Business Strategy

A key success factor (KSF) for a trade, profession or industry is something that a business must do to be successful. It is a necessary condition for success.

The Difference Between Key Success Factors, Key Factors Of Difference & Critical Success Factors

There are a number of similar sounding phrases that mean different things. To help understand key success factors, you also need to understand:

Key Factors Of Difference (KFD) – performance dimensions that make individual successful businesses in an industry unique and distinct from each other.

Critical Success Factors (CSF) – performance factors which are individually necessary and together sufficient for your business to succeed in its defined mission.

To summarise in less formal terms:

Key Success Factors are common across firms within a product-market or industry.

Key Factors Of Difference are the factors a particular business chooses to differentiate itself on.

Critical Success Factors are the essential elements of a strategy for success in a particular business in a particular industry at a particular time. Your CSFs should vary every time you make significant changes to your strategic plan and the emphasis may change with minor tweaks in strategy.

Success Factors And The Value Chain

As you think through the factors for success in your particular industry and business, it is recommended that you look at both:

• The value chain for your business – all the interlocking processes you use to create value for your immediate customers.
• The industry value chain – how the entire industry from the start of the supply chain to the end create value for the final customer.

The ideal position for any business is the ability to create a product or service for the lowest quality in the quickest time and for the best quality.

This ideal isn’t possible but it’s a useful “perfect product” to keep in mind when thinking about product innovation and process innovation.

Where are the big differences in cost, time taken and quality arising? Do particular processes or steps create trade-offs in these three main areas of performance.

Success Factors & Your SWOT Analysis

When you put together your SWOT Analysis, your strengths hopefully include your key success factors or you have opportunities to develop the extra strengths you need for success.

It would be simple if key success factors stayed constant over a long period of time to allow the business to build superior skills in the vital areas but key success factors change.

Factors That Will Change Key Success Factors

Key success factors can change through:

• Moving through the product life cycle – in the early stages of a product life, design and marketing may be vital but as the market matures, emphasis switching to low cost, efficient operations.
• Changes in customer needs, wants and priorities – purchase criteria that were important may be replaced by new criteria
• Changes in PEST factors – technology changes in particular

If you ignore the idea that Key Success Factors evolve over time, you are likely to find that your strategy makes you less and less competitive.

Your Strategic Plan

Your strategic plan will bring together what you intend to do on:

1. The industry key factors for success as they are now and as you expect them to develop in the future
2. The particular key factors of difference that you believe you can use to create unique customer value to create a competitive advantage.

At this stage, they become critical success factors and need to be backed up with key performance indicators so that you can track performance.

Harvard professor and world famous business strategist Michael Porter has a simple view to business and how you can generate superior returns from your business – the generic strategies –  but you can get stuck in the middle, not one thing or the other.

These ideas were introduced in the book Competitive Strategy by Michael Porter.

The Keys To Successful Competitive Strategy

Either:

1. Work in a business which is an attractive industry – this is a business that is well positioned against the five competitive forces that Porter identified (threat of new entrants, threat of substitutes, buyer power, supplier power and intensity of competition).
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2. Have a competitive advantage.

Michael Porter & The Generic Strategies

And when it comes to competitive advantage, Porter was equally simple because your competitive advantage can either be:

1. From being the lowest cost operator supplier acceptable goods and services at a reasonable price (and having the ability to beat anyone else on price if necessary)
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2. From winning buyer preferences based on providing a product or service which is differentiated.

Those two cost advantages can either be applied to the broad market or to narrow focused or niched markets.

The Danger Of Being Stuck In The Middle

Unfortunately many businesses fall into the trap of being “stuck in the middle” of the generic strategies of differentiation and cost leadership.

They don’t offer the high value for money and distinctive product or service that you get from a differentiated business.

And they don’t offer the low prices that can come from buying from the cost leader.

It happens because the business managers don’t know that they have to choose or think that they can be both.

Effectively being stuck in the middle comes from trying to compromise and it creates a muddle.

