Generic strategies as a strategic impasse
Strategic theories’ mortal embrace
Strategy — map it out yourself
Strategic theories’ mortal embrace
“In such economic conditions, the best strategy is to capture market share,” a man in an expensive dark-blue suit says. “Yes, I agree,” — another man in a dark-grey suit adds, “And I would definitely think of an M&A strategy.” “But what about a cost leadership strategy?” — asks the third man in a suit of indefinite color. This conversation takes place in a company’s conference room as a part of a broad discussion about the company’s strategy organized by the founder. He invited several experts to this discussion, including me. And I believe that this kind of thinking and wording is very dangerous for any company.
Business first, theory second
We don’t know exactly when and where the first businesses appeared, but it certainly happened many years ago. Extensive and successful companies existed in the Venetian Republic, in Great Britain, in the USA, and in many other countries long before the fist book on business theory and strategy was published. Modern business strategy emerged as a field of study and practice in the 1960s when it started separating from a broad economic theory and became an independent scientific discipline. So, business theory is much younger than business practice.
And, as any scientific theory, strategy as a scholarship aims to study and explain the laws of a notion known as “business” with the so-called “scientific method.” According to one of the definitions, “the scientific method is the process of objectively establishing facts through testing and experimentation.”
So, if a scientist throws a stone up in the air, and it always falls back to the ground, and it happens across continents, in different conditions, and if the scientist conducted a substantial amount of experiments, she might affirm that she discovered a law (in reality, the law of gravitation was discovered by Isaac Newton). So, the researcher can’t claim that she “believes”, or “thinks” that the stone sooner or later will inevitably fall — she needs to prove it through experiments.
And it works perfectly when it comes to physical science. And it is not that simple when it applies to business.
Generic, or template-based strategies
Many attempts to discover strategic “laws” have been made, and some of them were converted into frameworks aiming to help business leaders make well-informed decisions. Among the most famous of them are:
1. Porter’s Generic Strategies
2. Ansoff Matrix
3. BCG Matrix
4. BCG’s Strategy Palette
5. Treacy & Wiersema Value Discipline Model
6. GE/McKinsey Matrix
7. BHAG model by Collins and Poras
8. McKinsey’s 7S model
9. Blue Ocean Strategy
and many others.
Most of them were formulated with the use of the scientific method. Simply put, it works like this:
1. A successful company uses this particular business practice. May it be relevant for all (or most) successful firms? This is a hypothesis.
2. A scientist studies as many successful companies as possible
3. If all of them (or at least most of them) use this practice, the hypothesis is checked
4. The scientist needs to prove somehow that there is a firm connection between the fact of using this practice and companies’ profits.
5. If the scientist manages to confirm that connection exists, a new business theory is ready to be published.
It is supposed that if other companies embrace this method, they will become lucrative too. But if it worked this way, all the businesses would have been successful. Something definitely goes wrong.
People such as Peter Drucker, Henry Mintzberg, Michael Porter, and many others are the best minds of their times. I learned a lot from their works, and I don’t call you to burn their books. Reading them is exceptionally useful — reading but not following their ideas too literally.
Generic strategy and Customers’ Needs and Values
I believe in a fundamental principle upon which any company works:
1. A company has customers
2. These customers have their Needs
3. The company fulfills those needs by creating Values for the clients
4. The company accumulates resources and employs business processes to maximise these Values (by the way, I use Porter’s brilliant Value Chain theory in my practice)
5. Strategy is an agreed concept on how the firm will reach its long-term goals by engaging and retaining new customers, creating unique values for them, and deploying resources efficiently.
As simple as that.
Strategy is the set of answers to some crucial strategic questions. I believe there are twenty-two of them, but this is my approach, and any other working method can be applied. After all, any “generic strategy” is about Needs and Values. Let’s consider Porter’s strategies:
Differentiation — this strategy aims at offering the mass customer a unique consumer value by means of a deep understanding of its needs, clear positioning (articulation of value), and other resources.
Market segmentation (or focus) implies offering a narrow group of clients with specific needs a unique set of consumer values.
Cost leadership means offering a specific group of consumers with an expressed need to buy at a low price, the appropriate value.
Business theories provide some convenient templates and frameworks that may help find answers to these questions. Or may not — I don’t use most of them, and I have helped many companies formulate successful strategies anyway.
Conclusion
The best scientists who worked and work in this field help us understand the basic principles upon which any organization works. The results of their work are invaluable, but we must not replace the concept with frameworks. We must not believe that there are market conditions in which a particular strategy is more appropriate than others (the idea proposed by, for instance, Strategy Palette).
Every market is unique, and every company is outstanding. And a company’s leaders may choose any strategy, but it will work only if it answers some essential questions:
1. What customers will we choose for our strategic development?
2. What needs do they have?
3. How will we satisfy these needs, and which values will we offer them?
4. What do we need to change in our assets, processes, and culture to implement this intention?
Strategy — map it out yourself!
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