Riddell: Stairways, Steps, and Competitive Strategies
Not Business As Usual
In the last column we discussed the competitive options available for both large and small businesses. Now before you laugh off these ideas as simply some egg headed way to make a little money, you might want to give some thought to an appropriate Irish proverb. It simply says that if you don’t know where you are going, it really does not matter what road you take. Said differently, if you don’t know how you are going to structure your business to compete, then it really doesn’t matter what competitive decisions you make. I submit to you that in this day and age of increasing competition, this is a recipe for assured failure.
Many business folks often have a challenging time trying to distinguish between strategy and tactics. Strategy is like a stairway; tactics are the individual steps that get you from the bottom to the top. Therefore, once you choose your competitive strategy to be either “Low Cost” or “Value Adding/Differentiation,” your tactics will be those steps that directly support the strategy.
Let’s examine some potential tactics applicable to each strategy. If yours is a “Low Cost” strategy, then perhaps you should consider given some considerable thought to incrementally driving down your purchasing costs. You could consider and pursue negotiating for better purchase prices, extended payment terms, and even volume discounts. Perhaps you could also partner with other small firms to qualify for these same benefits. These benefits can encompass any and all operational aspects of your company. For example, dollars saved in your office cleaning or landscape maintenance are dollars that pass directly to your pocketbook profitability. An additional area to focus on lowering costs while increasing effectiveness could be in the area of advertising. Again, there are all types of synergies available with other small businesses, all just waiting for some creative initiative and leadership. Just remember that the decision to compete on “Low Cost,” while not mandating “Lowest Price,” often must deal with this market fact. Your successful efforts at reducing your costs will allow you to successfully compete on price.
Now for the “Value Adding/Differentiation” strategists, while they are certainly not going to ignore basic cost reductions, their strategy is one of adding that “something extra.” Their unique challenge is to present this “something extra” as a rationale that will entice customers to cover the cost for that something extra with a little extra profit thrown in. In the food business, this “something extra” could be better or fresher ingredients or even rare or scarce offerings. In a manufacturing or service business it might be superior customer satisfaction or quality ratings. Both of these might be based upon solid warranties, post sales service and support, or specialized, one-off, customized productions. In any case, you have to be cognizant of the need to insure that every potential customer knows explicitly what it is that makes your product or service “extra special,” and this “extra specialty,” can be theirs for a very reasonable fee over the standard run of the mill.
At the end of the day, it is very important to understand that competitive strategy is not just some textbook exercise. If you are in business to make a profit and you plan on being profitable for the foreseeable future, then do yourself a favor and give this competitive choice and tactics some thought. You’ve got nothing to lose and a whole lot to gain!
Following a successful international business career, John Riddell turned his attention to small business/entrepreneurial pursuits that included corporate turn-arounds, start-ups, teaching, authoring business and sports columns and serving as VP for the Chattanooga Chamber of Commerce directing its Center for Entrepreneurial Growth.
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