A muddle for your customers who don’t really know what you stand for or what to expect from you.

And a muddle for your employee who don’t understand the priorities of their work performance.

Other Stuck In The Middle Concepts

Stuck in the middle in this strategic context does not mean:

• Being in the middle of a value chain from raw material supplier at one end to end user of final product at the other. It can be uncomfortable being squeezed by big suppliers and big buyers but that’s even more reason to follow a cost leadership or differentiation strategy.
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• Nor does it mean being stuck in mid market between the premium priced luxury products and the low-priced economy brands although that can also be uncomfortable if it’s not clear what your business stands for. This mid market position is sometimes combined with Porter’s stuck in the middle concept but it is a big simplification of what he’s trying to say. There is no reason why a business can’t have a very distinct and differentiated product offering and charge mid market prices for example in cars, think of the Mazda MX5 sports car.

How A Business Gets Stuck In The Middle

A stuck in the middle position happens when a business designed to be low cost starts adding little extra frills which don’t add a corresponding amount to the customer value of a product.

The business suffers the cost, the customer doesn’t get the benefit.

Or when a differentiated business comes under pressure on prices – perhaps there has been a market disruption from new technology or an ultra low-priced competitor from overseas – and starts cutting costs in areas which damage the differentiation advantage.

What To Do If Your Business Is Stuck In the Middle

If you think that your business is stuck in the middle – or heading in that direction – then you need to get to grips with your business strategy.

You need to decide what your business is and isn’t.

You need to decide who your business will sell to and who it won’t.

You need to decide what your business will sell and what it won’t.

Strategy is about making wise choices and then having the courage and conviction to follow through and commit to turning words and ideas into action.

The Role Of The Value Chain In Creating Competitive Advantage

In his follow-up book, Competitive Advantage, Michael Porter introduced the concept of value chain analysis to help you to analyse, understand and create competitive advantage so that a business isn’t stuck in the middle.

The value chain is an important technique which helps you to focus on advantage based on differentiation or cost leadership.

It’s important to recognise when a defensive strategy is the sensible approach in marketing and business. You make want to be more proactive but it can get you into trouble and especially if you don’t have the strengths to support an offensive strategy.

I use the SPACE analysis matrix to help ground management’s natural desire for growth and profit improvement and put it into perspective of the realities of the existing situation.

Defensive Strategy In SPACE

A defensive strategy is recommended by SPACE analysis when:

1. The Industry Attractiveness / Competitive Advantage axis is negative; and
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2. The Financial Strength /  Environmental Stability axis is also negative

It’s a bit like a seven stone weakling going into the boxing ring with Mike Tyson at his peak. It’s best not to stand around and try to fight.

Other Reasons To Follow A Defensive Strategy

A defensive strategy doesn’t have to come out of weakness but from strength.

Sometimes maintaining the status quo suits a market leader or someone who is operating under a high price umbrella of a market leader because profits are high and life is easy. This can be dangerous since the industry is inviting an aggressive move by a new entrant to the market but sometimes “a bird in the hand is better than two in the bush.”

Markets are very comfortable when competitors co-exist in their own little spaces and don’t threaten each other beyond localised skirmishes on the borders.

I’ve known plenty of business owners who don’t want to grow their businesses significantly. They don’t have the desire to manage a big business.

Defensive Strategy Options

Different defensive strategy options apply in different parts of the business.

Defensive Marketing Strategy

First be clear on which product-markets you want to defend, which you want to grow and which you will allow to be taken from you without a serious fight.

The growth-share matrix from the Boston Consulting Group may help as it looks across the market growth rates and your market share to create four categories:

• Stars – growing market, high share
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• Cash cows – stable or shrinking market, high share
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• Question marks – growing market, low market share
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• Dogs – stable or shrinking market, low market share

While the framework can be criticised as too simplistic and I want to write more about the strategic options for dog businesses, the basic guidance is:

Stars – to grow aggressively

Cash cows – to defend strongly – these are your main source of profit and cash

Dogs – to harvest i.e. to let your market share drift away as you manage for short term cash and profit.

