What trade-offs are you building into your strategy?

Understanding the nature of the trade-offs in your market will illuminate the strategic choices you are making.

A trade-off exists where getting better at one thing means getting worse at another. These trade-offs exist at three levels – product, brand and corporate trade-offs.

Trade-offs are easiest to spot at the product level. If you want more battery life, you have to make the mobile phone heavier. Yes, improvements in technology will continuously push back the boundary, but the fundamental trade-off will always be there. When one product does different jobs for different customers, some features will be over-or under-served for each customer. Do you focus on one job or live with the compromise?

Even if you design different products to perfectly match these different jobs, another trade-off is created if you put them under the same brand. The trade-off is the loss of clarity for customers if one brand does multiple different jobs for them.

Separate products and separate brands can overcome these limitations. Then, the strategic trade-off happens at the corporate level. Your whole organisation is perfectly aligned to deliver a specific value proposition. Any change to the organisation to deliver a different value proposition at the same time will make it worse at the original. For example, the same organisation will find it hard to be competitive at high value branded innovation and low cost commodity product at the same time.

Trade-offs are at the heart of strategic choice. Understand them explicitly will tell you how far you can stretch your business.

How can your corporate reputation make strategy execution easier?

Your corporate reputation is the first thing that impacts execution of your strategy

Let’s be clear what we mean by your corporate reputation. We are not talking about designing corporate logos and slogans, but the more important question of what do your customers, competitors and partners think about your company.

Why does this matter? Because what they think about you determines what is possible for your company right now.

If customers know you as a product company, you will have a hard time selling them a solution.

If three different companies made the same market entry move, the incumbent may regard one as harmless, another as too strong to counter, and a third as requiring immediate aggressive action to block. It is the different competitive reputations that determine the different reactions.

Before you even get to the negotiating table, your reputation will have got there first. It impacts potential partners and colours their reaction to any deal you propose.

How can you cultivate a reputation to make executing your strategy easier? There are no short cuts – it takes consistent, persistent action, aligned to the reputation you want. Show customers results generated by your strategy. Train your competitors through repeated action/reaction cycles. Avoid any inconsistent action. The impact can be enhanced by consistent and ongoing communication, but words will make no difference on their own.

How do you manage strategic risk?

Managing strategic risk requires the opposite approach to managing financial risk.

The techniques to manage financial risk have become familiar to anyone who does their own personal finance or read the FT. Invest in a portfolio of unrelated assets, maintain liquidity, make multiple bets, limit your exposure to any one position or variable. The concepts are well proven and applied in business too.

Approaches that work for finance are like poison for managing strategic risk however. Strategic risk can be defined as the chance of becoming undifferentiated, with no clear competitive advantage. Then business becomes a hard commoditised struggle.

Defined like this, the peril is clearer. The danger is of a “portfolio” approach to strategy, where we choose some of this and some of that, never burn our bridges, never commit to one direction.

The problem with this “prudent” approach is that in today’s increasingly competitive world, achieving competitive advantage is hard – not just matching the competition, but carving new ground. Half measures and hedged bets will increase strategic risk, not mitigate it.

Strategic risk can be minimised by a bold choice. And to be bold without being naïve, the strategy has to be well-thought through with the organised contribution of the whole of the management team. As Warren Buffet said “Put all your eggs in one basket – and watch that basket carefully!”