Michael Porter has probably made the most influential contribution to business strategy (Competitive Strategy Free Press 1980). He proposed two basic strategies - cost leadership or differentiated value. Since then, he has built on and extended that thinking (What is Strategy? Harvard Business Review Nov-Dec 1996)

Michael Treacy (Customer Intimacy and other Value Disciplines Harvard Business Review Jan-Feb 1993) proposed three sources of competitive advantage - product leadership, operational excellence, and customer intimacy - and maintained that a successful business needed to focus and really excel in just one of these value disciplines.

Arnoldo Hax & Dean Wilde have proposed a different framework with three distinct strategic positioning - competition based on customer solutions, best product or system lock-in (The Delta Model Sloan Management Review Winter 1999).

A knowledge base has now been created that enables a management team to assess which of eight generic business strategies is appropriate for their business. (A combination of two or more might be indicated). The eight generic strategies are Grow Share, Acquire, Merge or Joint Venture, Hold share, Niche, Reduce Investment or Milk, Sell, Close. The most appropriate strategy depends on which creates most shareholder value (which in turn depends on future return on investment and rate of growth) and also on market characteristics such as economies of scale, relative market share, technological opportunities etc).

This Assistum knowledge base helps you or your business team to explore and identify the most appropriate business strategy for your business. It provides a disciplined process that will assist managers come to a shared understanding of what needs to be done, and a determination to do it!

It starts with an investigation of the business drivers of the current profitability of this business. This covers industry characteristics and the competitive position of this business. It uses the Business Drivers knowledge base

Next it helps the team explore the likely future profitability of this business, examining possible changes in price sensitivity and the balance of power between customers and suppliers.

Finally it explores eight generic strategies: Grow Share, Acquire, Merge or Joint Venture, Hold share, Niche, Reduce Investment or Milk, Sell, Close.

The relevance of each strategy depends how it contributes to shareholder value (if expected profitability is greater than cost of capital then a growth strategy is indicated; conversely if future profitability is likely to be less than the cost of capital, then capital needs to be extracted). But the relevance also depends on industry characteristics such as economies of scale and over-capacity, and also on the business positioning such as market share, relative perceived value and under-exploited technological opportunities.

To develop a good business strategy, it is essential that you understand the reason for your current level of business profitability and how it might change in the future in order to decide how best to intervene.

The two key factors that drive your profitability are:

the overall profitability of the industry you are in

your competitive position within that industry.

An early model was developed by the Boston Consulting Group. Industry growth rate was the sole measure of industry profitability and market share the sole measure of competitive position. BCG have progressed a lot since those early days!

A more recent model is described in an Assistum model. Industry profitability is related to price sensitivity and the balance of power between suppliers and customers. Competitive position is a consequence of relative value as perceived by customers and cost efficiency relative to competitors. Some of the relationships are based on hypothesis testing against the PIMS data base of business performance and some are based on the author’s 30+ years experience in business development, strategy and portfolio management.

We believe that a business that has a relatively poor competitive position in a very profitable industry (e.g. a pharmaceuticals business) will be more profitable than a business with a relatively good competitive position in a bombed out industry (e.g. a PVC business). Do you agree? What is your experience? Let us know at ian.lang@hls.co.uk

This Assistum knowledge base helps you or your business team to explore and identify the causes of a particular business's profitability (or lack of it!). It provides a disciplined process that will assist managers come to a common understanding of the causes.

The issues it covers include:

The expected profitability of the industry in which this business operates. This includes a consideration of the price sensitivity of customers (degree of product differentiation, cost importance to customers, profitability or wealth of customers), capital intensity and balance of power between suppliers and cutomers (number of customers and suppliers concentration, ease of switching suplliers, entry barriers and spare capacity in the industry).

The competitive position of this business. This includes the perceived value relative to competitiors of product attributes and services, and the relative cost structure including raw materials, fixed costs and scale effects.

This includes a consideration of the price sensitivity of customers (degree of product differentiation, cost importance to customers, profitability or wealth of customers), capital intensity and balance of power between suppliers and cutomers (number of customers and suppliers concentration, ease of switching suplliers, entry barriers and spare capacity in the industry).

This includes the perceived value relative to competitiors of product attributes and services, and the relative cost structure including raw materials, fixed costs and scale effects.