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SBU Competitive StrategyThe heart of any SBU plan must be a specific understanding of competitive advantage. As mentioned earlier, a business should choose which segments it plans to target, and which segments will be left for competitors. A firm can target many segments, or focus on just a few; and it can seek a cost advantage, or be unique in some way that customers will pay higher than average prices or purchase higher than average quantities. Michael Porter defines four fundamentally different generic strategies facing a business seeking a competitive advantage in any industry. Not making a choice often results in poor results because the firm is left in a weaker position in every segment relative to a focused or broad based competitor. With the understanding that choosing one of the four strategies above is what strategic positioning is all about, it follows that 'build,' 'hold' and 'harvest' as well as revenue goals and pursuit of market share leadership are not really strategies. "They are the result of a strategy (or inability to achieve any generic strategy and hence the need to harvest)." - M. Porter It is important that industry competitors develop different strategies. If all firms follow the same strategy, all competitors will suffer. Price warfare will result and erode industry profitability for all. For example, there is an obvious difference between a Toyota and a Rolls-Royce. Put simply, a Rolls-Royce costs more to make because of the higher priced materials used and the greater time-consuming craftsmanship required to build the product. The choice to spend more is a strategic decision based on the belief that customers will pay a price premium greater than the additional cost. In financial services, information services and many service industries, this basic strategic choice is often overlooked, even though the concept is just as important. Every business should have a clear understanding of how it is trying to position itself. For service businesses and businesses which produce a non-physical product like software, it is sometimes helpful to ask, "If we were producing a car, what kind would it be?" In practice, this one question can lead to a very constructive dialog among the people within the organization because it focuses attention specifically on positioning. The message is that firms can strategically choose to spend more or less for materials, labor, equipment, or anything else. But no matter what strategy a firm chooses, it should never waste a dime. A common misperception is that only firms with a cost leadership or cost focus strategy carefully monitor spending. It is also true that any activity, not just in production, can result in a cost advantage. |
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