In all my life, today feels like there are more questions in the economy than ever. Interest rates are artificially low and near zero while high inflation looms on the horizon. Small businesses continue to struggle to recover from government lockdowns and big businesses are growing ever-larger. What decisions do you make?
Cash-Rich Strategy
Strategy is a driving force for all decisions in a business. Yet, we occasionally must adjust our strategy to take account of global economic changes. The other day, I asked my husband what he would do if he was the CEO of his company. His answer, matching his minimal approach to investing in general, was to conserve cash. He suggested his company had taken on a lot of growth projects in recent years and needed to pay down debt.
A more aggressive strategy is to continue growth to take advantage of competitor actions. One beneficial action might be to locate new facilities close to raw materials, even if it requires some investment. Another strategy is to build plants near consumption, if it is geographically clustered.
For example, in Texas, there are several steel mills to manufacture pipe. Traditionally the Northeastern area of the United States has been famous for steel manufacturing with proximity to raw materials (including coal for power). But refineries and petrochemical facilities use the pipe, so why not locate your plant near the end-user?
Strategy articulates the company’s values, vision, and mission. We must understand why we’re in business, where we want to be, and how we’re going to get there. The first step of building an effective strategy is an internal examination of the company, including addressing questions like where to build a plant or whether to expand production at all.
Competition
The second element of making effective business decisions is an external study. Our internal values, vision, and mission are independent of externalities. Yet, strategy is shaped by external forces, guiding us in a general direction. Looking at industry and economic trends will frame and refine strategic decisions.
A big question to address is competition. Obviously, most companies have direct competition that sell products and services within the same industry, same markets, and to the same customers. Highly competitive markets often have little differentiation in the products and services offered – features and functionalities are easily interchanged. For example, many of the product we buy at the supermarket are undifferentiated – customers can easily substitute one brand of sugar for another. Only a highly-talented chef could detect the difference between brand-name sugar or a store brand.
Competition as a commodity drives prices down. Margins are low due to the ease of substitution. Innovation is rare in such industries since benefits (profit) cannot be realized because of low prices and margins.
Strategic Competition
When we are faced with low margins, high levels of competition, and uncertain economic times, innovation leaders must make daring decisions. A company may choose to conserve cash over the short-term. Paying down debt today frees you for investment in the future. A business might also choose to look toward the future with a more aggressive strategy – first understanding internal drivers (values, vision, mission) and then examining external market pressures (competition).
Competition can help or hinder the growth of a business. Do you know how competition influences your strategic decisions? If not, you need to start an in-depth competitive analysis right now! As small businesses emerge to a new economy, the competitive landscape has changed. Without a careful analysis and alignment of your strategy and the competition, you will not succeed.
If you answered “no” to understanding your strategic alignment and competition, you need to learn more immediately with our self-paced, online course on Competitive Analysis. Register by 15 April 2021 and get a 20% discount with the code “Intro”. Upon successful completion of the course, you earn 2 PDH.
© Global NP Solutions, LLC
Building Innovation Leaders
Building Innovation Leaders
TwitterYoutubeLinkedin