6 Steps To Laying Out Your Competitive Strategy

6 Steps To Laying Out Your Competitive Strategy

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Why do so many companies languish and watch as their business turns into a zero profit zone, while others seem to thrive?” />

6 Steps To Laying Out Your Competitive Strategy

Why do so many companies languish and watch as their business turns into a zero profit zone, while others seem to thrive?

When you look at your business, whether it’s a new venture or a company with a long history, can you answer the following questions?

  • What does my company do better than anyone else?
  • What unique value do I provide to my customers?
  • How will I increase that value next year?

Companies that fail to answer these questions, and don’t believe they are of paramount importance, relegate themselves to marginal profitability at best and failure at worst. But companies that can answer these questions are able to raise the value bar for their customers and reap the benefits of success.

Of course, being able to answer 3 simple questions does not ensure success, but it is an important step in creating a strategic and focused operation which leads to a successful business. With today’s business environment being so competitive, businesses need to re-invent the rules on which they compete in order to be successful. Companies like Wal-Mart have figured this out and have redefined competition in their market by delivering a unique value to a selected customer group. By maintaining a focus and discipline, they make it difficult for other companies to compete under old competitive terms.

Simply, competitive strategy has never been more important to success in today’s business environment. It does not matter what type of business you are in or whether you are small, big or just starting out, a company can not survive without an adequate and focused strategic plan to best the competition. Yet many companies fail to execute a successful strategy; it is these companies that languish in the zero profit zone.

In simple terms, for a company to achieve success and enter the profit zone it must first decide where it will stake its claim in the marketplace and what kind of value it will offer its customers. A company needs a clear marketing thrust, a precise knowledge of its customer base, and a product or service with a niche or some competitive advantage to be successful. Unfortunately, many entrepreneurs and business owners get stuck in the process of defining their competitive strategy. They often have the idea and the product, but being the technician they are not sure how to define its market. Even worse, many entrepreneurs assume or guess their target market and often glaze over a competitive strategy, usually to the detriment of the business.

So what are the steps to laying out a competitive business strategy? While there are different methods you can follow, I have laid a series of 6 basic steps to help you.

1. Financial perspective

This step may not seem to have much to do with strategy, but it is important to determine the value of success quickly. Why? Because, in simple terms if the venture can’t deliver significant returns, it may not be worth the risk, and you have to ask yourself if it is worth continuing with your business. In this scenario you complete a reverse income statement. You start by defining how much profit you want to see at the end of a certain time period, and then determine the amount of revenues needed to generate that profit and the costs to deliver that profit. Do the numbers add up and make sense? The goal here is to be objective, if the expected revenue is not sufficient to generate your required profit at the end based on an estimate of costs, don’t simply fudge the numbers and assume you can reduce costs or increase revenue. Be diligent in your assessment.

2. Understand the industry and competition

In step 2 you are going to assess your industry and the competition. This basically comes down to assessing 5 factors:

  1. Understanding who your competition is including factors such as competitor strengths and weaknesses, market position, pricing, new product development, advertising, marketing and branding. You should determine how you compare to your competitors.
  2. Assessing the threat of new entrants into the industry (which may include you) and any potential reactions from existing companies. There are basically 6 barriers to entry you can evaluate: economies of scale, product differentiation, capital requirements, cost disadvantages, access to distribution channels, government policy.
  3. Assessing the threat of substitute products (existing or future) that can place a ceiling on pricing.
  4. Assessing the bargaining power of suppliers who can increase prices, lower the quality of products or limit the quantity of supplies one can purchase. This all has an impact on profitability.
  5. Assessing the bargaining power of customers who can force down prices or demand better quality, more services and play you off versus a competitor.

3. Understand the Customer Perspective

In step 3 you assess your customer. This is a key step, get it wrong and you may not be able to recover. In fact, the customer value proposition and how it translates into growth and profitability for the company is the foundation of strategy.

Start by asking your self a couple basic questions: To achieve my vision, how must my customers look? Who are the target customers that will generate growth and a profitable mix of products/services?

Next, ask yourself what is the value proposition which defines how the company differentiates itself to attract, retain and deepen relationships with the targeted customers? There are basically 3 value propositions or disciplines that you can choose from:

  1. Cost leadership In this discipline you choose to provide the best price with the least inconvenience to your customers.
  2. Product leadership In this discipline you offer products that push the performance boundary (i.e. newer and better than competitors).
  3. Best total solution In this discipline you deliver what the customer wants, cultivate relationships and satisfy unique needs. In this case, you may not be the cheapest or the newest, but the total package you deliver to the customer cannot be matched.

