Introduction to Business
Strategy
Paul Newton
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INTRODUCTION TO BUSINESS STRATEGY
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INTRODUCTION TO BUSINESS STRATEGY 3
Preface
This eBook describes five popular business strategy models. Being aware
of the tools, techniques and models available enables you to take an active
role when providing input into the strategy development process.
It describes following models:

Lafley and Martin’s Five Step Strategy Model

Hambrick and Fredrickson’s Strategy Diamond Model

The Business Model Canvas

Porter’s Generic Strategies Model

Mintzberg’s 5 P’s of Strategy Model
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INTRODUCTION TO BUSINESS STRATEGY
Table of Contents
Preface
3
Visit Our Website
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Introduction
5
Lafley and Martin’s Five-Step Strategy Model
8
Hambrick & Fredrickson’s Strategy Model (Diamond)
13
The Business Model Canvas
19
Porter’s Generic Strategies Model
26
Mintzberg’s 5 P’s of Strategy Model
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Other Free Resources
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References
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INTRODUCTION TO BUSINESS STRATEGY 5
Introduction
This eBook describes top five business strategy models that are regularly
used by management to assess long-term strategy and ensure that the
organization’s activities, resources, relationships and processes are aligned
to ensure a profitable future.
Typical scenarios where you could be asked to provide information and data
for your organization’s strategic decision making include:

Analyzing the organization’s external environment.

Assessing the organization’s internal capabilities and how well it
can respond to external forces.

Assisting with the definition of the organization’s strategy.

Aiding in the implementation of the organization’s strategy.
Being aware of the best tools, techniques and models enables you to take
an active and productive role when providing such information.
Business strategy can be described as:
‘Strategy is the direction and scope of an organization over the long
term, which achieves advantage in a changing environment through
its configuration of resources and competences’ Johnson et al.
(2008).
Management plays a key role in providing the background information and
impact potential alterations in both operations and strategy. As a manager it
is essential that you understand the best way to assess how effective each
business process is in terms of its use of resources.
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INTRODUCTION TO BUSINESS STRATEGY
• Internal
capability to
respond
• External
environment
Analyze
Assess
Aid
Assist
• Implementation
of the strategy
• Defining the
strategy
You can use these as part of your decision-making and involvement in the
business strategy process.
1. Lafley and Martin’s Five-Step Strategy Model
This is a new strategy model first published in 2013 and helps
you to develop a strategy that suits the needs of 21 st century
organizations. It consists of five steps that as you work through
a clear strategy, from the top-down, will appear of how your
organization should operate in the future.
2. Hambrick and Fredrickson’s Strategy Diamond Model
Often referred to as ‘Strategy Diamond’ because of how its five
elements are often visualized this strategy model is very
adaptable. It can easily be applied to a wide variety of market
environments. The five facets of the model that make up this
‘diamond’ are - arenas, differentiators, vehicles, staging &
pacing and economic logic.
3. The Business Model Canvas
This model consists of nine building blocks that allow
organizations to create an overall picture of their ‘ideal’
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INTRODUCTION TO BUSINESS STRATEGY 7
structure. The typical building blocks are - key activities, key
resources, key partners, value propositions, customer
relationships, channels, customer segments, cost structure &
revenue streams. It is a very useful model for start-up or
fledgling business ventures.
4. Porter’s Generic Strategies Model
Strategies are a fundamental requirement of any organization
and using Porter’s Generic Strategies places your organization
on the path to success. This model consists of four high-level
strategies, which are cost leadership, differentiation, cost focus
and differentiation focus.
5. Mintzberg’s 5 P’s of Strategy Model
This strategy model takes into account that strategies need to
be amended regularly to ensure sustainability and profitability.
Mintzberg’s 5 P’s of strategy – plan, ploy, pattern, position and
perspective - use these five different approaches to develop
your organization’s strategy.
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INTRODUCTION TO BUSINESS STRATEGY
Lafley and Martin’s Five-Step Strategy Model
To succeed in business – no matter what business you are in – you are
going to need a great strategy. If you look around, you are certainly going to
see that you have competition in the market, but that’s okay. You don’t have
to be the only business in your market in order to succeed – you just have to
be the best.
Lafley & Martin’s 5-Step Strategy Model
Winning
aspiration?
Where will
we play?
How will we
win?
Capabilites
needed?
Management
systems
required?