And question marks live up to their names.

Try to keep rational when things can get emotional. Compare the cost of reaction with the cost of inaction to make sure that what you intend to do makes economic sense.

Defending Your Market

If your important market comes under attack, you need to stand up and fight to protect what you have.

Be aware of the potential threats, what they are and where they may come from. Competitive analysis pays-off by understanding their objectives and their strengths and weaknesses.

If there is a potential weakness in your product or service, as shown by your customer value attribute map and it’s important to your differentiation strategy, close it.

If a competitor attacks you in a core customer account, fight back with equal or greater strength. Match the move with the customer and repeat at a core customer for the competitor.  The aim is to signal that you don’t want an all out price war which will destroy industry profitability but you won’t allow aggressive moves to be rewarded.

Borrowing Defensive Strategy From Warfare To Marketing

Some very interesting books have been written comparing business strategy to warfare.

Typical defences are:

1. The fortified position defence – building barriers to entry to make it difficult to be attacked
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2. Mobile defence – work to identify new market segments and supply tightly focused products s solutions to particular customers wants and needs
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3. Flanking defence – if you fear an attack at the low price end, you can introduce your own fighter brand as a deterrent. Yes it might take some of your sales away from your middle market brand but it may block a new competitor or make things much more difficult.
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4. Counter attack – sometimes it is better to response outside or your own market for fear of sparking a price war that damages all your sales in the core market so to send a signal to the aggressor, you can attack in their core market and cause them as much or more trouble as they are causing you.

Defensive Strategy In Business

Sometimes the focus on a defensive strategy is not to protect a market share position but to protect (or save) the entire business.

Common turnaround measures often include:

• Cost cutting
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• Rationalisation of products – you can’t afford to carry passengers
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• Capacity reduction
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• Cash generation from the sale of unnecessary inventory and equipment

A defensive business strategy may even involve selling or closing large sections of the business which are draining profit or cash.

Returning to the SPACE analysis, focus should be spent improving the internal characteristics – financial strength and competitive advantage – to buy time for the external issues – environmental stability and the attractiveness of the industry to settle down.

More on Defensive Strategy

The books comparing military and business strategy are worth reading to give you a different perspective on business.

Michael Porter has a chapter on defensive strategy in his classic book on Competitive Advantage.

I’ve been guilty of using the phrases “competitive edge” and “competitive advantage” as synonyms for each other and to a large extent I think that’s valid.

Both can relate to a benefit one business has over a particular competitor or all the other competitors in the practical market.

But I’ve been forced to have a little rethink when a prospective client asked me “Paul what’s the difference between a competitive edge and a competitive advantage?”

He didn’t know the answer, so he wasn’t testing me but he wanted to understand the subtle distinction.

That got me thinking. Is there a difference between competitive edge and competitive advantage? It was the business strategy guru and Harvard professor Michael Porter who popularised the term competitive advantage in his two classic books Competitive Strategy and Competitive Advantage.

Porter argues that there are two basic forms of competitive advantage:

• cost leadership – which gives the business the choice of selling at lower prices or making higher profits
• differentiation – which creates buyer preference

These advantages can be applied to the broad market or to a focused niche market.

I don’t associate the phrase competitive edge with any particular business thinker but a quick search on the internet came up with two very different definitions.

Competitive edge “is the ability of an organization to produce goods and services more effectively than competitors do, thereby outperforming them. This means they must stay ahead in four areas: being responsive to customers, innovation, quality, and efficiency.”  (Answers.com)

“Competitive Edge is having a clear advantage over the competition in terms of one or more elements of the market mix that is valued by potential customers.” (The market mix is the seven P’s of marketing – Product, Price, Place, Promotion, People, Process & Physical evidence) (Coursework.biz)

It’s this second answer which I think is closer to the mark.

For me, a competitive edge is establishing a buying preference with the customer in comparison to the other options available.

