Last week saw us starting a three-part series on strategy. This week, we gear up to shout our second battle cry…the strategic choices.
So during the first part of strategy formulation, we focused on knowing ourselves, where we are at the moment (point A) and where we want to go in the end (point B). For the second part of strategy formulation, we’re going to look at how we’re going to find those links that will connect points A to B.
One big part of strategy formulation is that the company chooses the most appropriate courses of action to achieve its designed goals. As a company, we have to look at a few important aspects to determine how to make our strategy happen. These aspects are:
- how to compete
- direction of growth
- method of growth
Firstly, how to compete. A company needs to pursue competitive advantage. Competitive advantage gives a company the edge, finds out what makes its products and services special, then follow a plan to outperform its rivals.
For this analysis, we can use tools such as Porter’s Generic Strategies to help us. Porter’s generic strategies framework will assist in identifying whether our source of competitive advantage is through cost or differentiation, and whether our focus should be broad (industry-wide) or narrow (niche).
Once we’ve determined that we will offer our products and/or services at either the lowest price or by distinguishing benefits making it special, we are ready to forge our competitive advantage, but we need to direct this newfound strategy at something. Come forth our second aspect of strategy formulation, direction of growth.
For directions, a simple tool like Ansoff’s Matrix can do the trick. This matrix can show us the possible growth for our company. Depending whether the product is new or already exist in the market, and whether the target is a new or existing audience, a plan of action is postulated.
With Ansoff’s Matrix, the further out we go, meaning the newer the product/service and the newer the market, the riskier it is for the organisation.
Once the company has made its choices with regards its competitive advantage and the direction it wants to go, it now needs to know what method of growth to undertake.
Can the company grow internally or can it only do so through mergers, acquisitions and strategic alliances?
One big issue is whether the company has enough resources at its disposal to make the growth happen and make it successfully. Having the resources, like human capital, talent, tools and competences, will make it more likely to be an organic growth. But of course, the company is not limited to this. Strategic alliances can also be good for business.
In the context of our simple example of deciding to go to a friend’s house, making a strategic choice is like choosing to travel by car and pulling out a GPS to help us.
So again, off we go!