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Strategy iQ

Which business strategy is right for your business?

Michael Porter has probably made the most influential contribution to business strategy (Competitive Strategy Free Press 1980). He proposed two basic strategies - cost leadership or differentiated value. Since then, he has built on and extended that thinking to five competitive forces. (What is Strategy? Harvard Business Review Nov-Dec 1996)

Michael Treacy (Customer Intimacy and other Value Disciplines Harvard Business Review Jan-Feb 1993) proposed three sources of competitive advantage - product leadership, operational excellence, and customer intimacy - and maintained that a successful business needed to focus and really excel in just one of these value discipline.

These are approaches to developing competitive advantage. But the current and future prospects for the industry in which you operate is also important. There is little value in achieving a great competitive position in an industry that is inherently unprofitable or dying.

The most appropriate strategy depends on which creates most shareholder value (which depends on future return on investment and rate of growth).

So the question is whether and how to invest, given expected future profitability and growth, and also market characteristics such as economies of scale, relative market share, technological opportunities etc.

The Strategy iQ iPad app been created that enables your management team to assess the drivers of profit and growth in your business and, based on that understanding, agree which of eight generic business strategies is appropriate for your business. (A combination of two or more might be indicated).

The eight generic strategies are:

  • Grow Share
  • Acquire
  • Merge or Joint Venture
  • Hold share
  • Niche
  • Reduce Investment or Milk
  • Sell
  • Close

The Strategy iQ app helps provide a disciplined process that will assist managers come to a shared understanding of what needs to be done, and a determination to do it!

It starts with an investigation of the business drivers of the current profitability of the business. This covers industry characteristics and the competitive position of this business.

Next it helps the team explore the likely future profitability of this business, examining possible changes in price sensitivity and the balance of power between customers and suppliers.

Finally it explores eight generic strategies: Grow Share, Acquire, Merge or Joint Venture, Hold share, Niche, Reduce Investment or Milk, Sell, Close.

The relevance of each strategy depends how it contributes to shareholder value (if expected profitability is greater than cost of capital then a growth strategy is indicated; conversely if future profitability is likely to be less than the cost of capital, then capital needs to be extracted).

But the relevance also depends on industry characteristics such as economies of scale and also on the business positioning such as market share, relative perceived value and under-exploited technological opportunities.

Click here for details of the Strategy iQ iPad app.

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