What Business Strategy is Not
Written by James Garvin for Gaebler Ventures
Finding a durable competitive advantage can be one of the most difficult challenges for any business; however many businesses often try to compete on strategies that in fact are not true business strategies. Understanding what factors are excluded from business strategy will help you and your business avoid these same traps.
There is an abundance of literature on business strategy, especially on analyzing competitive advantage through industry analysis popularized by Michael Porter.
However, there is less written about what business strategy is not. Many entrepreneurs go into their business have a clear and concise a business strategy (a good start), but uncovering the layers will show you that many of these strategies are not strategies at all. Profits attract competitors and as an entrepreneur looking to create sustainable profits, you need to ensure you have a sustainable business strategy that will not be replicated when competitors come directly after you.
Perhaps it would be helpful to have a standardized definition of what business strategy is. I define business strategy as a plan of actions that will lead to a profitable result that cannot be easily replicated by anyone. This means that your organization must generate the best possible end result than anyone else who attempts to replicate your results. For clarity, end results can occur via different processes and different routes by choosing to take a different set of actions. Ensuring that your end result is the best, must also mean by definition that you have chosen the best possible set of actions to execute and achieve your end results (also known as your value chain).
The number one mis-perceived business strategy is operational efficiency. Many companies (even public ones) fall into this "default" strategy saying they will compete by improving operational efficiency. Operational efficiency is shorthand for cutting costs and reducing operational expenditures, but it is not a business strategy.
Just look at General Motors, Chrysler, and Ford today. The only business strategy we hear from America's fallen automobile manufacturers, is improving operational efficiency and reducing costs. Each and every single one of them are following the same business strategy and by our definition of strategy above, does no count since this strategy can always be replicated by your competitors as we see in the automobile industry.
Another false business strategy is technology. Many entrepreneurs who secure patents for their technology think that they now have a sustainable competitive advantage because nobody can legally replicate their technology. This is the double-edged-sword of our technological revolution because our technology is so advanced that technology enables many to replicate the same set of actions that the patented technology enables through different mechanisms that do not infringe on the patented technology.
All industries suffer from the technology business strategy fallacy. Even pharmaceutical companies, who for a long time owned 100% of certain markets because they were first to patent a certain molecule, face stiff competition for various drugs and markets due to technological advances that allow other companies to develop drugs that treat the same disease through different mechanisms. Technologies are also becoming commoditized faster as companies are able to replicate new technologies with ease today. Remember, when Palm owned the PDA market? They are now a minority market player in the market they helped create because other companies used different technologies to develop PDA's, but had better business strategies to support their technology. Palm's patented technology was meaningless in their fall from the top of the market.
Business strategy is the single most important aspect for any company. A good strategy should support your technology, not depend on it. Business process innovation is a rapidly growing research field as many now realize that you cannot build a sustainable business by just having the best technology or the most efficient operations. A good business strategy has many components to it; however, knowing what does not constitute a good business strategy is a good place to start.
James Garvin began his education studying biotechnology. In recent years he has turned his interest in technology to helping two internet startup companies. The first business was an online personal financial network and the second was an e-marketing platform created to help entrepreneurs demo their web sites. Currently a student at University of California Davis, James is spending his summer incubating two new online businesses and writing about his entrepreneur experiences.
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