I see competitive edge as a sub-set of competitive advantage more closely related to differentiation than to cost advantage.

A lower selling price can give you a competitive edge (since it influences buyer preference) even if the business doesn’t have a cost advantage over its competitors but instead accepts a lower margin.

But I don’t want you to focus on price. Far from it.

I want you to develop competitive edges which are strong enough to justify preference at the same or higher prices than competitors. This is where you need to be thinking about the 7 Big Questions of Business Success.

For most people, I don’t think there is a difference between competitive advantage and competitive edge.

But, if I’m asked again, at least I’ve thought through an answer.

How do you differentiate your business?

You answer the 7 big questions of business success in a way that is distinctive:

• Who?
• What?
• How?
• Where?
• When?
• Why?
• How Much?

Is differentiating your business really that simple?

Yes and No.

These questions are an immensely powerful way to design your business to be different from your competitors.

But, while you have the ideas and answers, it’s not your opinion that matters in the end.

Your potential customers have the power to reward a well-designed and differentiated business.

And to get your reward, you need to motivate them by appealing to their self-interest.

You’ve probably seen the letters WIIFM before if you read business blogs.

They stand for “What’s In It For Me?”

It’s a question you must keep in your mind at all times because if you don’t, your market will ignore you.

You need to answer the 7 big questions of business success by looking through your customers eyes to make sure that what you are doing is adding value to them and strengthening your relationship.

If you learn economics, one of the first things you’ll be taught is the law of supply and demand.

It’s like a great big X on a graph of prices and volumes.

The demand curve slopes downwards with the basic rule that as price decreases, then demand increases. Or vice -versa – as prices increases, demand decreases.

Why is that?

Because we only buy things that we believe will give us value equal to or preferably more than the price.

At a high price, few people believe they will get value.

But as the price reduce, more people see the opportunity to gain and earn a “consumer surplus”. This is the difference between the value they receive and the price they pay.

Demand then is a function of price and perceived value.

The supply curve slopes upwards. As market price increases, then more firms are willing to step in and supply the market.

This is because no business will knowingly supply below cost. There are a few provisos here for loss-leader strategies where the business intends to profit from other items bought at the same time or later in the relationship.

Just think about it.

If you could buy apples for 20 pence each and someone comes to you and says…

“I’ll buy every apply you can get for 50p each”

then you’re going to be eager to take them up on it. You stand to make 30p profit on each apple you sell.

But if they say…

“I’ll buy every apple you can get for 18p each”

then you’re not interested.

Each apple you sell will cause you to lose 2p. And the more apples you sell, the more money you lose.

However if you could find a way to buy apples for 10p, then you’re interested in the deal.

Supply is a function of market price and cost.

As the price increases. more firms have the ability to supply at a profit and are willing to do so.

Market prices are set where the demand curve and the supply curve meet – the middle of the X.

This may be a simple lesson on the basics of supply and demand but in a world then seems to get increasingly complicated, it’s good to get back down to basics occasionally.

Supply and demand reminds you that value, market prices and costs are critical factors in your business.

The more value you create compared to the price, the better your chances are to win business.

The lower your costs are, the more you are able to supply at a profit.

It’s no wonder that value (in terms of differentiation) and low costs are the two generic competitive advantages identified by Professor Michael Porter.

It’s now time for the difficult questions.

If value, price and costs are so important, then

• How well do you understand your value (which is a key factor in demand)?
• How do you set prices? Guess? Copy competitors?
• How well do you understand and control your costs? In particular, how do you know that you should be supplying that product which you’ve just cut the costs on to clinch that big deal? Are you sure that you’re not selling 20p apples for 18p each?

I’ll be going into these ideas much deeper in the strategy articles but sometimes it is useful to go back to basics and remind yourself of what’s important and why.

It’s so easy to get caught up in implementing the latest fashionable tactics (social media still looks to me like the hot topic) but if you don’t have your strategy right, then you’re in trouble.