Where most people think that they need to have the best product or service
in the world in order to win, success in business is actually as much about
strategy as it is about the actual product that is being sold. Of course, it
helps to have a great product, but you need an excellent strategy to match.
If you would like to develop a winning strategy for your own business,
consider using Lafley and Martin’s Five-Step Strategy Model. This is a
relatively new model, which was published in a 2013 book, making it one of
the most-modern strategy models in business. By working through the five
steps that are included in this model, you should emerge with a clear
concept of how your business is going to be run from this day forward.
Step 1 – What Is Our Winning Aspiration?
Quite simply, this is the goal of the organization. Of course, it should be a bit
more specific than just stating that you would like to ‘make money’. All for8
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INTRODUCTION TO BUSINESS STRATEGY 9
profit businesses want to make money, so that doesn’t really help you get
anywhere.
What it is that you are going to do in order to make that money?
Are you trying to dominate a specific market?
Are you just looking for a piece of a big market?
It is important to be specific even at this top level, as your answers to this
question will influence decisions you make later on.
The best way to think about this question is to picture what success would
look like in the future. If your organization is being successful five years from
now, what would that look like? You should be optimistic, but realistic at the
same time.
For instance, if you sell some form of technology, you likely aren’t going to
topple the major players in the tech game, but that doesn’t mean you can’t
hit your own marks for success.
Step 2 – Where Will We Play?
Once you know what it will look like to win, you then need to decide exactly
where you are going to ‘play’ in order to achieve that victory. This question
demands that you identify both the markets and the customers that you are
going to pursue.
For some businesses, such as those that sell directly to consumers, the
answers to this question will be easy. For example,
If you produce a small product that is easy to ship, and you are
selling direct to consumers, you will likely set up a website in addition
to selling on other established e-commerce sites.
However, for businesses that are going to sell to distributors or other
intermediaries, identifying specific markets may take a bit more time and
effort.
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INTRODUCTION TO BUSINESS STRATEGY
Step 3 – How Will We Win?
Now that you know where you are going to be competing in the market, the
next step to deal with is the strategy that you are going to use to make sure
you come out on top.
You are going to face competition in whatever slice of the market you have
decided to enter, so you will need to think long and hard about how you can
position your product or service to stand out from the rest. If you take this
step for granted, you will likely find that your competition remains a step
ahead for years to come.
How will we
win?
Careful positioning
of product or
service
Develop your
product or service
USP
You don’t necessarily have to have a complex strategy in place at this level
to come out on top – but it does need to be a good strategy that has a real
chance to succeed. You could plan on winning the market based on lower
cost, higher quality, faster turnaround times, or some combination of those
three.
Business is very simple when you boil it down to the basic level –
consumers want good products and services for fair prices. Focus on those
tenets and you will be headed in the right direction.
Step 4 – What Capabilities Must We Have in Place to Win?
This is the infrastructure that supports the plans you have developed. In
order to enter the selected markets, and win in those markets, you will need
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INTRODUCTION TO BUSINESS STRATEGY 11
a specific set of capabilities in place within your organization. What are you
going to need to do in order to meet your goals at higher strategy levels?
For instance, if you have decided that you are going to win through offering
lower prices, what capabilities to do you need in order to be able to sell your
goods at a low price point?
Capabilities
needed to
win?
Organization's
Infrastructure
Able to meet
chosen highlevel goal
• Skills of staff,
technology,
production,
route to end
user etc.
• Requires a
strategy to
determine how
Without the capabilities necessary to meet your higher-level goals, the
organization is destined to fail.
Step 5 – What Management Systems Are Required to Support Our
Choices?
All organizations are driven forward by people, even if there is plenty of
technology in place within the company as well. Without good people
working toward a common goal, everything else that you have done to this
point will be wasted. This final step of the strategy process demands that
you take the time and effort to build management teams, which will be able
to support the organizational goals and strategies that have been put into
place.
There is a lot to learn from using this model within your own organization, as
it can help you to quickly create a top-down set of strategies that will keep
your business moving in the proper direction for months and (hopefully)
years to come.
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INTRODUCTION TO BUSINESS STRATEGY
Businesses without specifically outlined strategies tend to ‘float around’ until
they are eventually knocked out by superior competition. Don’t let that
happen to you. Use this five-step process to clearly define all of your
strategies and look forward to a long and prosperous future.
