We just came across an interesting piece from Andrew Campbell, Director of the Ashridge Strategic Management Centre and thought we would share with you its key thoughts. Campbell is the co-author of ‘Strategy for the Corporate Level: Where to Invest, What to Cut Back and How to Grow Organisations with Multiple Divisions’, and in his recent blog post he reminds us of some interesting truths about the foundations of solid strategy.
Now, strategy consultancies get paid for new ideas. But as this post from Andrew Campbell demonstrates, there is much that has remained true since the legends of the strategy world –like Michael Porter — were first articulating the ideas of modern business strategy. Many of tese ideas have a succesful history going back over 30 years. He likes to to distill these core truths down into four main ideas.
1. Creating Value
One of the fundamental criteria for a strong business is that it creates value. What this means is that you want to get a better return on your capital than your competitors. This means that you need to leverage your effort and skills more powerfully than your rivals.
2. Competitive Advantage
An idea that goes back to Adam Smith’s Wealth of Nations and beyond, it is true that in order to create more value than your competitors you must have a competitive advantage. This advantage will come either from your natural capabilities or from natural advantages embedded within your sector.
3. Two Ways To Win
Ultimately there are only two ways to outplay your rivals. Either you can run with lower costs, or you can sell for higher prices. It might not sound very glamorous but a key element of entrepreneurial skill comes from being able to find innovative ways to reduce costs or increase prices without losing customers.
4. Attractive Sectors
As mentioned earlier competitive advantages arise either from your natural capability or from a particularly attractive sector. A sector is attractive when it is difficult for competitors to enter the market. This could be because the costs of initial investment is too high, or it could be down to regulatory pressures
Perhaps the key message from Campbell’s thought-provoking piece is that while there is a value to be gained from the latest new trends in strategic management, the most important things a business should be thinking about are contained in the four truths above. The fact is that these four strategic foundations are still the primary levers for business success. Smarter, more innovative thinking on these topics will be highly rewarded.
Finally just because these truths haven’t changed in 30 years doesn’t mean we can sit around thinking ‘great that’s our job done!’. Quite the opposite. These rules create an extremely dynamic and constantly changing competitive environment and one in which it will be necessary to reassess frequently our positions. As in game theory, simple rules can create an ever changing situation. They key is to keep these four rules close to your thoughts in whatever competitive environment you find yourself.