In my guide to strategic planning models I described Michael Porter’s Five Forces Analysis as probably the most famous of the strategy models but until now, I haven’t written about it in detail on my blog.

Background To The Five Forces Analysis Model

The Five Forces Analysis model was first introduced in the Harvard Business Review in 1979 in an article by Michael Porter called “How Competitive Forces Shape Strategy.”

It was then a major element in Michael Porter’s book, Competitive Strategy.

In 2008 Michael Porter returned to the Five Forces Model with an updated article in the Harvard Business Review called “The Five Competitive Forces That Shape Strategy.

For more than thirty years, the Five Forces Analysis has become the standard way to analyse an industry, look at changes that are taking place and to think about how a business can best position itself to defend against damaging forces and maximise opportunities where the forces are weak.

The Sources of Profit

The principle behind Michael Porter’s ideas is that profit only comes from two sources:

1. Operating in an industry with an attractive structure as defined by the five forces analysis model

2. Having a sustainable competitive advantage

In simple terms, an attractive industry is about the balance of supply and demand. If demand is greater than supply, then businesses should find it easy to make a profit. If supply is greater than demand, then the business needs a competitive advantage to survive the competition process.

Of course things aren’t that simple in the real world. Michael Porter argues that the Five Forces analysis model identifies the key factors which determine the average profitability of an industry.

Michael Porter Five Forces Analysis Model

The roots of the Five Forces analysis model lie in industrial economics and represent many of the key assumptions in the model of perfect competition. These assumptions keep the supply and demand within a market in equilibrium and stop firms who compete n it from earning big profits or making big losses.

The five forces that Michael Porter identified are:

1. The threat of new entrants
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2. The bargaining power of customers
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3. The bargaining power of suppliers
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4. The threat of substitutes
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5. The rivalry among existing firms.

These are summarised in a classic diagram.

How The Five Forces Analysis Model Works

Customers, suppliers and competitors compete for the profit from the value created by the industry which is limited by substitutes or alternative solutions to the underlying customer needs.

The ideal industry structure is one where the five forces are weak:

• Both suppliers and customers willingly accept terms offered by the business,
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• There is no viable substitute to the product or service sold which meets the customers’ needs and wants,
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• Any potential new companies would find it very difficult to enter the market effectively, and
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• Competitors focus on enlarging the total industry profits rather than competing away profits unnecessarily through crazy pricing because there are no viable substitutes.
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• Competitors who are struggling to make money, can leave the industry easily and use their skills and resources elsewhere.

When Is The Five Forces Analysis Model Most Effective?

I believe that the Five Forces analysis model gives more insight when you are considering entering a new market than for small businesses who are already firmly entrenched in established markets.

This is because the model helps to identify the threats to making superior profits before you’ve made the commitment.

Yes the Five Forces model can be used to identify market segments which are protected from the worst of the forces but a business can’t keep switching positions with different products and customers.

Michael Porter Explains The Five Forces Model

Here is a 13 minute video of Michael Porter explaining the five forces model and why it is still relevant after it was first introduced in 1979. Highly recommended.

Porter looks at how the Five Forces apply to the airline industry, which traditionally has been a very low profitability industry but which paradoxically is seen as “sexy” and attracts new entrants. The opposite example, with weak competitive forces is the soft drinks industry which he describes as a “licence to print money.”

Problems With The Five Forces Analysis Model

This problem of putting the Five Forces model to work has led to people struggling to gain much insight about what to do next in their current markets.

This is partly because the model isn’t used well and the dynamics of the slow evolution aren’t captured until they speed up and hit the tipping point. It helps to use the model with PEST Analysis, both looking back over how the industry has evolved over recent years and forward as you think about how it could change, perhaps even using scenario planning. SKEPTIC is a model which combines the Five Forces and PEST.

