Harvard Business Essentials book about Strategy describe pretty well this concept: Strategy is a plan that aims to give the enterprise a competitive advantage over rivals through differentiation. Strategy is about understanding what you do, what you want to become, and focusing on how you plan to get there. Strategy creation is about doing the right things and implementation is about doing things right, a much different set of activities.
The strategy creation follows from the mission of the company, which defines its purpose and what it aims to do for customers and other stakeholders. Given the mission, senior management set goals – tangible manifestation of the organization’s mission that are used to measure progress. Goals and the strategy should be informed by a pragmatic understanding of both the external (business/market) and internal capabilities of the organization. What type of strategy should we pursue: There are four generic types from which to choose: low-cost, differentiation, customer relationship, and network effect.
Having a great strategy is only part of the challenge. Equal or greater attention must be given to implementation, the many measures that translate strategy into actions that produces results.
External and Internal analysis (SWOT Analysis)
What should we pay attention in the external analysis? David Aaker classifies the external analysis into four groups:
Customer analysis (segments, motivations and unmet needs)
Competitor analysis (identifying competitors, strengths and weaknesses)
Market analysis (real and potential market and submarket size, profitability, cost structure, distribution system, trends and developments, key success factors)
Environmental analysis (technological trends-inside and outside your market, governmental regulations, economics-price sensitivity, customer’s trends and uncertainties)
The Internal analysis should focus basically around three aspects:
Financial performance (sales, market share, cost structure and profitability)
Performance measurement (company’s culture, customer satisfaction/loyalty, brand perception, relative cost, technology, innovation, productivity, manager/employee capabilities and performance)
Strength and weaknesses of assets and competences (a strategic competency is what a business unit does exceptionally well; a strategic asset is a resource)
The outcome of the external analysis is to find opportunities and threats and the outcome for the internal analysis is to find strengths and weaknesses. You need to find an opportunity in the market to match your company’s strength and profit from this advantage. The key is to find a way in which you can be better than your competitors in today’s market and sustain this advantage in the long run.
All strategies are basically one the four strategies listed below or some form of combination of them:
1. Low cost. Usually a commodity is offer at the lowest price in the market.
2. Differentiation. This strategy is focus on differentiate your product from a commodity. The strategy makes sense when the differentiation matters to the costumers.
3. Customer Relationship. These strategy focus on the service part of the product (understanding that all product are in reality part goods plus service) creating a trusted relation with the customer, especially in areas where knowledge is a key ingredient of the product or service.
4. Network Effect Strategy. This is a new strategy based on building a network of users. I works well for companies in the on-line environment where the more users of the program or service make those products even more valued.
Strategy implementation it’s a topic that deserve a special consideration. Strategy without effective implementation is worthless. Most business people call “alignment “ the process in which structure, people, culture, leadership and incentives support strategic goals and make them happen.