StrategyBest.com - Your Firm’s Competitive Strategy: The Cornerstone for Firm Valuation
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Your Firm’s Competitive Strategy: The Cornerstone for Firm Valuation

This article is the second in a series on what causes a firm’s value to increase.

An organization’s competitive strategy is not just a description of its current products and services . Your current offerings help describe your current identity, but I hope to convince you that something much more is needed to describe your competitive strategy. Why is this important? A robust competitive strategy is the foundation point from which to grow the value of your firm, which is the central issue in this series of articles.

If you had to describe your organization’s competitive strategy to a potential investor or a prospective new board member, what would you say? If I asked a sample of the people in your organization what its strategy is, what would they say and would the answers all be the same?

Believe it or not, for many established organizations describing their competitive strategy succinctly and uniformly by their people is not easy at all.

A great start to having everyone in your organization understand and uniformly describe its competitive strategy is to answer the following seven questions. These answers become your “strategy framework” for a more succinct strategy statement.

  1. Why do customers allow us to exist and would they miss us if we were gone?

Many studies show the answer lies not in your current products and services but your promise to continue to serve them into the future. In today’s world this usually means a continual updating or even a complete change of current offerings. Whirlpool and Best Buy are hard at work to perfect this.

2. If we were not already in this business, how would we enter it today?

New ways to solve customers’ requirements are springing up all the time in many industries and this question forces a firm to be aware of new business models that could cause severe headaches. Look at Netflix destroying Blockbuster.

3. What are our customers’ real pain points for which they have a real willingness to pay?

Customer needs and wants are important. But knowing customer needs or wants is not the same thing as a deep understanding of what causes them pain. Pain points cause an active search for a solution; needs may not. A creative way to look at this is that customers have a painful ‘job-to-be-done’ that they do not want to solve themselves. This causes them to search for a solution from a vendor - and with money ready to buy. The medical device company Medtronic has honed this skill to an art form.

4. Who do we want to serve and not serve?

You want to serve customers who do know or can come to know that your offerings are very special or even unique and of superior value compared to competitors’ offerings. Many studies are showing also that you want to serve customers who genuinely “like” your brand and firm and who will be loyal to it. Harley-Davidson has perfected this.

5. What are our costs of delivering our solution for our customers’ ‘job-to-be-done’?

Some firms can deliver the same solution at much lower costs. What causes this? There are few firms better at being the low cost provider than Wal-Mart.

6. What are our costs compared to our customers’ willingness to pay?

Lowest cost to deliver and higher customer willingness to pay is a formula for very nice financial returns and firm valuation. Apple has gotten this to a science. Apple’s valuation is now greater than Exxon’s.

7. How do we know we are winning?

How do you really know you are being rewarded for great answers to the first six questions? Purely financial measures can be misleading in this regard. General Electric is using what is called a Net Promoter Score to score how many customers are Promoters and how many are Detractors. Trends in these percentages often are lead indicators of eventual financial measures.

I hope you are convinced that describing your organization’s strategy as its current products and services can be a huge trap. It can trick the company into staying in the present. It also can blind the firm that completely different business models can come to serve the same ‘job-to-be-done’ – and sometimes completely disrupt you. Using the answers to these straightforward seven questions can help keep your company innovative, changing, vital and a wealth creator.

Here is a tip. Put these seven questions in a survey and take a sample from your organization. If there is a large variety of different ideas, get that group together to unify the responses to something you are proud of. Then communicate this to everyone in the company - repeatedly.

Next up: Innovation is on everyone’s agenda.

 

Bill Bigler is Director of MBA Programs and associate professor of strategy at LSU Shreveport. He spent twenty eight years in the strategy consulting industry before returning to academia full time at LSUS. He is on the board of directors of the Association for Strategic Planning, one of the leading professional associations in the field of strategy. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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