Strategy Defined

Strategy can be fully defined as the intelligent allocation of limited resources through a unique system of activities to outperform the competition in serving customers. Resources include time, talent, and capital. To provide the opportunity to sustain success, it’s helpful to build strategy around multiple activities that either are different from the competition, or can be performed in different ways than the competition. For companies in mature markets, activities such as direct sales, manufacturing, and supply chain management are most likely similar across the industry. However, finding unique ways to perform these activities is where new value is created for customers. While digital networks for job searches have existed for quite some time, LinkedIn has been able to create a virtual professional network for job seekers and recruiters that has also transformed into a content hub. LinkedIn now receives content from 1.5 million publishers in order to provide new value for its nearly 250 million members.30 They’ve taken a common activity, supporting job searches, and built different ways of doing it, adding new layers of value for their customers.

The idea of uniqueness—performing different activities or performing similar activities differently than the competition—is at the core of strategy. Unfortunately, it’s easier said than done. A survey of more than 4,000 executives found that the number-one business challenge they faced was achieving competitive differentiation.31 It’s common for managers to look at their mature market and surrender to the notion that there are no differences between their offerings and those of the competition. They become resigned to battling it out with competitors on price, which rarely turns out well. A study of more than 25,000 companies found that the companies achieving the greatest return on assets (ROA) over an extended period of time employed differentiation rather than purely low prices. Researchers Michael Raynor and Mumtaz Ahmed summarized their findings by reporting: “Competitive positions built on greater differentiation through brand, style, or reliability are more likely to drive exceptional performance than positions built on lower prices.”32 Starbuck’s CEO Howard Schultz describes the differentiation challenge from his perspective: “Whether you are a high tech company or a coffee company, your responsibility has to be to constantly create the kind of excitement that provides differentiation and separation in the marketplace.”33 When we discuss competitive advantage in the “Compete” section, you will find additional insights into how to create differentiated value using practical tools to hone your thinking in this crucial area.

 
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