September 12, 2016

What’s Your Strategy?

Strategy is recognizing how to use a lasting advantage over the competitors to create economic value.

The lasting advantage exists because competitors cannot easily overcome it or easily adopt it as their own. For the advantage to be valuable, it must result in greater economic profits to the firm and so the firm should be able to monetize the advantage in some form. The lasting advantage stems from a set of competencies and know-hows that are a characteristic of the company.

These characteristics take a number of different forms and result in the company’s ability to take customers away from its competitors. Some believe that there are only two key characteristics that result in a lasting advantage. First is a company that can be most efficient at what it does and produce and deliver goods and services at a lower cost than any of its competitors. This efficiency may be due to use of superior technology, or ability to turn raw materials into final products more cost-effectively, or possess deeper knowledge of how to build or deliver services more cheaply than anyone else.

The second characteristic is when a company creates a product or service that is significantly different from what its competitors have created in terms of ease of use or fit for purpose that causes customers to prefer it’s products or services over the other competitors’. This company can charge a higher price for its products and services and its customers are willing to pay for it because of the perceived advantage that they see in the product or service.

A company may also enjoy certain advantages in the marketplace that stops its contenders from easily gaining access to some key required ingredients necessary to succeed such as access to the right talent, access to the markets to sell the goods and services, access to input materials, etc. In this way, the competitors are kept from being able to compete effectually.

Strategy is sometimes confused with tactical activities that give the firm short term advantages yet can be easily copied and adopted by the competitors. These short term advantages are easy to imitate and lose their value once the competitors realize what the company is up to.

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