Better value chains: a matrix for competitive advantage

What is it about?

Identifying and describing the four main business strategy choices available to any business, in order to create a winning competitive advantage: i) “Innovative” quality (design, style, reliability) – provided by product development functions of R&D, design and engineering. ii) “Attentive” service (branding, positioning, complaint resolution) – provided by customer relations functions of marketing, sales and after sales. iii) “Agile” delivery (resilience, flexibility, responsiveness) - provided by supply chain functions of procurement, operations and logistics. iv) “Lean” cost (process efficiency) – a shared responsibility across all the above functions, as well as back-office functions such as finance, IT and HR. This paper strongly argues that, whilst all four business strategies must be present to some degree, the relative priority assigned to each, is critical to ultimate success and can be determined using a 2x2 business strategy matrix. To discover the best strategy for your business, you need to make two decisions. The first decision is to decide where your business unit’s target markets lie on the differentiation continuum : premium or budget. This will determine whether the optimal strategy favors innovative quality or lean cost, respectively. The second decision is to decide where your key business products unit’s lie on the customization continuum: custom or standard. This will determine whether the business strategy favors agile delivery or attentive service, respectively.

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Why is it important?

Companies who do not choose an optimal business strategy mix for each of their business units – will invariably struggle or may even go bankrupt. If a business does not have the best possible vision relative to its products and markets, it is difficult to impossible for lower levels of management to compensate for such a failing, since tactical and operational plans will always be governed by the overall business strategy. Companies which do choose the optimal business strategy to match their target markets and key products, have a vastly improved chance of success. Put simply, a company wanting to win orders in the premium market segment, such as a high tech leader, would do well to strategically prioritize innovative quality activities over lean cost cutting activities – yet without completely losing sight of the latter or else not even qualifying for order consideration by customers. Meanwhile a budget oriented car company would do better to prioritize lean costs over innovative quality. Similarly a company wanting to win orders with custom product configurations for each customer, such as a B2B software provider, would do well to strategically prioritize agile delivery over attentive service – yet without completely losing sight of the latter or risk not even qualifying for order consideration by customers. On the other hand, a mass market producer of beer would be better to advised to prioritize attentive service and ensure that their portfolio of standard products, is attuned for each demographic, socio-economic and geographic location within which it operates.