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Market type/category-driven strategy. Instead of limiting its business to a set of end users, market type/category-driven companies target specific markets. American Hospital Supply makes everything for one market: hospitals.
Production capacity/capability-driven strategy. A production capacity/capability-driven company focuses its strategy on its production facilities. The production capacity strategy aims at keeping production going at full steam. Printers, for example, accept any job the presses can handle. Production capability-driven companies, such as specialty printers, exploit the special capabilities of their production facilities.
Technology/know-how-driven strategy. Technology/know-how-driven companies get their edge from a distinctive technology. DuPont makes nylon stockings, carpets, shoes, threads, and fishing lines-different markets, different customers, but one technology.
Sales/marketing method-driven strategy. Sales/marketing method-driven companies have unique ways of getting orders from customers. Companies such as Avon, Mary Kay, and Tupperware, for example focus only on products that can be sold door-to-door.
Distribution method-driven strategy. Distribution method-driven companies have a unique way of getting their products to their customers. Telephone companies sell products that use their wires, switches, and wall outlets.
Natural resource-driven strategy. Natural resource-driven companies build their businesses around access to natural resources. Oil and mining companies are examples.
Size-growth-driven strategy. Companies following this strategy are interested in growth for growth’s sake. Gulf & Western followed this strategy in the 1960s and 1970s.
Return/profit-driven strategy. Return/profit-driven companies have only one criterion for entering a market or developing a product: profit. ITT, under Harold Geneen, acquired two hundred and seventy-five unrelated businesses simply to keep quarterly earnings increasing steadily.
Making the Choice
Identifying your company’s driving force is only a first step in strategic thinking. The next question is whether to change the driving force. Is this the driving force that will keep giving the company its competitive edge in the future? Or should your company change to a different driving force?
The decision must be unanimous if you and your management team want to make consistent, intelligent decisions on the allocation of resources and the choices of future products, customers, and markets.
Draft a Concise Business Concept
Once you have chosen a strategy based on your choice of driving force, communicate that strategy through a concise business concept.
A business concept is a short statement that explains in more detail what strategy the company is following. Without getting specific, the business concept addresses the types of specific products, customers, market segments, and geographic markets to which the strategy lends itself.
It is thus used as a strategic filter for decisions abouth these four issues.
Strategic Filter
Consider the sample business concept below. Although it sounds technical, this business concept can be used to filter business opportunities by setting up basic questions. In this case, the questions would include the following:
- Does the opportunity leverage and/or enhance the company’s multi-purpose, continuous process capability to combine metals and polymers?
- Does the opportunity provide an ability to respond with differentiated products that add value?
- Does the opportunity bring cost advantages, performance advantages, or quality advantages?
A Sample Business Concept
"Our strategy is to leverage our multipurpose, continuous process capability to combine metals and polymers to produce and market multilayered structures.
"We will proactively seek out applications where we can respond with differentiated products that add value, are tailored to the specific needs of customers and end users, and bring cost, performance, and/or quality competitive advantages.
"We will concentrate in growth-oriented industry segments in which we can be a leader and in geographic markets where there are multiple applications available to us."
The Content
To be an effective strategic filter, your business concept must begin by clearly defining in the very first sentence the driving force of your organization.
The driving force must be specific. If you are following a product-driven strategy, the first sentence must identify which product is driving your strategy.
For technology-driven companies, specify which technology is the driver. The business concept below identifies production capability as the driving force, specifically, the capability to combine metals and polymers.
The second part of the statement should contain words that clearly place the line of demarcation between the nature of products, customers, market segments, and geographic markets that the driving force lends itself to and those to which it does not.
The business concept below calls for products tailored to the specific needs of customers, market segments that are growth-oriented and in which the company can be a leader, and geographic markets where the company’s process capability can be applied in multiple ways.
Two Tips
Your business concept should have a tone of growth and success to it since any sound strategy should result in both. State how you intend to use your technology, for example, to create unique, successful products.
Finally, the statement must give employees a sense of what the company will be in the future, not only what is today.
Identify and Nurture Areas of Excellence
Once you have written your business concept, your next decision is to identify the two or three skills that are critical to the success of the strategy. These skills are called areas of excellence.
An area of excellence is something that a company does better than anything else it does--and better than anything the competition does. Identify and nurture these areas of excellence, give them more resources than other areas of your business, so that you keep doing them better than the competition.
Matched to Driving Forces
The areas of excellence you must cultivate vary depending on which of the strategies and driving forces you pursue.
The key resources factor for a product-driven company, for example, is the quality of its products. Therefore, it must excel at product development in order to improve current products and develop new ones.
Japanese car manufacturers, known in the past for shoddy products, focused on product development and were eventually able to develop cars that conquered the once impenetrable U.S. market.
Excellent sales and service skills are also important. Product-driven companies must convince more and more customers to buy their products. IBM invests more resources into its service function than any of its competitors. It thus responds to customers quicker and creates products that fail less frequently. This reputation for service helps IBM sell more of its products to more people.
User-Driven Companies
User/customer class-driven companies and market type/category-driven companies have similar driving forces. All products must serve the needs of a targeted class of either users, such as doctors, or market segments, such as hospitals. As a result, the areas of excellence for these two types of driving forces are also similar.
First, success depends on knowing the target users or markets better than any competitor. Thus, market or user research is one area of excellence. Procter & Gamble interviews consumers, particularly home-makers, over two million times per year to anticipate trends that could be converted to product opportunities.
Another important area of excellence is customer loyalty. Since a customer-driven or market-driven company targets one specific class of users or market segment, it develops closer relationships with its customers. These relationships build customer loyalty to the company’s brand or products.
Preferential Resources
Understanding the areas of excellence linked to your driving force is vital when deciding where to allocate your resources. These areas of excellence must always receive preferential treatment, even in bad times when resources are scarce.
When former 3M CEO Alan Jacobsen wanted to increase profits, he asked all his division heads to cut expenses by 35 percent.
At the same time, however, Jacobsen recognized that research was a required area of excellence for technology-driven companies such as 3M. He thus increased R&D expenditures significantly.
Find Critical Issues and Set Action Plans
Formulating a strategy is one thing, implement-ing it, another.
Every strategy, especially one that changes the direction of the company, has implications on your company’s products, markets, customers, organizational structure, personnel, and culture. If you fail to think through and address these implications, your strategy may never evolve beyond wishful thinking.
Four Areas
Managing the journey from your company’s current profile to its future strategic profile requires addressing critical issues in four areas.
Structure. Different driving forces require different structures. Product-driven companies, for example, might have different business units for each product type. Technology-driven companies would establish business units dedicated to different applications of the technology.
Processes/Systems. The next set of critical issues revolves around the subject of "systems." All information systems, for example, must be aligned with the strategy.
Skills/Competencies. A new direction frequently requires new skills. You can develop these in-house or acquire them from outside.
Compensation. People do what they are paid to do, not what you want them to do. Make sure your compensation system rewards them for achieving, not ignoring or undermining, the strategy.
Once you’ve identified the critical issues, assign teams to develop and implement solutions in each of these areas. The ongoing management and resolution of these issues will make the strategic vision a reality.
Operational and Strategic Plans
In addition to addressing the critical issues discussed above, you need to make some operational and strategic decisions about products, customers, and markets based on the strategic profile you’ve chosen.
Operationally, you must examine your company’s current activities and decide, based on your chosen strategic profile, which of your current products, customers, and markets you want to improve, modify, or eliminate. You must also develop a strategic plan to identify the new products, customers, and markets that fit the future strategic profile.
One final step: budgeting. Allocate enough resources to all plans to make them viable.
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