In order to help you determine which of these value propositions you decide on, you may want to work through a value chain: 1. Determine your customer priorities 2. Determine the channels needed to satisfy those priorities 3. Determine the offering (products) that are best suited to flow through those channels 4. Determine the inputs (materials/knowledge etc) required to create the product 5. Determine the assets/core competencies essential to the inputs (ask yourself, in order to satisfy my customer at which processes must I excel? For example, product design, brand and market development, sales, service and operations and/or logistics).

4. Finish the business model

The business model shows how all the elements and activities of a business work together as a whole by outlining how the business generates revenue, how cash flows through the business and how the product flows through the business. By this time, you should understand the revenue capability of the business, how the industry works and your competition, who you customer is, what you are going to offer them and how you are going to offer it. By drawing a flow chart that shows how these activities are linked together you will understand how the business activities flow to generate projected profit, which you determined in step 1. This is also a good step to see if something is missing in your analysis.

5. Construct the business plan

By the time you get to this step most of your work is done. If you are looking for financing, a formalized plan will have to be completed. If you do not need financing, simply make sure the preceding tasks are documented so that they can be reviewed and changed as time progresses (strategy is an ongoing process, not a one time task).

6. Learning and growth perspective

In this last step, you ask yourself how/where the organization must learn and improve in order to become and remain successful. For example, determine the skills, capabilities and knowledge of employees needed, the technology needed and the climate and culture in which they work.

About The Author

You have permission to publish this article electronically or in print, free of charge, as long as the bylines are included. A courtesy copy of your publication would be appreciated. Send to:jeff@companyworkshop.com

article source: adzines.com

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About Granger Whitelaw

Granger Whitelaw founded the Rocket Racing League along with partner, Peter Diamandis in 2005. See more information at http://www.grangerwhitelaw.com/blog and http://grangerwhitelaw.brandyourself.com View all posts by Granger Whitelaw

19 responses to “6 Steps To Laying Out Your Competitive Strategy

  • Gen

    I like your three steps and I think it is helpful and it is so nice of you pointing that of course, being able to answer 3 simple questions does not ensure success, but it is an important step in creating a strategic and focused operation which leads to a successful business. I mean it is nice because you really put yourself on any angle, I mean you support every angle that your listeners might look at to.

  • Juana Belle

    I think making this one, the assessing the bargaining power of suppliers who can increase prices, lower the quality of products or limit the quantity of supplies one can purchase, will worth the risk and in every business it is not possible to have a zero risk since business is a game and you should always risk and always involve many risky things. I think I will really wrote some ideas out from this article and thank you so much for this.

  • Jun Polaris

    I searched on the internet and find about competitive strategy and I found out that the term competitive advantage is the ability gained through attributes and resources to perform at a higher level than others in the same industry or market (Christensen and Fahey 1984, Kay 1994, Porter 1980 cited by Chacarbaghi and Lynch 1999, p. 45). Competitive strategy is best when have competitive advantage.

  • Artro

    Truly correct “don’t simply fudge the numbers and assume you can reduce costs or increase revenue. Be diligent in your assessment”, let us not assume directly let us take time to analyze what is really happening and if we really are having an increase of revenue. Of course our target is to have profit and that is good profit, we should always be careful in what we do or what we assume because it can affect the business and also the logical and reasonable profit that you will have. It is really complicated to set things in a not so positive thinking way but we must do it because that is also giving us reason not to lower our guard down on those things that might give bad things in our business.

  • Yellow

    Long-term action plan that is devised to help a company gain a competitive advantage over its rival. This rival of strategy is often used in advertising campaigns by somehow discrediting the competition’s product or service. Competitive strategies are essential to companies competing in markets that are heavily saturated with alternatives for consumers.

  • Grenx

    Almost all of the people in the world are competitive and being competitive is good in my opinion and in my point of view since competitiveness pertains to the ability and performance of a firm, sub-sector or country to sell and supply goods and services in a given market, in relation to the ability and performance of other firms, sub-sectors or countries in the same market. Many of my classmates are competitive also and they really do their job to make it to the top and they are always aiming for a first award.