Common mistakes to using the Five Forces analysis include:

• Inappropriate definitions of the market / industry which may be too narrow or too broad. If in doubt and you’re juggling with two market definitions, try both. You may be able to eliminate one quickly because it doesn’t feel right or both might give you valuable but different insights.
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• Making a list of issues rather than thinking through the implications and finding strategic insight about what’s happening.
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• Making black and white judgements about the industry, either that it is attractive or unattractive without identifying the strategic implications.

The options to take action using what you’ve learnt from your Five Forces analysis are limited:

• Can the business influence the five forces? Most small businesses can’t.

• Can the business protect itself from any damaging forces or take advantage of opportunities that come from favourable changes?

• Can the business move to into an area of the market where the forces are less of an issue?
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• Should the business exit this market and move its attention and resources elsewhere?

However, I do believe that any business that occupies a strategic position in its market should periodically work through the five forces model and see what new insights it brings.

Industry Evolution Is Monitored By The Five Forces Model

All industries and local economies are constantly evolving and Michael Porter’s Five Forces analysis model is a proven technique for analysing industries and markets so that you identify threats and opportunities early. These would be included in your SWOT analysis.

Without a framework like the Five Forces Model, it is very difficult to identify all the issues that are changing and I will be looking at the threat of new entrants, buyer and supplier power, substitutes and competitive rivalry in more detail.

The Sixth Force Missing From The Five Forces Model

Various strategies experts have suggested that Michael Porter’s Five Forces Model isn’t complete and that there is a sixth competitive force.

Unfortunately there is no agreement on what is the sixth force.

Some have suggested that complementors or complementary products are a sixth force. These are products and services which add value to the original product when it is used. This came from work done in game theory for strategy purposes. If the complementary products grow in value e.g. apps for the iPhone and iPad then demand for the original product is strong. If complementary products are weak, then demand for the original product is weak.

Others have suggested that government or the full PEST factors act as a sixth force in Porter’s model. Personally I prefer to look at their impact through the original five forces model.

Tony Grundy believes that the central force in the industry analysis model is not competitive rivalry but industrial mindset which is the sixth force which binds everything else together. This is interesting, especially from a differentiation perspective which requires you to challenge the traditional rules and patterns of success to find breakthrough value for customers.

Combining PEST Analysis With the Five Forces

Stephen Haines developed the SKEPTIC model which combines the five forces with PEST Analysis. It’s a useful concept and a memorable acronym since many people lose site of the benefits of the Five Forces analysis and PEST analysis because they are done so badly.

More Details On The Five Forces Model

Michael Porter’s five forces model deals with some very big strategy issues and is therefore too complicated to deal with in one blog article.

Threat of new entrants

Buyer Power & Supplier  Power – two sides of the same coin

Threat of substitutes

Competitive rivalry

What Do You Think Of Porter’s Five Forces Analysis Model?

Do you find the Five Forces model helpful?

Do you think there are more forces that should be included in a model for industry analysis? If so, what?

Have you done a five forces evaluation on your model and found yourself thinking so what?

Academics and consultants have developed a lot of strategic planning tools and strategic planning models to help business owners and managers to develop better strategies that win in the marketplace.

As my differentiation blog develops, I will be introducing more and more of these strategy models but the purpose of these page is to provide an overview of the strategy tools and to give you easy access to more detailed information. (This article was originally posted on my Differentiate Your Business blog which has closed after it was hacked.)

Why Strategic Planning Models & Tools Are So Useful

1. Strategy models provide a common focus point for discussion. The best strategies come of from the insight of applying the strategy tools and the discussions that happen within the management team and not as a direct result of using the planning model.
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2. Strategy models provide a common reference point. You can see a set of conditions or even a particular symptom and you can relate it back to the rest of the strategy model to understand more about what is happening at the moment, what is happening and perhaps what will happen.

I want to be clear, the strategic planning tools are not the end in themselves, they are a way to help you to reach your main objective, developing a strategy that creates a competitive advantage so you achieve your goals and beat your competitors.

As you work through the strategy models, you are looking for insight on how you can improve and leverage the Six Step Profit Formula.

