Strategy is at the heart of leadership and management, but it is an area that is often misunderstood. There are many traps which managers fall into time and again.
Some of these traps are highlighted by Joan Margretta, writing for the HBR.org Blog Network. She claims studying the work of strategy expert Michael Porter has given her a new understanding of the most common errors that can derail a firm's strategy.
These mistakes, she says, can be costly, and "getting smarter about how competition works and what strategy is will save you from making them". They are as follows:
1) Confusing marketing with strategy. Magretta points out that a value proposition is not the same thing as strategy. She insists that a robust strategy requires a "tailored value chain, a unique configuration of activities that best delivers that kind of value".
"This element of strategy," says Magretta, "is not at all intuitive, but it's absolutely essential. If you perform the same activities as everyone else, in the same ways, how can you expect to achieve better performance? To establish a competitive advantage, a company must deliver its distinctive value through a distinctive value chain. It must perform different activities than rivals or perform similar activities in different ways."
2) Confusing competitive advantage with 'what you're good at'. When it comes to strategy, companies can be too inward-looking and overestimate their strengths as a result. You might perceive an area of your business to be strong, and therefore believe it to be a strength to build upon.
However, Magretta insists that a strength for strategy purposes is something your company can do better than any of your competition – "and 'better' because you are choosing to meet different needs and performing different activities than they perform, because you've chosen a different configuration for your value chain than they have".
3) Pursuing size above all else, because if you're the biggest, you'll be more profitable. There is no evidence that industry leaders are the most profitable or successful companies, says Magretta. Being "big enough" often beats being "biggest", and "big enough" can mean just 10% of the market.
4) Thinking that 'growth' or 'reaching $1bn in revenue' is a strategy. "Don't confuse strategy with actions (grow, acquire, divest, etc.) or with goals (reach X billion in sales, Y share of market)," says Magretta. Porter’s definition of strategy is: the set of integrated choices that define how you will achieve superior performance in the face of competition.
5) Focusing on high-growth markets, because that's where the money is. Growth doesn't necessarily mean the industry will be profitable – it could give suppliers the advantage and drive up costs, or attract greater competition.
According to Porter, the untested assumption that a fast-growing industry is a good one often leaders to poor strategy decisions.
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