A winning business strategy provides clarity and visualisation of the current business, where to go and how to get there. The strategy focuses, directs and aligns the company’s resources and delivers a sustainable competitive advantage.
However, a poor strategy leads to a lack of focus, direction, missed opportunities and an inability to create a sustainable competitive advantage.
Strategy is not
A business plan, operational plan, strategic plan/budget, mission statement, key objectives and initiatives, goals and milestones or a roadmap.
Strategy is
A set of integrated choices made under uncertainty to create a value proposition that sustainably delivers superior customer value relative to the competition.
Does strategy work today?
Currently, there is considerable debate amongst practitioners and academics as to whether it is possible to:
- Create a winning strategy in today’s world of rapid change, uncertainty and hypercompetition.
- Simplify strategy to its fundamental building blocks.
- Ex-ante test if a strategy is a winning one.
At Integrated Value Consulting (IVC) we believe the answer to all these questions is ‘Yes’.
Our view is backed up by facts and results from companies spanning multiple sectors, which have successfully created and sustained a winning strategy e.g. Inditex, Procter & Gamble, Enterprise Cars, IKEA, Apple, ASML, TSMC, McDonald’s, Starbucks, and on and on.
For details on Inditex’s winning strategy see our Blog – Competitive advantage needs a winning strategy AND excellent execution
Additionally, using our Strategy Blueprint©, see below, we have helped startups, SMEs and corporates, spanning multiple industries, to create winning strategies.
IVC’s Strategy Blueprint© is robust, repeatable and stands on the shoulders of giants in the fields of strategy, valuation and the work of experts from other disciplines.
Our Insight and the Solution
After many years of experimenting and trying novel approaches, we have successfully reduced strategy to its fundamental building blocks.
Our breakthrough came when we had the insight to imagine business valuation as the invisible hand guiding business strategy.
In summary, if a company has a winning strategy, then it must also have a competitive advantage to earn a return on capital that is above its cost of capital.
As a result, a company’s valuation connects a winning strategy and competitive advantage. For details on how a company’s valuation connects a Winning Strategy with its Competitive Advantage see – The “Six Million Dollar Question” for Valuation and Management.
How to test if your company has a Winning Strategy / Competitive Advantage
If you have a Winning Strategy / Competitive Advantage you must be able to fulfil these five criteria:
- Do you have a unique value proposition?
- I.e. you can deliver superior customer value than competitors on specific criteria valued by your customers.
- Do you have a tailored value chain?
- I.e. you have a different set of capabilities and or how these capabilities work together.
- Have you incorporated trade-offs?
- I.e. you have made choices that make it hard for competitors to copy your capabilities system without hurting their business model.
- Does your capabilities system support, reinforce and magnify each other?
- I.e. you have created a capabilities system that is as strong as its strongest link since competitors or new entrants must copy the whole system to reap the same benefits.
- Is there continuity to hone the capabilities system and move down the experience curve?
- I.e. you are continually investing the time and resources to make your capabilities system work as a connected whole and operate at the productivity frontier.
Note: if you do have a Winning Strategy / Competitive Advantage, you must be able to back it up:
- Quantitatively: a return on capital higher than the industry average, margins, asset utilisation, higher cash flow, market share, etc.
- Qualitatively: visually connect your company’s core capabilities system to your unique value proposition and show stakeholders why your company can sustainably deliver superior customer value versus the competition.
The reward
If you have a Winning Strategy / Competitive Advantage and can show your Business Blueprint©, see below, to key stakeholders your company will be awarded a significantly higher valuation.
IVC’s Business Blueprint© visualises and aligns the business from strategy, through operations, to valuation, and maps out how it creates, delivers and captures value.
For example, imagine if you were valuing two cake shops with the same revenues, operating profit, net profit, etc., but:
- For the first cake shop: you only get the shops and the cake recipes.
- For the second cake shop: you get the shops, the cake recipe and the company’s recipe – the Business Blueprint©
Which one would you pay more for? A no brainer.
Naturally, the second one would be far easier to integrate, scale, franchise, sell and identify value-adding M&A deals.
Yet the second one is the exception, not the rule!
By Hugh Page
MD Integrated Value Consulting (IVC)
- What IVC does: we help SME entrepreneurs and leaders build & exit a valuable business at a premium
- How IVC Does It: we demystify business strategy & valuation and help you work “on” the business using our Valuable Business Builder System©
