A New Perspective on Strategy
Tony Ulwick
Aug 27, 2009
By Strategyn CEO Tony Ulwick
There are fundamental truths about business strategy that are universally acknowledged. We know, for example, that a company can outperform rivals only if it can establish a difference that it can preserve. And we know that to succeed, a company must deliver greater value to customers or create comparative value at a lower cost - or both. In the words of strategy guru Michael Porter, strategy is the creation of a unique and valuable position. Other widely espoused theories about business strategy, however, have been less compelling.
As companies become less tolerant of failed strategies, those theories should be debated and scrutinized. One assumption in particular should be reexamined. In his popular HBR article, "What Is Strategy?", Porter also puts forth the notion that “activities are the basic units of competitive advantage.” This notion is widely accepted today, and Porter’s theory regarding strategy, which is centered around choosing activities that are different and / or performed differently while also being sustainable, is based on this assumption.
Our interactions with hundreds of companies, however, have led us to another conclusion: we believe there is a more relevant and appropriate basic unit of competitive advantage: customers’ unmet needs. We put forward the proposition that all cost and price differences between companies ultimately derive from which unmet customer needs companies choose to target for value creation and the solutions that companies devise to satisfy those unmet needs.
Similarly, differentiation arises both from the choice of which unmet needs to target and how those needs will ultimately be satisfied. A company secures a unique and valued competitive position by devising and delivering products and services that satisfy unmet customer needs. Activities, on the other hand, are enablers of competitive advantage, not basic units. They are what a company performs to execute its strategy – they are performed to satisfy customer needs or to create and deliver the products and services that a company chooses to offer.
This sheds new light on just what strategy is. A strategy is a plan that sets the groundwork for how a company will grow. An effective business strategy must inform a company along three critical fronts. First, it must identify attractive markets for value creation so that only worthwhile markets are pursued. Second, it must determine what unmet needs to target and what product portfolio is needed to gain the company a unique and valued competitive position. And third, it must dictate what operational capabilities and business model to employ to maximize revenue and minimize cost.
With these insights, a company can pursue attractive markets with products and services that create customer value and company profitability. At the foundation is the recognition that when it comes to business strategy, customer needs are the basic units of competition advantage.
