Given a task to do, one that seems impossible, given the desire to do it, humans can accomplish almost anything.Jim Lovell
The essence of strategy is choosing what not to do
– Michael Porter
One of the many challenges facing young businesses is the effective decision making around pursuing freshly discovered opportunities given the company’s founding vision. In an attempt to diversify away from risk, aggressive opportunity grabbing often times leads to a distraction from founding objectives. What is needed is the formulation of a business strategy leaders can use to set direction and prevent distraction from valid but unsuited opportunities at hand.
A strategy is the mechanism and framing tool through which a company can use to outline a plan to achieve the decided objectives. A defined strategy makes it efficient to communicate to the wider company and shareholders. Put plainly, a defined strategy helps decision makers turn down opportunities that would distract the business and pursue matching opportunities with precision.
One framework that can be utilized to find an appropriate strategy is the “Grand Strategy Matrix”. This tool maps a company’s position on the intersection of market growth and competitive positioning and proposes a number of strategies that best suit that position. The first step is to gain consensus on the company’s position within the market. Many tools exist however SWOT analysis when responsibly engaged, provide a solid basis for the entry into a strategy finding activity.
The most efficient mechanism to gain qualified information as an input into the Grand Strategy Matrix is to perform an internal and external audit. The internal audit will reveal the top 5 key internal strengths and weaknesses that rest under the control of the company. Equally, the external will should reveal a top 5 opportunities and strengths within the market the company operates in. The underlying outcome is a good understanding of the market, its growth, and the businesses position within that market.
2. Map the company position on the matrix
Once a context is created through the SWOT analysis the Grand Strategy Matrix provides the framework to plot the business across the axis of Market Growth and Competitive position. The result will put the business in one of four quadrants representing a set of strategies most appropriate for the company positioning.
In a previous post I outline each strategy more detail
Quad 1: Intensive set of strategies
Businesses positioned in a strong competitive position and strong market growth quadrant are positioned to further maximize gains by intensifying their market position in the growing market. As the pie grows these businesses seek a bigger portion of it. The following strategies are best suited such an objective:
- Market development;
- Product development or;
- Market penetration.
Quad 2: Diversification set of strategies
Driven by weak market growth but strong competitive position these set of strategies seek to increase overall market share through expanded product/service offerings
The strategies involved in reaching the growth objectives are:
- Concentric diversification;
- Horizontal diversification or;
- Conglomerate diversification.
Quad 3: Defensive set of strategies
Cost cutting and competition repelling strategies are needed when the business is situated within the defensive quadrant. The following strategies apply:
- Retrenchment or;
Quad 4: Integration set of strategies
Integration strategies seek to increase margin within a growing market by reducing the transaction cost in delivering a product/service to the customer. The following strategies apply:
- Forward integration;
- Backward integration or;
- Horizontal integration.
The framework allows companies to filter opportunities through an accurate business strategy. When using the Grand Strategy Matrix company leaders are able to select a strategy based on company position within a dynamic market. The result is a reduced waste, increased efficiency, and tighter company alignment.
One indicator of a healthy business is the sense of direction the business if pursuing as felt by all those emotionally or financially invested in the business, from shareholder to employee. An official direction not only unifies the company, but it also helps leaders filter opportunities to those most appropriate. A company direction starts with the setting of objectives in alignment with the vision of the company. The road to reaching those objectives is paved through the business strategy.
This post serves as a list of business strategies listed in groups. Later posts about strategy formulation will reference the options listed below.
Intensive Set of Strategies
Implementors of a Market Development strategy seek new customers within their existing markets. Practically, new customers are found via expanding the company’s reach or targeting new segments within the same market.
Market Penetration strategy attempts to gain greater market share through the selling of the product/service deeper into the existing targeted market segments. Businesses implementing a market penetration strategy hold a competitive advantage and attempt to drive out competition through unique positioning.
A Product Development strategy attempts to meet a validated need within the existing market. The fulfillment of the need is met via upgrade existing products or the creation of completely new products.
Integration Set of Strategies
Company’s seeking to maximize profits, increase market share and take control of downstream distribution utilize a forward integration strategy through the removal of intermediary layers between the business and the customer/client.
Company’s seeking to reduce overall cost and take control of upstream producers/suppliers of products/services employ a backward integration strategy. The move entrenches the company within the market through increasing barriers to entry.
Horizontal integration is a mechanism for increasing market share and reducing competition through the acquisition of businesses on the same competitive level.
Diversification Set of Strategies
Concentric (related) diversification
Concentric diversification attempts to drive growth through the adding of new but associated products/services on top of a business existing product/service offering.
Horizontal (related) diversification
A horizontally diverse strategy adds products/services that are unrelated to the existing array of products or services but still targets the same target market.
Conglomerate (unrelated) diversification
Businesses implementing a conglomerate strategy add products/service that are significantly different from the current business offering.
Defensive Set of Strategies
Businesses under threat seek to fight off direct competitors through the implementation of a defensive strategy. Businesses entrench themselves by blocking competitors using price cutting, discounts, incentive, and strong marketing drives.
Retrenchment strategies attempt to bring financial stability to the business through aggressive cost-cutting measures.
A liquidation strategy is a final resort and involves the operational shutdown and selling of company assets.