| Formulating a business strategy requires a lot of hard | | | | impact on the market that those trends will likely |
| work, and that hard work should pay off in results | | | | have. However, few companies truly understand, for |
| for the company. Once a company has started a | | | | example, the buying factors of customers in the |
| strategic process to formulate a business strategy, | | | | market, the differences in buying factors among the |
| the company must then strive to ensure that the | | | | various market segments, and the importance of |
| strategy will be effective. Obviously, there are no | | | | those buying factors to the customers. Detailed |
| guarantees. However, we believe that companies can | | | | market analysis can be difficult, but it must be done |
| improve their chances of creating an effective | | | | to support a comprehensive strategic process. |
| strategy by simply avoiding a few classic mistakes. | | | | Not enough is known about competition. Again, many |
| Below are a handful of the common mistakes my | | | | companies know their major competitors, their |
| firm has seen most often in the strategic processes | | | | product lines, their prices, promotions, etc. However, |
| of companies. | | | | not many companies understand, for example, the |
| Expectations are set too low. One misconception | | | | cost structure of their competitors and how it |
| about business strategy that my firm seems to | | | | compares to their own. Detailed knowledge of |
| encounter routinely is that business results will not be | | | | competitors is critical when trying to understand their |
| affected by business strategy until years in the | | | | business strategies and how those strategies fit with |
| future. Business strategy is viewed by many of our | | | | the buying factors within specific market segments. |
| clients as being a long-term endeavor. Of course, we | | | | Strategic market position cannot be truly |
| disagree. We believe that an effective business | | | | differentiated from competition. This is perhaps the |
| strategy that is properly implemented can begin to | | | | most common mistake that we see companies |
| have an impact on business results almost | | | | make. Many companies formulate their business |
| immediately. In fact, an effective business strategy | | | | strategy through their strategic process, and then |
| should be formulated with targeted business results in | | | | produce a strategy statement that makes everyone |
| mind, and the targeted business results should be | | | | feel comfortable. It is typically flexible, does not limit |
| stated against the market, not past company | | | | any future potential business opportunities, and |
| performance. For example, for companies that have | | | | unfortunately, makes them look very similar to every |
| shareholder value driven primarily by growth, we | | | | other company in the market. A strategy statement |
| typically advise them to target an annual growth rate | | | | that does not demand competitive differentiation is |
| of approximately two times the overall growth rate | | | | truly not a business strategy that can be sustained |
| of the market. For companies that have shareholder | | | | over the long term. |
| value driven primarily by profits, we typically advise | | | | Business strategy is not in synch with capabilities. To |
| them to target an operating margin of 3 to 5 | | | | be effective, a business strategy must leverage the |
| percentage points above that of their major | | | | strengths of a company, and fit well with the |
| competitors. Using these types of targeted results, | | | | company's internal capabilities and culture. If not, |
| viewed against the overall market, helps to ensure | | | | implementation of the strategy will be exceedingly |
| that a business strategy, once formulated, will not be | | | | difficult. |
| mundane. It will be formulated to achieve the desired | | | | Formulating an effective business strategy requires a |
| results. | | | | great deal of analysis, information, and deep thought, |
| Not enough is known about the market and the | | | | and in the end, there is no guarantee that the |
| segments within it. Oddly enough, we find that | | | | business strategy will be successful in the market. |
| companies do not know a great deal about the | | | | However, if companies set their strategic process to |
| market in which they do business. Most companies | | | | avoid at least a few of the classic mistakes that are |
| can approximate market shares of the major | | | | typically made, their chances of success will be |
| competitors in a market. Some companies can | | | | significantly improved. |
| identify current market trends and project the | | | | |