Key Points
-
Lafley and Martin’s Five-Step Strategy Model was published in a
2013 book, making it one of the most-modern strategy models in
business.
-
What should be the winning aspiration? Organizations should
define exactly what winning means to them.
-
Where you are going to play? Organizations can choose where to
play in terms of services and product lines.
-
How you are going to win? In order to make the above decisions
work, they have to be supported by the things that an organization
can do better than the competition.
-
What capabilities you should build? The organization should look
at its strong points and core competencies and tailor them to
support the first three points.
-
What management systems are needed? The organization must
decide whom they need, what they need, how they will deliver,
and how they can tell whether the strategy is succeeding or not.
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Hambrick & Fredrickson’s Strategy Model (Diamond)
The strategy model produced by Hambrick and Fredrickson, also known as
the strategy diamond, is a useful model for managers and business owners
in a wide variety of markets. As you already know, strategy is an incredibly
important part of your everyday business operation.
Strategy
Diamond
Ensures ALL relevant data is collected
& considered
As part of the decision-making process
All decisions are finalized before
moving forward
To make sure you give yourself the best possible chance at success moving
forward, you have to have your strategy laid out clearly right from the start.
Many businesses have failed due to a lack of strategy, so take time right
away to outline how it is that you are going to get from where you are now to
where you would like to be.
One of the challenges that you are certain to face when trying to make
strategic decisions is making sure to include all of the relevant information in
the process. It is easy to overlook bits and pieces of the overall picture,
especially when you are dealing with a large business that has many
moving parts.
This is where the strategy diamond can come in handy. When you use this
model, you will be able to make sure that you are considering everything
that is relevant to your decisions before you finalize them and move forward.
There are five total pieces that make up this ‘diamond’, and we will look at
them one by one in the content below.
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Arenas
Where is it that you are going to compete for market share? This is the first
question that you are going to have to answer when using the Hambrick and
Fredrickson model. Of course, this is a logical place to start, as all of the
subsequent decisions that you make regarding your strategy are going to
relate to the markets where you have chosen to compete.
You have a number of options for ‘arenas’ that you can use to grow your
business today thanks to the ubiquity of the Internet and online shopping.
Are you going to be selling straight to consumers through a number of retail
channels, or are you building a business-to-business model instead?
Arenas
Economic Logic
Differentiators
Strategy
Diamond
Staging & Pacing
Vehicles
Whatever your plan, outline it in detail here before moving on to the next
portion of the diamond.
Differentiators
This is crucial to your strategy you must ask such questions as those below
and you absolutely must answer them before you are going to be able to
move forward successfully. In many ways, this question is at the heart of
being in business.
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INTRODUCTION TO BUSINESS STRATEGY 15
How are you different from the competition?
What is it about the products and/or services that you offer that will
allow you to win in the market place?
If there is nothing that is going to differentiate you from the crowd, you will
not stand a chance of being successful.
Think about recent buying decisions that you have made in your own
personal life.
How did you make those decisions?
Where they based on a certain factor that you valued over
everything else?
Most likely, you make the majority of your buying decisions on either quality
or price. In some cases, you will buy an item because you know it is the
best available. Other times, however, you will buy to save money, sacrificing
quality for cost savings.
Most Buying
Decisions
are based on
'Quality' or 'Price'
Find a way to
differentiate your
organization
Turning that concept around and using it to think about your business, how
are you going to compete for customers – on quality, or on price? Find a
way to differentiate yourself from the rest of the market and you will have a
shot to succeed in the short and long term.
Vehicles
Now that you have two huge questions out of the way – where you are
going to compete, and how you are going to stand out – you will need to
move on to the implementation side of the puzzle.
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How are you going to develop the products and services that you
plan to sell?
Is everything going to be done ‘in house’, or will you be partnering
with other organizations to create goods that can be taken to market?
This is another important point, because it will affect how fast you are able
to grow, and how quickly you can get to the market with your goods. There
are pros and cons to both sides of this debate, so there isn’t a ‘right or
wrong’ answer – think about your situation and the market as a whole
before finalizing a strategy for product development and launch.
Staging and Pacing
The path from ‘here to there’ isn’t always clear in business. In other words,
you may have great plans for the future of your organization, but you need
to have a strategy for getting from where you are now to where you would
like to be later on.
• to where you
WANT to be
with
• Staging
& Pacing
process of
Strategy
Diamond
gets you
from
• Where you are
NOW
Larger
Market
Share
This is where the staging and pacing part of the diamond comes into play.
