at profitable combinations of price and volume. Other so-cal...

Table of contents

• Cover Page
• Half Title page
• Title Page
• Copyright Page
• Contents
• Foreword
• Preface
• Executive summary: The framework outlined
• 1 Setting the Scene
• 2 How to Design a Winning Competitive Position
• 3 No Success Without Winning Resources
• 4 Corporate Strategy: Managing the Collection of Offerings
• 5 Organizing and Structuring for Offering-Centred Strategies
• 6 Final Reflections
• Index