Perhaps the attractiveness of your market is moving in a way that will demand a response from you (good or bad)?

Or is what it takes to win in the market changing as customers needs, wants and priorities change?

Or is perhaps there a better way to create the customer value appearing on the horizon? If you can get to it first, before your competitors, than you have the opportunity of a significant competitive advantage.

Popular Strategic Planning Models Tools

Strategy models and tools come in a variety of different sizes and situations:

1. Models to help you to understand your strategic environment
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2. Models to help you to establish competitive advantage
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3. Models to help you to assess your strategic direction
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4. Models to help you to implement strategy
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5. Models to help you to assess your overall strategy.

Strategic Planning Models To Help You To Understand Your Strategic Environment

The most famous strategic planning models and tools to look at the winder industry and economic environment are:

Michael Porter’s Five Forces

This is perhaps the most famous strategy model as it takes an industrial economics based approach to understanding what makes an industry attractive or unattractive.

Michael Porter Five Forces – this summary links through to more detailed explanations of the five forces.

PEST Analysis

For wider environmental scanning and for understanding how the five forces may change in the future, the versions of PEST analysis are very helpful. To confuse things there are slightly different acronyms – PESTER (the one I tend to use), PESTEL, STEP

PEST Analysis

SKEPTIC Analysis

One strategy consultancy combined the five forces and PEST analysis strategy models to create a SKEPTIC which I thought was clever.

SKEPTIC Environmental Planning

The Life Cycle Model

A strategy model to show you general trends of evolutions from beginning to end.

Probably its most famous version is the product life cycle which goes through the introduction, growth, maturity and decline stages which can be useful for thinking about demand trends.

It can be widened from products to industry life cycles where a new product creates a new industry with a repeat of the main stages and with an extra stage squeezed in between growth and maturity – shakeout.

I’ve also widened out the life cycle model to look at underlying customer / consumer needs. There may be a personal computer industry at the moment but it is currently the best way to solve the customer need of creating, sharing and managing information.

Strategic Planning Models To Help You To Establish Competitive Advantage

Generic Strategies

Rivalling the Five Forces as the most famous strategy model is another from Michael Porter, the generic business strategies of competitive advantage:

• Lowest cost
• Differentiation
• Focus

Both were introduced in the classic book Competitive Strategy and I talk about them in this article on generic strategies and the danger of being caught “stuck in the middle”.

The Value Chain

In his follow up book, Competitive Advantage, Michael Porter introduced the value chain for helping managers to analyse and build competitive advantage based on low cost or differentiation.

For more details see Value Chain Analysis and the Industry Value Chain

Value Disciplines

As an extension of Porter’s generic strategies, the value disciplines – operational excellence, customer intimacy and product innovation – are an interesting alternative strategic planning model.

Fore more details see the Value Disciplines

Customer Value Maps

Strategy as positioning becomes much clear if you map out the relationship between perceived customer value and price.

For more details see Customer Value Maps and the general concept of customer value.

Strategy Canvas or Customer Value Attribute Maps

Customer value and the entire concept of differentiation gets a lot more specific when you use what the authors of Blue Ocean Strategy call a strategy canvas and I call a customer value attribute map.  This strategy tool makes clear the critical dimensions that you’re competing on and the relative performance of your business compared to competitors.

For more details see Strategy Canvas

Key Success Factors

One of the important characteristics of good strategy is focus and working on your key success factors, key factors of difference and your critical success factors gives you that focus.

Fore more details see Key Success Factors

Strategic Planning Models To Help You To Assess Your Strategic Direction

Competitive Advantage Matrix

While competitive advantage is the goal of strategy, some industries are much more amenable to creating strong, sustainable advantages than others.

For more details see Competitive Advantage Matrix

Bowman’s Strategy Clock

You can get a very clear understanding of where you are using the customer value strategy models and the strategy clock helps you to consider the options of where you can move to in the future.

For more details see Strategy Clock

Ansoff Growth Matrix

This strategic planning model is a 2 x 2 matrix looking at existing and new customers and existing and new products to map out a way to grow the business.