  • Peter

    Strategy is also about attaining and maintaining a position of advantage over adversaries through the successive exploitation of known or emergent possibilities rather than committing to any specific fixed plan designed at the outset. Henry Mintzberg from McGill University defined strategy as “a pattern in a stream of decisions” to contrast with a view of strategy as planning while Max McKeown (2011) argues that “strategy is about shaping the future” and is the human attempt to get to “desirable ends with available means”. It depends on us on how we plan our strategy and it is up to us on how we handle it.

  • Harman Sure

    I think that’s a cool way to win audiences and costumers for our business. In any path that we choose we should always be careful and always prepare backup plans because we can’t predict perfectly what will happen next. Many have experience this kind of stuff happening in their business and they are saying that it’s not easy to handle changes in company and it is the very hard thing to adopt and adjust in business field.

  • peach

    Competitive advantage examines the economics of a firm’s business focusing primarily it ability to generate excess returns on capital and links the business strategy with fundamental finance and capital markets, for a larger period of time.

  • Claudia

    This is literally helpful “Understanding who your competition is including factors such as competitor strengths and weaknesses, market position, pricing”, not only in business but also to some aspects of life, this is undoubtedly helpful. To know what is the weakness of your competitor is quite very hard thing to do but if you will have the information on its weakness you are lucky.

  • Che Che

    Thanks to your article, I learned many things about business; it’s nice to read topics that are informative as this one. Soon, after my high school I’m planning to take Business Administration, I love reading information more on business, so I thank you for imputing something in my brain. More powers!

  • Ludy

    I agree that Financial Perspective should be the first one not only to this “This step may not seem to have much to do with strategy, but it is important to determine the value of success quickly”, but also because you have to first have and compute your capital and also your target profit. In business the main point for making it is the profit and it is really obvious and self explanatory but the only problem on that is how to have that targeted profit or even just profit, when you have many competitors aiming also for profit and that’s where the challenging part of having a business comes in.

  • R. Jeffus

    This article will sure help everyone who aspire to have business and those students who are taking business related courses today and in the future. Also, this will enlighten the mind of those who are currently in business. Thank you for this post.

  • Raly

    This encourages the audiences that read the whole article “Simply, competitive strategy has never been more important to success in today’s business environment”, you have a big point here. It is very handy sometimes if you are very competitive and I always believe that competitive people are smart and I think it is true because most of the top students in school are those competitive students.

  • Winnie

    Over the years, many great challenger brands (Avis, Pepsi, VW, Dockers, Virgin Atlantic) have taken on the big brand leaders (Hertz, Coke, Ford, Haggar, British Airways) and they have all been very, very successful with this strategy. The reason for their success is clear. Even if the challenger brand doesn’t have the money or power to go head to head in an ad campaign for a long period of time, it does have the ability to start a fight. And when the big brand accepts the challenge, the strategy pays off, big time.

  • Jake

    I would like to agree with you and also to one of the comments out there on this “To achieve my vision, how must my customers look? Who are the target customers that will generate growth and a profitable mix of products/services?”, you have to always ask yourself these questions and you have to feel also what your costumers might feel with your products and service. Strategy is really important and strategy is a necessary to achieve such great target. I find this website helpful and I hope many will read this one and I would like to say it is nice to have read this blog. Thanks, Jake.

  • Roxanne

    To have a strategy is to have an advantage and the study of such advantage has attracted profound research interest due to contemporary issues regarding superior performance levels of firms in the present competitive market conditions. It is really helpful if we have a strategy so that we will have an advantage and we know that it is easier to win and we have the higher chance on winning if we have an advantage. Your strategy is good and many will have an advantage now if they have read this article and because of that it is hard now to compete in the market ha ha ha I’m just kidding.

  • Shejen

    Such very inspiring words ” It does not matter what type of business you are in or whether you are small, big or just starting out, a company can not survive without an adequate and focused strategic plan “, strategy is of course your weapon in making a successful business in any type of business you have. I tried also putting some strategies in my small business and right now it is still an experiment because I can’t still see the improvement.

  • Bryan Green

    I will keep this in mind “By drawing a flow chart that shows how these activities are linked together you will understand how the business activities flow to generate projected profit”, strategy is of course your main thing and you have here lots of strategies which I really appreciated because of your detailed and simple explanation. Recording your movements and actions into your company and then recording its results will help you understand more things and more actions that you should act on your company.

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