Working from one logical step to the next is the only way to grow your
company, as you will run the risk of going out of business if you get ahead
of yourself along the way.
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INTRODUCTION TO BUSINESS STRATEGY 17
Many previous organizations have been destroyed by rapid expansion that
they were not ready to handle – and that is a legacy that you do not want to
follow with your own business. Put a growth strategy into place and follow it
closely on your way toward the top.
Economic Logic
The final portion of the diamond is meant to pull everything together in the
name of profitability (for a for-profit business).
Are all of the decisions and strategy choices that have been made up
until this point going to work together to generate profit?
If not, where can you make adjustments to bring the business into the
black?
At the end of the day, you will need to turn a profit if you are going to be
around for the long run.
Only when your strategy makes economic sense should you go ahead with
the plans that you have put into place during the previous steps. As long as
it all ‘adds up’ at the end and your strategies play nicely into one another,
you should be able to move forward with confidence.
Key Points
-
The model covers strategy formulation and helps answer
questions about what the strategy is and what it will be in the
future.
-
It suggests that good strategies include answers to a series of
related questions spanning target markets, growth vehicles, speed
and path of strategic change, and financial deliverables.
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INTRODUCTION TO BUSINESS STRATEGY
Key Points
-
Arenas encompass choices made about where to compete: the
external environment such as product or service markets,
geographic markets or channels. They also identify activities that
are outsourced.
-
Differentiators are those factors that are believed to allow the firm
to compete effectively in its targeted arenas, and include image,
price, and reliability.
-
Vehicles identify the degree to which the strategy relies on internal
development efforts relative to partnering with external parties.
-
Staging and pacing refer to the sequence and speed of strategic
moves, helping identify decision points since strategic moves don’t
have a single possible pathway.
-
Economic logic reflects how all the pieces tie together in a way
that satisfies key stakeholders.
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INTRODUCTION TO BUSINESS STRATEGY 19
The Business Model Canvas
The Business Model Canvas has quickly become a popular tool for those
planning out a new business venture. While this model is frequently used as
a strategy planning model for startups, it can also be put to use by existing
businesses wishing to turn in a new direction as they look to the future.
The Business Model Canvas
is suitable for
Developing a future
direction for an
existing organization
Planning a new
business venture
Either way, this is a useful technique as it helps you to gain an overall
perspective on the business you are hoping to run. Rather than going into
business with a half-cooked idea that is full of holes, use this canvas to your
advantage so you can get started with a well-rounded concept of what you
are trying to accomplish.
This business model is divided up into building blocks that can be used to
create an overall picture of the desired organization. While there are a
variety of iterations of this model that have been put into use, you will
commonly find that the model includes nine unique building blocks. The
content below will highlight each of those nine building blocks.
Key Activities
What are the activities that the company will be engaged in? This should go
a bit deeper than just a listing of the products or services that you wish to
sell.
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INTRODUCTION TO BUSINESS STRATEGY
How are you going to create value for your customers?
Are you going to sell your product at a lower price than your
competitors?
Or are you going to create a better product overall?
By deciding how your business is going to compete on a day-to-day basis,
you will have the start of an overall business strategy.
Key Resources
These are the things that you have access to which are going to give you an
advantage over the competition. For instance, do you have people with
special skills, or perhaps a proprietary piece of equipment for producing
your goods? Everything listed in this part of the canvas should be
considered an asset to the business, in whatever form it happens to come.
The Business Model
Canvas
most commonly used
building blocks
Key Activities
Key Resources
Key Partners
Value Propositions
Customer
Relationships
Channels
Customer Segments
Cost Structure
Revenue Streams
Key Partners
No business is an island – you are going to need strategic partnerships if
you are going to succeed. Often, these key partners will come in the form of
suppliers who play a role in the creation of your product. For instance, if you
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INTRODUCTION TO BUSINESS STRATEGY 21
are building a product from scratch, the companies who supply you with
your raw materials would certainly be considered key partners.
Value Propositions
This is the core of your business. When someone asks you what it is that
your business does, your answer will likely mirror your value proposition. If
you pride yourself on quality over low prices, you may say that your value
proposition is to offer customers the ‘best widget on the market today’.
Value Propositions
are the
core of
Your business
On the other hand, you could offer ‘the most affordable widget on the
market’ if you are targeting the value market. Before you get too far down
the road of starting and running your business, you should have your value
proposition firmly defined.