For more details see Ansoff Growth Matrix

SWOT Analysis

SWOT analysis is a strategy tool which can be used independently or it can be used to gather and communicate the outputs from all the other different strategy models.

For more details see SWOT analysis

Portfolio Planning

Few businesses are “pure” with a focus on one product-market so while portfolio based strategic planning models are usually seen as corporate strategy tools, I think they can be useful for:

• looking at the standard recommendations
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• competitive intelligence and the pressure your competitors may be facing if part of a group. I’ve certainly worked for subsidiaries that were not regarded as core to the group’s future and had their investment rationed.

For more details see BCG Growth Share Matrix – not yet written

I’m planning to start with the most famous and then cover McKinsey/GE and the A D Little variations of the portfolio planning strategy models.

Strategic Planning Models To Help You To Implement Strategy

McKinsey 7 S Framework

Strategy consultants McKinsey developed the 7 S model to help focus attention on all the issues needed for strategic change.

For more details see McKinsey 7 S Framework

The Balanced Scorecard

Very popular performance management system which has become a key tool for implementing strategy throughout a business.

For more details see The Balanced Scorecard.

Strategic Planning Models To Help You To Assess Your Overall Strategy.

The SPACE Matrix

This is one of my favourite strategic planning models is useful at the start of the strategy planning session and at the end to sense check your strategic decisions. It is the Strategic Position & Action Evaluation matrix, better known as the SPACE matrix.

For more details see SPACE Analysis

What Strategic Planning Models Are Missing Or Which Do You Find Most Useful & Insightful?

My blog and main interest in strategy is in competitive strategy and not corporate strategy, so I won’t be covering many of the corporate strategy models unless I think they can be used to provided guidance at the business level.

What strategy tools have I missed?

Which strategy models do you find most useful and insightful?

It’s the weekend.

It’s good to do something special and especially if you don’t have to get up early on Sunday morning.

So what are you going to do?

• Go to the theatre
• The cinema
• A concert
• A disco
• A meal at the nice Italian restaurant short walk away from where you live
• Or collapse in front of the TV with a Chinese takeaway and a DVD from Blockbuster

The point I’m making is that these are all solutions to the “what shall we do on Saturday night” question but the disco probably doesn’t see itself as a competitor to the Italian restaurant.

But you, the customer, do.

Each has its attractions and drawbacks and the TV and takeaway may often win on an regular Saturday night.

But what if we change the situation.

Let’s forget about a normal Saturday night and think about what to do for dinner on your wife’s birthday – and you know she loves Italian food.

Your local Italian restaurant may still be in the race but new competitors emerge – all the respectable Italian restaurants in your local area are possibles. In fact, because you want it to be a special occasion, your local Italian may be at a severe disadvantage because you go there so regularly.

Now you want something special. Something to be remembered.

Will it be the Michelin starred restaurant or the place that reminds you both of a little trattoria you went to in Venice on your honeymoon?

Probably the second because it’s more romantic.

Competitors for your money vary depending on what’s known as your “use-situation”.

A typical Saturday night is very different from your wife’s birthday.

So too is choosing a restaurant to entertain an important client who thinks of himself as a gourmet and likes Italian food. This time the Michelin starred restaurant is an obvious choice.

You can be too static in your thinking about who your competitors are and what are likely to be the order winning criteria.

I recommend you think about the use situations you want to attract people from – it will change your thinking about what you need to do to attract clients away from your most serious competitors.

This changing competitors concept is one that Shiv Mathur and Alfred Kenyon refer to as a private market.

Just because A competes with B and B competes with C, doesn’t mean that A competes with C.

If we stay with the restaurant example, let’s assume that you’re prepared to travel 15 miles to go to a good restaurant.

Imagine looking at a map and drawing a radius around where you are. You’ll pick up a range of restaurants you could go to.

But if you move house, and move 10 miles away, the circle is different. It includes some old restaurants and some new ones.