I had a moment on reddit recently where I realised that not everyone has the same ideas about economics and strategy as I do, and that it might be helpful to spell out these concepts (as I understand them) in some more detail. This post will unpick the concept of business strategy, its purpose and implications for the market.
First off, it's important to understand that organisations are a lot like boats out on the water: they are constantly in motion. Even if there is no plan or no apparent control of the vessel, they still move - sometimes back and forth, making no progress in any particular direction. A lot of small businesses are like this. Owners are so busy with the day-to-day operations of the business that they can lack the time to step back and think about the big picture: where they want the business to go, and how they can make that happen.
It's totally understandable how this situation develops and persists, but it can also be crippling for a business. There are only so many hours in a day to get work done, and it's simply not viable for an owner to take out a few hours - let alone days - to deal with long-term, big-picture issues. But without that leadership, the business drifts aimlessly; opportunities (sometimes conflicting) are recognised and partially pursued, but never with the full focus of the management and staff. Worst of all is that everyone feels like they are at the mercy of the marketplace; there is no sense of control or any certainty about the future.
It is not a desirable situation but it is one that traps small businesses again and again.
A strategy is the opposite of this. It begins, before anything else, with an understanding of the business' mission and its goals. The mission is what drives the company, it is its central purpose, and it is - in my opinion - not something that can be outsourced or developed externally. Consultants can facilitate internal discussions or help with the phrasing, but they can't tell you what your business is about. It needs to be genuine, it needs to be something that is deeply felt, something that will inspire staff and engage customers.
Once the mission and the business' goals are established, strategy's role is to set out a clear direction for the organisation so it can move from where it is to a place where it can start to fulfil that mission. A good strategy takes into account the external environment - the competitive landscape, the suppliers and customers - and the internal environment - the capabilities and resources within the firm - to establish goals that are specific and practical.
Once a strategy has been developed, it is detailed down to the tactical level: the functions necessary to implement the strategy. The nuts and bolts can be the most tedious part of developing a strategy but they are vitally important: a big, successful chance is not the result of one thing going to plan but getting hundreds of details right.
For a strategy to be successful, it requires the organisation to be structured around delivering on it. Anything that is superfluous to the strategy will steal away focus, energy and resources, and reduces the likelihood of success, and should be eliminated. This can be a painful part of implementation and often creates the biggest pushback from staff or customers, but it is also necessary. And if a particular change is too much for an organisation to bear, the entire strategy needs to be reconsidered.
Should the strategy be well-conceived, well-planned, and well-executed, then the chances of success are high. It should move the company from a place where everything is a struggle and the entire organisation is at the mercy of external forces to a place where the managers and staff can feel like they have control and where the business is sustainable in the long run.
In a very general sense, this is my idea of a strategy. It is not about cutting costs or squeezing customers for every last dollar, but about allowing managers to be leaders and take their organisations into the places they want them to be. A good strategy is one where everybody ends up in a better position than they were before.
In our next post, we'll apply the idea of strategy to retail competition, look at the two dominant strategies and how they are implemented in the FP market.