Customer Relationships
Who are your targeted customers, and how are you going to build
relationships with those people that last for years to come? There are a
number of ways to build customer relationships:
from providing great customer service
to offering unbeatable prices and loyalty discounts.
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Of course, as a new business you won’t have customers just yet, but you
should already have a clear picture of how you are going to try to build
those all-important customer relationships. In today’s digital world,
connecting with your market via social media and other online channels is a
common strategy for developing a loyal following.
Channels
There needs to be a clear strategy in place for how you are going to deliver
your products to your targeted customers. Will you be opening up your own
storefronts, or will you be selling through distributors? Perhaps you will
focus on online sales instead, or you will use a combination of these
options?
Distributors
Online
Mixture of all
these
Own Stores
Select Your
Distribution
Channels
No matter what direction you decide is best for your distribution, make sure
you have a good idea of how the products you make will get to the
customers you target. Many businesses have failed because they didn’t
properly develop their channels, even though they had a great product to
sell.
Customer Segments
Deciding on who specifically will be buying your goods or services is
another important step in this process.
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INTRODUCTION TO BUSINESS STRATEGY 23
Are you going to sell to the market as a whole?
Or is there a specific niche that you will target?
This is all going to depend on exactly what you are selling. Some
businesses are well suited for targeting the whole market, while others
would be better served to identify and target a smaller niche that they can
potentially dominate.
Cost Structure
Money is the name of the game in business. If you fail to make decisions
based on money, you will fail to be in business for long.
How are you going to structure your business from a cost
perspective?
Are you focused only on costs?
Or are you focused on producing the highest quality product possible
even if that means a higher cost?
There are successful businesses on both sides of that equation, so it is a
matter or preference and analyzing the market for opportunities.
Revenue Streams
Quite simply, how are you going to make money? You need to start bringing
in money as soon as possible in order to pay the bills and keep your
business moving forward. Are you simply going to make money by selling
units of your ‘widget’, or will there be other revenue streams built into the
company (such as subscriptions, licensing deals, ad fees, etc.). This is
another point that is dependent on the specific form and function of your
business.
You could easily spend weeks or even months working on your business
model canvas, and that is exactly what you should do before jumping head
first into a new venture. Using this model will allow you to work out any
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INTRODUCTION TO BUSINESS STRATEGY
potential roadblocks that are standing between you and a successful future.
Once complete, you will have a clear picture of the plan that is now in place,
and you will be able to proceed accordingly.
-
The model covers strategy formulation and helps answer
questions about what the strategy is and what it will be in the
future.
-
It suggests that good strategies include answers to a series of
related questions spanning target markets, growth vehicles, speed
and path of strategic change, and financial deliverables.
Key Points
-
The Business Model Canvas has quickly become a popular tool
for those planning out a new business venture.
-
It takes the form of a visual chart with elements describing a firm’s
or product’s value proposition, infrastructure, customers, and
finances.
-
While there are a variety of iterations of this model that have been
put into use, you will commonly find that the model includes nine
unique building blocks.
-
Key Activities: What unique things does the business do to deliver
its proposition?
-
Key Resources: What unique strategic assets must the business
have to compete?
-
Key Partners: Who are your key partners/suppliers? What are the
motivations for the partnerships?
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INTRODUCTION TO BUSINESS STRATEGY 25
Key Points cont.
-
Value Propositions: When someone asks you what it is that your
business does, what is your answer?
-
Customer Relationships: What relationship is it that the target
customer expects you to establish?
-
Channels: How are your value propositions promoted and
delivered?
-
Customer Segments: Who are the customers?
-
Cost Structure: What are the business’ major costs?
-
Revenue Streams: How are you going to make money?
-
The Business Model Canvas is an effective strategic management
template for developing a new or documenting an existing
business model.
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Porter’s Generic Strategies Model
Having a basic strategy at the heart of your business is a crucial part of both
short and long term success. It is easy enough to set out in business with a
general idea of what you want to accomplish, but the market will, usually
swallow up organizations’ that lack a specific strategy.
Rather than falling into this trap, take the time to develop a specific strategy,
which is going to guide your day-to-day decision-making going forward.
Most people find it much easier to run an organization when they have a
strategy in place that is dictating how they proceed.
