The famous writer, business consultant, and anthropologist Angeles Arrien was quoted by Mark Nepo as saying that her grandparents told her to “never hide your green hair, they can see it anyway”. So when a company starts a new plan for the year, a new project, or a new product, the question they need to ask is how does this improve the overall unique strategy of the company – the “green hair” so to speak – that makes each company different.
The problem is many companies ask the wrong question, and therein lies the biggest mistake they will ever make every time they do so. What is it? In the book “Understanding Michael Porter” by Joan Magretta [2011 – HBR Press] Magretta interviews the famous Harvard University Professor and who responds that the “granddaddy of all mistakes” is confusing marketing plans or operational effectiveness [“OE”] plans with overall corporate strategy. Why? Simply because trying to “be the best” by definition presumes you are providing goods or services the same as your competitors which ultimately results in what he considers a “race to the bottom”. Strategy links your demand side with your supply side to create a sustainable competitive advantage. “Strategy is about the whole enterprise, not the individual pieces” as Porter explains. Put another way, “better” in strategy parlance means different or unique – your “green hair” so to speak. There is no one path to success, just many interrelated activities that make your company unique. The author cites many examples such as IKEA, Starbucks, Apple, etc. All these companies practice the concept of overall company strategy, not just marketing strategy, not just OE strategy. Porter calls it a framework, not as linear as an economic model and not as specific as a case study. Once you decide what your unique value proposition is, then you need to communicate and ultimately achieve alignment with your organization, both your inside team and your outside team.
So how do you do it? Porter states that every 12 to 24 months all companies need to have a formal strategic planning process, with quarterly reviews. But don’t confuse your business model with your business strategy. Your business model should ask the question how you will generate income and control your expenses, basically your P & L Statement that you review with your accountant [when you do your tax returns]. Your business model looks back and analyses your financial data. Conversely, your corporate strategy looks forward. It asks the question – what is your sustainable competitive advantage? How do your relative prices and relative costs compare to your competitors? What value proposition and value chain can you tailor to make you different. In a nutshell, Porter states that your business model is a basic “analyzing” step, but your strategy is the next level “forecasting” step that will make you viable.
So when do you do it? Each year the management of a company gets together to have an annual meeting to decide the strategy for that year. Each year has its own challenges and opportunities. If all that these meetings produce is budgeting and growth rate projections than Porter says all you have achieved is a business model, but you have done no debate and decision-making on your competitive strategy. Your competitive advantage is already known by your customers – that is why they picked you or not. Your failure to leverage it will ultimately result in your competitors using it against you. It’s that simple. So sit down with your trusted advisors who can facilitate a dialogue to help you create a framework for your company strategy – you know – the one that starts with “Our company’s green hair is . . . “
If you don’t, it’s the biggest mistake you will ever make, because your competitors are doing it – and they know what your green hair is.