You’ll commonly hear that formulating a Vision – “What do you want to be? BE INSPIRED!” is the first step of developing a strategy. The only sensible response to that can be that these authors live in la-la land. If your company is a furniture producer and you set as your new Vision to build the world’s first flying car, this can only be described as certain economic suicide. We all understand this intuitively – yet management gurus across the web and beyond will skip right past all opportunities to gain understanding of your company’s concrete opportunities and limitations in order to jump straight to Dreaming Big™.
So let us remind you of what we wrote last week: business is war. The reality is that enemies lurk everywhere, the battlefield is ever-changing, and the conditions outside (and even inside) of your territory will tend to be hostile. If you can’t get a grasp of the lay of the land, learn who your enemies are – their strengths and weaknesses included – or even begin to understand whether you are a battleship, an infantry unit, or a jet plane at heart, forget about conquering a market. Those who own it do so for a reason, and if you don’t know what you’re doing, they’ll be plenty capable of defending it.
In the real world, strategy can only start with setting a direction. What is your position, and what are you trying to achieve? Are you defending a market you’ve already conquered? Or are you aggressively breaking new ground, attacking a major competitor? What are the challenges you’re likely the encounter along the way, and how do you plan to address them? What are the environmental conditions of the ‘battlefield,’ and how might they change during your ‘march’? If your head is in the clouds, you can talk about “vision” all you want, but clouded vision might just lead you off a cliff. Too many companies don’t realize they’re at war until it is too late and they have been thoroughly outmaneuvered. For that reason, the first step can only be analysis; plain old, down-to-earth reasoning. Clear a path before you move.
To give an example of why this is important, think about Uber’s legal troubles. Uber and other companies operating on its “platform economy” model operate on contentious legal grounds; thus, they must have a detailed understanding of the labor law and political conditions of any country they seek to expand to. Just last year, Uber suffered a setback when Germany banned its ride-sharing service, set a fine of 250.000 euros per violation of the order, and required the company to invest in commercial taxi licenses for its drivers. Obviously, a company like Uber – whose investors appear determined to throw huge amounts of money at it – could weather the storm. But not every company is going to be so resilient; could you afford to lose a billion dollars this half year? It’s better to not face unpleasant surprises. Hence: do your environmental analysis.
As Fleischer and Bensoussan (2007) put it, many are content to rely on “informal impressions, conjectures, and intuition gained through the tidbits of information about competitors every manager continually receives.” Rigorous competitive analysis is essential to strategic direction: it is simply a bad idea to fight on your enemy’s terms. Take the example of Windows Phone: Microsoft’s ill-fated attempt to compete in the smartphone OS market in 2010. To quote a former Microsoft engineer, Balaji Viswathan:
“Microsoft on one end was trying to take on Apple on its #1 product. Apple put most of its energy on the iPhone, while phone was just among the 40 things Microsoft did. For a long time, the phone division didn’t even come into the top 5 priorities for Microsoft [with a lion’s share of attention going to Windows, Office, Online Services and Servers – for obvious reasons]. This was not wrong, but that is the reality."
On the other end, Microsoft was trying to compete with Android – with the power of Google, Samsung and the whole open source community behind it. Even if Google were selling Android as a proprietary software without other partners, Microsoft would have found it very hard as Google had its powerful range of services [search, maps, mail] to back it up while Microsoft’s comparative services significantly lag behind those of Google’s.
In short, Windows phone had to compete with two of the best tech companies in the world – one that put phones at its #1 priority and the other expertly leveraging the open source community. It was a fool’s errand. It is crazy for Microsoft to compete in phones or online services when its real strength is in the enterprise.”
Microsoft spent a whopping > .2 billion to buy Nokia in 2014, and took an impairment charge of > .6 billion the next year in a reorganization of its telecommunications efforts. The worst part is that all of this could have been avoided, had thorough and level-headed competitor analysis and understanding of industry trends preceded high-flying Vision Statements. As Viswathan points out, “it was a fool’s errand.” Don’t be that fool.
If you conduct these three analyses – environmental, industry, and internal – with care and attention, you should now have a solid understanding of your company’s competitive and strategic positioning. You’ll know where the environmental pitfalls might be, you’ll know where the competition is toughest and what it soft spots are, you know the tools you have at your disposal. From everything you know about the market, your competition, their products, and their competitive strengths, you’ll be able to deduce some of their possible strategic paths. Now it is time to synthesize all this information into a strategic identity and a roadmap for your company. An operational battle plan, as it were.
We’ll get to that next week in Part 2, where we’ll discuss vision and mission statements; goals and objectives. Please stay tuned – and we’re always happy to engage in the comments section if you have any questions or feedback!