Professor Danny Samson FAIM
The most important thing for an organisation to get right is its overall business strategy. When this strategy is well articulated and has clear goals, it becomes a visible guiding hand that can drive activities right across an organisation. It defines the way forward in the medium and longer term, and guides decision-making and operational priorities in all areas.
Big-picture goal setting is the best place to start. For example, where do you want your organisation to be in three, five and 10 years? How will you make a profit and sustain growth? What resources and capabilities does your organisation have, and what does it need to develop? What’s the fit between your internal capabilities and what the market wants? What market segments will you be competing in and how will your business win in those segments?
At the business unit level, processes should be run in light of the question: “How do we compete?” What is your answer to that question? Will it include cost, quality or service? Reliability of delivery, flexibility/customisation, or innovation? There are others, but a hallmark of great strategies is not trying to be all things to all people in too many market segments. Focus is key! You’ll find that in great companies, value proposition statements are very specific.
The real power of a business strategy comes from its implementation. Too often, firms have clever strategies but not the discipline to make the rubber hit the road in implementing them. So how do you put a strategy in place?
What’s required is a highly ordered and structured approach. Put simply, you need to ‘project manage’ a strategy’s implementation to overcome any inertia and resistance to change from within the organisation. Yet while I advocate taking a disciplined approach, your business strategy should also be flexible enough to be updated in real time if market conditions change.
4 examples of successful strategies
IKEA has a very well-focused strategy which matches its market positioning to its capabilities: to have a low-cost offering that takes well-designed products to the masses. In many cities of the world, IKEA dominates its market segment with only one or two retail stores, which keep costs down. It runs a lean supply chain, often sourcing from low-cost countries, but has an egalitarian culture. It’s a powerful strategy that delivers value for all and is scalable and profitable.
National Australia Bank
Back in 1988, National Australia Bank had one of the clearest strategies I’ve ever seen in banking. Its very clearly articulated strategy was to occupy a low-cost position and offer sound risk management through its industry leading “credit bureau”. When a couple of Australia’s state banks went broke and other big banks got into trouble through their impaired balance sheets, NAB created shareholder value at around three times the rate of the industry index – for a whole decade. NAB’s strategy proved to be scalable and highly profitable. Then due to a change of leadership, it lost that focus, its implementation and controls faded, the strategies imploded and so did NAB.
Medco, a North American company (now a division of Express Scripts) which delivers mail-order prescription pharmaceuticals to more than 60 million Americans, has one of the most brilliantly conceived and implemented strategies I’ve seen anywhere.
Its business model revolves around five pillars: cost, quality, service, turnaround time and earned value add. All of these pillars drive profit, and all can be cascaded right down to operations-guiding metrics that every employee can relate and contribute to.
Transport Accident Commission (TAC)
The company’s high level strategies, improvement initiatives, and even their employee compensation and culture all revolve around those five pillars. And those strategies are delivered with amazing clarity and company-wide consistency. Once again, powerful and profitable.
And finally, a government agency, the Transport Accident Commission (TAC) in Victoria, had a two-pronged strategy of being the best at accident prevention and customer service. TAC’s no-fault insurance scheme (personal insurance for those injured in transport accidents), led the world in performance terms.
I served nine years on the TAC board. When most other Australian states privatised their no-fault insurance schemes, Victoria did not, as we could demonstrate superior performance to private insurance firms, evidenced by benchmarking.
It was an eye-opener to see a government monopoly outperforming the free-market set-ups in other states and countries, and the reasons were clear: strongly focused, scalable strategies, and disciplined leadership of their implementation. Powerful strategies, indeed!
Danny Samson FAIM is a professor of management at the University of Melbourne and chair of AIM’s academic board.