What is not strategy!- Part2

This is the second  in a series of articles in which Mr. Bhattacharya explores the misconceptions about Strategy

In the previous issue, Mr. Bhattacharya explored two common errors in understanding strategy. He wrote about confusing objectives with strategy and how actions are considered a substitute for it. He continues the discussion here.

3. The Seduction of Scale.

Asked how they would achieve stated objectives, some managers will offer to do more. They would add manpower, appoint more resellers, open more outlets, increase production, or simply work harder. Admittedly, it may work if the firm's customers are already inclined in their favour. If it is simply a matter of reaching more customers, or producing to meet pent up demand, scaling up the effort might work. Chances are the firm already has a strategy and it is working. But scaling up is not strategy. If current methods are ineffective, scaling up the effort is unlikely to produce results.

Greater effort may work if it builds on the foundation of the firm's successful business strategy. DELL may open a large call centre in Swaziland and employ their Internet based order booking system in the local language. In this case DELL will transpose, or scale up their strategy of serving corporate customers to a new country. It will work if the market segment is large enough and sufficiently ready to buy in the manner DELL sells.

But doing more of what they do in Mexico may not work as well for Monsanto in India. Crops are different. Worms and pests have strange appetites. Peasants have small landholding and farm mechanisation is rudimentary. Monsanto's growth strategy for India would need to be different. They can't hope to grow by merely doing more of the same methods they employ in Mexico. New ones relevant to the needs of Indian farmers are necessary. Monsanto must be able to give them good reasons to buy. If the firm's growth strategy is not built on the foundation of competitive strategy, it will not be effective.

Scaling up is akin to casting the net wider, or using a bigger net. But as any fisherman will tell you it doesn't help if the fish are feeding elsewhere. To catch customers a company must first know the kind they want. They must learn about what customers prefer, where they might be found and how to persuade them. And then employ that knowledge and insight to offer products and services in the most appropriate manner. This is strategy. No business can grow without it. Doing more, working harder may lull us into believing we are trying but it is not strategy.

4. Quality, cost, customer service are not strategy.

In this era of globalisation it has become imperative to continuously chase costs. No business can justify higher costs unless it is delivering a unique or superior benefit. Lower costs enable the firm to charge lower prices and sell more. If the firm chooses to sell higher and customers still find it attractive, they make more profit. Productivity of plant and machinery, or people can create similar outcomes. It may seem paradoxical but aggressively reducing costs or increasing productivity does not constitute strategy. Neither does raising quality. 

There is an acceptable quality at every price point in a product category. Customers will shun a product that offers inferior quality at the same price as competitors'. They avoid services that do not measure up in their expectation of quality. By improving quality over competitors' a firm can create competitive advantage. But it doesn't take long for others to match, or move ahead. Quality is a moving target. You have to improve it continuously to remain in customers' consideration. Fall behind and you're doomed; forge ahead and you gain a short and diminishing lead. Competing on quality is usually unsustainable. Quality is an imperative. You cannot hope to be in business if you do not offer quality products or services. That is why quality cannot be strategy. 

Customer service can't be either. Customers expect to be served promptly, effectively. They expect sellers to be responsive. Buyers of machinery know faults can occur at a certain frequency. When they do, sellers must set them right within reasonable time. A company can create a temporary advantage by serving customers better than competition. They can fix faults quicker, more reliably. But it is unlikely the benefit will last. Competition is very likely to catch up. 

Michael Porter, in his influential article ‘What is Strategy', called cost reduction, quality improvement and customer service operational effectiveness. He argued they are not strategy because, one cannot choose to market products of competitively low quality. One cannot afford to say one will not reduce costs, or will serve customers poorly.

Strategy is about creating value for customers. In this respect operational efficiencies and strategy are alike. But that is where similarities end. Strategy is about making choices. If you take one road you cannot take another. Unlike strategy - operational efficiency, or operational effectiveness as Porter called them, is a never-ending demand of the market place. It is complementary to strategy, not an alternative to it. 

Mr. V.N. Bhattacharya is a management consultant on business. Feedback at marketinggyan@businessgyan.com

Issue BG60 March06