Cards in hand and ace in sleeveThe most liberating, yet most difficult, aspect of strategy development is choosing your key area of differentiation. When asked, “What kind of business do you want to be? Do you want to have the best products, best service or lowest prices?” many CEOs simply say “Yes, we want to be all of those things.”

This response is unrealistic and misguided. It’s hard enough to be truly world-class and market-leading on one of these aspects of strategy, never mind all of them.

Based on the work of Michael Treacy and Fred Wiersma (in their book, The Discipline of Market Leaders), there are four generic types of strategy that companies can pursue:

  1. Best Product (or Service). These companies want to have the latest and best products for their target customers. New product development is critical to their success, and customers are willing to pay more to get the value they’re after. Examples include Apple, Sony, Singapore Airlines, Ferrari.
  2. Lowest Price. These companies offer amazing prices to their customers who believe that the product quality is good enough given the price available. Examples include Ryanair, Tata Cars, Aldi, Primark.
  3. Most Convenient. These companies offer a clear standard of performance and deliver against it every time. They are highly dependable, highly convenient and hassle-free. Examples include McDonalds, Toyota, Dell, Amazon.
  4. Most Customised. These businesses tailor their offer to individual customers, creating expert, bespoke solutions. Close relationships with their customers are critical to their success. Examples include McKinsey, NetJets, Nordstroms.

Which organisations can you name that lead on three or four these dimensions? If you can name one or two, congratulations, but these exceptions simply prove the rule.

Most of the world’s top organisations make clear choices about where and how they wish to differentiate themselves. A major reason they do this is that different strategies demand different types of organisation.

While, for example, a Best Product company, such as Apple or BMW, will emphasise new product development and have many cross-functional project teams working on bringing new ideas to market, a Lowest Price business, such as Aldi or Ryanair, will have very simple, centralised processes, and will strictly control costs in all areas of the organisation.

So which strategy should your business be pursuing? The answer is likely to be found by understanding where your organisation’s capabilities, the key needs of your market, and your passions meet.

After all, without a sense of excitement, mission and anticipation, it’s unlikely that you’ll deliver a strategy of any value whatsoever.

© Stuart Cross 2009. All rights are reserved.