Porter's Generic Strategies
Cost Leadership
Differentiation
Cost Focus
Differentiation Focus
With that concept in mind, using Porter’s Generic Strategies is a great way
to place yourself on a path toward success. The strategies – four in all – that
are included in this model are high-level concepts of how you can choose to
proceed in business.
Not all businesses are created equal, and there is a great deal of variation in
strategy even among businesses that are similarly successful. You can take
a variety of paths to reach your goals, but you have to know which path it is
that you wish to take if you are going to come out on top in the end.
In the content below, we will take a brief look at each of the four strategies
you can choose from within this model.
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INTRODUCTION TO BUSINESS STRATEGY 27
Cost Leadership
This is a common business strategy, and it is probably one that you have
considered as you try to gain an edge on the competition. Cost leadership
means you are going to lead the market in controlling costs in one way or
another.
Lowest
costs to
produce
Lowest
price
Cost
Leadership
Strategy
Within this strategy, however, there are actually two ways you can go.
Option 1 - is to offer your products at a lower cost than your competition,
convincing consumers to pick your product simply because it is the least
expensive choice on the shelves.
Option 2 - you could opt to take a cost leadership strategy by producing
your units for the lowest cost while still charging average prices for the
goods. In this way, you will make a larger margin on each sale than will your
competitors, so you can win in the long run even if you don’t sell significantly
more units. In fact, you might even be able to win by selling fewer units if
your profit margins are large enough.
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While it might seem like an easy choice to simply sell your products for the
lowest possible price, you need to make sure that you can sustain that plan
over the long run.
For instance, if there is a larger player in this market, they may
decide to undercut you for a period of time in order to run you out of
business. Are you going to be able to keep up on the cost front?
If not, you may need to pick a different strategy – or at least use a blend of
strategies to carve out part of the market for yourself.
Differentiation
In many ways, the differentiation strategy is exactly the opposite from the
cost leadership option. With this plan, you are going to try to take over the
market from a quality and functionality standpoint, rather than simply trying
to sell the least expensive item on the shelf.
Present product as superior
in 'Quality', 'Function" &
'Features'
Differentiation
Strategy
Marketing plan must
persuade consumer of
superiority
When you think about differentiation, you should be thinking about luxury
brands. For instance, how does a luxury brand sell a purse for $500 or more
when plenty of companies sell purses for $20?
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INTRODUCTION TO BUSINESS STRATEGY 29
They convince the market that the quality and style that is offered by
their product is worth the higher price.
They have differentiated themselves from the lower cost options
successfully, and they succeed as a result.
Of course, it isn’t exactly easy to differentiate yourself from a quality or
functionality standpoint. Not only do you need to have a great product to
offer, you also need to have a strong marketing plan to inform buyers about
your item.
When in doubt, consumers are going to default to the most affordable
choice, so you need to be able to educate them about your product and
everything that it can do. Without a great marketing plan and team, you will
probably be left with a high priced item that is stuck on the shelves.
Cost Focus
The strategy in this part of the model is the same as the cost leadership
concept, except you are going to be focused on one specific niche of the
market. Rather than trying to sell to everyone, you are only going to be
trying to sell to a small portion of the market that is focused on buying a
unique product.
Cost Focus Strategy
uses the principle of 'Cost Leadership' strategy
to focus on one specific market niche
with the aim of being the niche leader
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INTRODUCTION TO BUSINESS STRATEGY
While this strategy might not have the growth potential that you will find
when dealing with the broader market, you will have the opportunity to
become the major player within the niche – therefore securing your place for
years to come. If you can get into a small niche with a product that is sold
for less than any other, you will stand a great chance to succeed.
Differentiation Focus
As you might imagine, the differentiation focus strategy is similar to cost
focus, except you are going to work within a niche market while trying to
stand out on a quality basis.
Differentiation Focus
Strategy
Selects a specific niche
to stand out on 'quality' basis
You might not be the least expensive product available – in fact, you might
be the most expensive product available – but that isn’t the point. As long as
you can present consumers with something they are looking for, and you
can justify your higher price, you may be able to grab a large share of the
niche market.
Porter’s Generic Strategies are a great way to think about the overall
positioning of your business. You certainly don’t want to wander blindly into
the market, hoping to get lucky and find a spot for your company to thrive.
Use this model early on in the planning process to pick out a strategy and
let that strategy lead you out into the market.
