It sometimes appears that the traditional rules of business are being upended by today’s trends in technology, from big data and artificial intelligence to machine learning and crowdsourcing. These trends have transformed the world of business immeasurably.
But they have not repealed the timeless rules of strategy. Yet for too many entrepreneurs, strategy often seems to be an afterthought.
My academic research shows that it is only when timeless tenets are applied that entrepreneurs can sensibly plot strategy.
What I offer here are the most basic questions that every successful business must answer. Entrepreneurs who design their business around these questions will have a leg up when it comes to crafting strategy.
What value are you intending to create, and for whom?
Customers buy products and services because they perceive value in them. The first step towards a successful strategy is to clarify how you plan to create value, and for whom. That means defining who your customers are.
Your customers may be defined by any number of attributes – age, geography, interests or any number of other things. The next step is to define your value proposition. What are you offering? The best imaginable position is to offer a product that is highly valued and demanded by customers.
How do you plan to deliver that value?
In plotting your position in the market, you also need to define your operating model: the set of choices and practices defining how to carry out the business. Designing the operating model means sorting out choices across the entire enterprise that need to work together.
A successful operating model is more than just “how you make money”; it’s a set of decisions that together create more value than each would on its own. It’s about doing things that reinforce each other, creating a whole that’s more valuable than the sum of its parts.
What is your competitive advantage – your source of uniqueness?
Even if you’re delivering a great product that customers love, if competitors can easily copy you, economic theory suggests, they’ll drive your profits down to zero.
There are many sources of competitive advantage, however, and they come in roughly two broad categories.
Resource-based advantages are based in unique assets that are valuable, rare, hard to imitate, durable and specific to your organisation. Position-based advantages involve your role and position in your industry – things like scale and incumbency or network effects and early entry. Think about the resources you have that would be hardest for competitors to copy, as well as any advantages that your position confers. What would keep another company from replicating your operating model?
As you design your business, you’ll want to go deeper into the field of strategy, to expand your theory of how you create and capture value. But don’t lose sight of these questions: they are the foundation of any business’s success.
– Copyright Harvard Business Review 2017
Kevin Boudreau is an associate professor of entrepreneurship and innovation at Northeastern University.