Strategic Advantage

Why have companies turned their backs on strategy? Probably because most of the twenty-something dot.com CEOs weren’t even born when good solid strategic books were being written.

One of my favorite thinkers Michael Porter wrote back in 1980 book called Competitive Strategy. Of particular interest is Chapter 2: Generic Competitive Strategies. In this chapter Porter puts forth three strategies that can be successfully followed.

1. Overall Cost Leadership
2. Differentiation
3. Focus

One of these three is to be used in combination with Porter’s famous five industry forces (threat of new competitor entry, competition among firms, customer power, supplier power and substitute products).

While each of these strategies has its unique associated risks, there is one memorable graphic (which you will have to draw because I cannot use graphics in this column).

Draw a large “L”. On the Y axis we have “Return on Investment” on the X axis we have “Market Share”. Now, draw a large “U” inside the “L”. (It should look like this |U ) At the upper left of the “U” you have a high ROI with a small market share. This is indicative of a niche strategy or in this case a Focus strategy. At the upper right of the “U” you have a high ROI and a large market share. This indicates overall cost leadership or differentiation- taking advantage of economies of scale and what not.

What you want to avoid like the plague is the bottom of the “U” or what is called “stuck in the middle”. This strategy is basically the kiss of death.

How many sites have you been to where the sites value offering was not clear? Hundreds? I find myself looking at sites thinking, “What IS it theyƕre offering?” I have, however, found two good examples of TIGHTLY focused firms.

The first one is ants.com . They offer a service (Scout) that keeps your address book updated. (They also offer a freelance service under a different name- that is to avoid one of the main risks of a focus strategy- putting all your eggs in one basket.) That’s it. Their slogan could be “We do addresses.” Great. The service is beautiful (However it does not work on a Macintosh).

The second is driveit.se . They offer a hassle free way to keep up with how many miles a rental car has been driven. That’s it. Their slogan could be “We count miles.”

The two services are so simple you can’t help but love it. Simple, easy to understand and focused. Take a look at their sites and think about it.

Until next time- Happy Focusing!

Jason Ball

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