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INTRODUCTION TO BUSINESS STRATEGY 31
Key Points
-
The two basic types of competitive advantage combined with the
scope of activities for which a firm seeks to achieve them, lead to
four generic strategies for achieving above average performance
in an industry: cost leadership, differentiation, cost focus and
differentiation focus.
-
A company chooses to pursue one of two types of competitive
advantage, either via lower costs than its competition or by
differentiating itself along dimensions valued by customers to
command a higher price.
-
A company also chooses one of two types of scope, either focus
(offering its products to selected segments of the market) or
industry-wide, offering its product across many market segments.
-
The generic strategy reflects the choices made regarding both the
type of competitive advantage and the scope.
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INTRODUCTION TO BUSINESS STRATEGY
Mintzberg’s 5 P’s of Strategy Model
Strategy is an extremely complicated and dynamic thing. A great strategy
one day could be useless the next, depending on market forces and
changes that are outside of your control. Great businesses are always
adapting, and that means changing strategy frequently to meet with your
needs.
While it is great to develop an initial, overall strategy for your business when
first getting started, it is unlikely that your chosen strategy is going to last
very long. In reality, you will likely need to make many changes along the
way if you are going to find your way toward success.
Business
Strategy
Strategy Model
Approach to
Strategy
Plan
Ploy
Needs to be regularly
updated in response to
changes in market
forces
Mintzberg's 5
P's
Pattern
Position
Perspective
With the understanding that strategy needs to change regularly in business,
it is a good idea to turn to a model such as Mintzberg’s 5 P’s of Strategy for
assistance. This model, as the name would indicate, includes five different
approaches to strategy (each beginning with the letter ‘p’, which makes
them easier to remember). In the content below, we are going to take a
quick look at each of the 5 P’s.
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INTRODUCTION TO BUSINESS STRATEGY 33
Plan
This is probably where you will naturally start out when thinking about
strategy. You will think about producing a plan for your company, which is
going to take you from where you are now to where you would like to be in
the future.
For instance, your strategic plan could include such basics as:
The products you are going to sell,
How you are going to produce those products, and
How much they will cost at market.
Basic business planning can be thought of as the foundation of a good
strategy – it is a great platform to start from, but it is not going to get you all
the way to the ‘promised land’.
Ploy
In this part of strategy, your thinking is going to turn to your competition.
There is no way to ignore competition in business – it is always going to be
there, and it is always going to have a profound effect in what you can do.
Strategic Ploys must use a two-fold approach
1st - seek competitive advantage
through
Innovation
Creativity
Initiatives
etc.
2nd - operational focus
to ensure product
quality retained
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INTRODUCTION TO BUSINESS STRATEGY
You can use a specific ploy to disrupt whatever it is that your competition
might be doing to seek out a competitive advantage over you in the market
(only in a legal manner, of course). By trying to think one step ahead of the
competition, you may be able to take control of your market segment for
years to come.
You have to be careful with strategic ploys, however, as they have the
potential to distract you from mastering your own business. It would be a
mistake to focus so much on your competition that you fail to product quality
products or services that you can take to market. Use a strategy ploy or two
is part of good business, but make sure the focus remains on your own
operation at the same time.
Pattern
The pattern part of this strategic model is all about noticing what is going on
in your business currently so that you can leverage those patterns into
future success.
Pattern
Strategy
looks at
what has
worked in
the past
Market patterns
are often
unintentional
Key is to be able
to identify such
patterns
& seeks ways to
continue, even
enhance this
pattern
& where they're
beneficial incorporate
them into your strategy
In other words, you are going to figure out exactly what has been working
for you by looking to the past, and then you are going to think of ways to
continue (or even enhance) those patterns. Often, this kind of strategy isn’t
so much intentional as it is accidental. You might be surprised by a pattern
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INTRODUCTION TO BUSINESS STRATEGY 35
that develops in the market, but you can do your best to take advantage of
that pattern once it has revealed itself.
It would be a serious mistake to interrupt a current pattern that is
benefitting your business simply because it was not part of an original
strategy or plan.
This is a great example of why it is important to remain flexible and to
always be willing to alter your strategy going forward. If a profitable pattern
comes to the forefront through the course of regular business, you would be
crazy to fight it – rather, you should identify it and then leverage it as much
as possible going forward.
Position
All businesses have to fight for position in the marketplace.
How are you going to carve out a piece of the market for yourself?
Are you going to play in a big market against the big names?
Are you going to fight for the top spot in a niche market?
