The word Strategy, when applied to Market Analysis, risks to be used as a buzzword that means everything and nothing. Some people apply the term to define a generic approach of a Company within a Market; others think in terms of Company Strategy, Vision or even Mission as the same thing. Others again believe that Strategy and Business Case (or Business Model) are synonyms. A number of people even think that having read “The Art of War” of Sun Tzu is enough to know how to steer a Company.
A Definition of Strategy
In a short paper published by Michael Porter in 1996 (Michael Porter – What is Strategy? – 1996 Harvard Business Review ©), Porter’s definition of Strategy is articulated into three points:
- "Strategy is the creation of a unique and valuable position, involving a different set of activities”
- “Strategy requires you to make trade-offs in competing – to choose what not to do”
- "Strategy involves creating fit among a Company’s activities”
The “creation of a unique and valuable position” is the objective a Strategy should always try to pursue. Specifically, this means that a Strategy is successful when the Company covers and owns an exclusive Market, where Clients – that may grow or not in time, depending on the Market size – are substantially not switchers.
How to create a unique and valuable position? In a way that Company’s activities – whatever the granularity chosen by an external observer – are reinforcing each other.
The idea of doing things differently is both a way to have something unique and distinctive and prevent others from imitating a successful set of activities.
Therefore, keeping the definition in one single statement, here is how the term Strategy may be defined:
How to create a unique and valuable position? In a way that Company’s activities – whatever the granularity chosen by an external observer – are reinforcing each other.
The idea of doing things differently is both a way to have something unique and distinctive and prevent others from imitating a successful set of activities.
Therefore, keeping the definition in one single statement, here is how the term Strategy may be defined:
“Strategy is the creation of a unique and valuable position, involving a different set of self reinforcing activities”
From Definition to Practice
The statement above may be used to design an effective Strategy on one side and understand whether or not a Company has an effective Strategy in place on the other.
Despite from the fact that a Strategy may be designed in an effective manner, later on it has to prove itself through the cash flow analysis.
For example, we might design an interesting high level Strategy for a hypothetical Railway Company and then – given the “as is” analysis of a real case – discover that moving from the “as is” to the expected “to be” is unaffordable in financial terms or has to be distributed over many years to make it happen.
To remark the distinction, the Strategy Analysis and Design is somehow “theoretical” while the Strategy Implementation is the so called Business Plan.
Despite from the fact that a Strategy may be designed in an effective manner, later on it has to prove itself through the cash flow analysis.
For example, we might design an interesting high level Strategy for a hypothetical Railway Company and then – given the “as is” analysis of a real case – discover that moving from the “as is” to the expected “to be” is unaffordable in financial terms or has to be distributed over many years to make it happen.
To remark the distinction, the Strategy Analysis and Design is somehow “theoretical” while the Strategy Implementation is the so called Business Plan.
Strategy = Strategy Design and Analysis + Strategy Implementation (a.k.a. Business Plan)
The article of Michael Porter offers an interesting high level way to describe a Company’s Strategy Analysis that he calls Activity-System Map.
Fig.1 – Porter’s Mapping Activity Systems - 1996 Harvard Business Review ©
Such a map puts in evidence the set of activities (actually Business Processes, which are the sum of a set of human or IT activities) and a simple relationship among them.
Strategy Maps
There is anyway a better – and possibly more effective – manner to describe a Strategy Design and Analysis in terms of activities and relationships, which is known as Fuzzy Cognitive Map (or just Cognitive Map for simplicity) and comes from a set of ideas developed more than two decades ago by Bart Kosko.
This kind of map allows to add the following dynamics:
This kind of map allows to add the following dynamics:
- The enablement of Business Process “a” enables the Business Process “b” (and for symmetry, if “a” gets disabled, same thing happens to “b”) – to express this concept a “+” sign may be used
- The enablement of Business Process “a” disables the Business Process “c” (again for symmetry, if “a” gets disabled, “c” gets enabled) – to express this concept a “-” sign may be used
These two simple rules allow simulating the evolution of a Strategy Map as a system and observing its dynamics, which may converge towards a stable position, oscillate among different states or never reach an asymptotic behavior. Initial conditions may be set as desired as well and some states might be forced for some time to maintain a fixed status and then released all of a sudden to see in which behavior the system would land.
Fig.2 – In the example above, Initial Funding drives Marketing campaigns which pushes for Product Popularity. The latter makes Revenue grow and they keep Marketing alive. At the same time, the more the Marketing is active, the more is the Competitive Pressure which – on converse – decreases Product Popularity activating a reverse cycle (i.e. less Product Popularity implies less Revenue then less Marketing etc). This toy example represents at a high level the way Mobile Phone operators usually compete within the Market.
This kind of map is very useful to analyze Strategy robustness and stress it under specific Market conditions.
As it always happens with simulations, if the outcome should be a “yes, it works”, this might be taken as a “maybe” in real world, as the Business Plan filter should be successfully applied as well.
But if the outcome of the simulation should be a “no way”, then we could be sure that in the real marketplace the result would be the same.
The “equation” introduced before becomes the following:
As it always happens with simulations, if the outcome should be a “yes, it works”, this might be taken as a “maybe” in real world, as the Business Plan filter should be successfully applied as well.
But if the outcome of the simulation should be a “no way”, then we could be sure that in the real marketplace the result would be the same.
The “equation” introduced before becomes the following:
Strategy = Strategy Map + Business Plan
In Summary
Designing a robust “real world” Strategy is an iterative two steps activity: the Strategy Map effectiveness first and the Business Plan feasibility afterwards. The Strategy Map applied to the “as is” condition of a real Company drives the Business Plan; Business Plan constraints allow going back to the Strategy Map and refine/optimize it.
The result of this “self reinforcing” iterative approach is itself an overall Strategy that follows the definition introduced in the first paragraph.
The result of this “self reinforcing” iterative approach is itself an overall Strategy that follows the definition introduced in the first paragraph.