There are pros and cons to each approach, and this is just one potential
debate as far as positioning is concerned. You can also think about
positioning in terms of your method of sales, the quality of product you are
going to offer, the price point you are going to compete at, and more.
Rather than falling into the market accidentally, your positioning should be
very much intentional and strategic in nature, and it should be based on
careful market research and projections.
Perspective
Every business comes at the market from their own unique perspective. For
example, you might run a business that is focused on making a classic
product that has been for sale for many years – meaning rather than
innovation, your perspective on business is one of quality, execution, and
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INTRODUCTION TO BUSINESS STRATEGY
cost control. On the other hand, if you are trying to bring new ideas to the
market, you will have a perspective and culture that is geared in that
direction instead.
Quality & execution of
classic products
Perspective
Strategy needs
to match your
culture
Innovation & creativity for
new products
A big part of successful strategy is identifying exactly what your perspective
on the market is going to be so you can gear all of your decisions to match
that concept.
There are many benefits to using Mintzberg’s 5 P’s of Strategy. Not only can
this model help you get a good handle on your strategy right up front, but it
can also force you to think through a variety of different angles that you may
not have considered otherwise. Once you understand how each of the 5 P’s
influences your strategic business decisions, you can use them to help you
steer the organization toward a prosperous future.
Key Points
-
Mintzberg suggests there are five ways in which the term ‘strategy’
is used. These are called his ‘5Ps for Strategy’. Strategy can mean
any of the following:
-
Strategy as Plan: The strategy is made in advance of its
implementation and is followed up by actual implementation and
development.
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INTRODUCTION TO BUSINESS STRATEGY 37
Key Points cont.
-
Strategy as Ploy: This is a specific maneuver intended to
outperform a competitor.
-
Strategy as Pattern: Strategy can sometimes be explained in
terms of a pattern that emerged rather than something that was
preplanned.
-
Strategy as Position: This is represented by finding a niche,
providing distinctive product, or by exploiting existing competences
to deter competitors.
-
Strategy as Perspective: This refers organizational culture, as
strategy can be a result of the way a company views itself.
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INTRODUCTION TO BUSINESS STRATEGY
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INTRODUCTION TO BUSINESS STRATEGY 39
References
Mckeown, M. (2nd Ed. 2015) The Strategy Book: How to Think and Act
Strategically to Deliver Outstanding, FT Publishing International
Cadle, J., Paul, D. and Turner, P. (2010), Business Analysis Techniques, 72
Essential Tools for Success, BCS The Chartered Institute for IT.
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Strategy with MyStrategyLab, Financial Times/Prentice Hall.
Kotler, P., Keller, K.L., Brady, M., Goodman, M., and Hansen, T. (2009),
Marketing Management, Pearson Education.
McDonald, M. and Wilson, H. (2011), Marketing Plans: How to Prepare
Them, How to Use Them, 7th Edition, John Wiley.
Campbell, D., Edgar, D., Stonehouse G., (3rd Ed. 2011) Business Strategy:
An Introduction, Palgrave Macmillan
FT Series (1st Ed. 2013), FT Essential Guide to Developing a Business
Strategy: How to Use Strategic Planning to Start Up or Grow Your Business,
FT Publishing International
Aaker, DA., Damien McLoughlin, D., (1st Ed. 2011) Strategic Market
Management: Global Perspectives, John Wiley & Sons
Johnson, G., Whittington, R., Scholes, K., Angwin, D., RegnŽr, P., (10 th Ed.
2013) Exploring Strategy Text & Cases Pearson
Hooley, G., Nicoulaud, B., Piercy, N., (5th Ed. 2011) Marketing Strategy and
Competitive Positioning Financial Times/ Prentice Hall
The Economist, Kourdi, J., (3rd Ed. 2015) Business Strategy: A Guide to
Effective Decision-Making Economist
McDonald, M., Wilson, H., (8th Rev. Ed. 2016) Marketing Plans: How to
Prepare Them, How to Profit from Them John Wiley & Sons
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INTRODUCTION TO BUSINESS STRATEGY
Baye, MR., Prince, J., (Global Ed. 2013) Managerial Economics and
Business Strategy McGraw Hill Higher Education
Cotton, D., (2010) The Business Strategy Toolkit Management Books 2000
Ltd
Campbell, D., (2nd Ed. 2002) Business Strategy: An Introduction
Routledge
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