Running a business is a demanding role for any entrepreneur. Most of the time, they’re called upon to make decisions regarding many aspects of their firm, from marketing and accounting to customer service and product development. It can be a lonely job too, which is why it’s prudent for a business owner to work with an experienced business advisor where possible.
In a basic sense, a business advisor is an individual who can offer help. They can be an informal contact, or a business consultant who has knowledge and experience of particular business functions. These professionals can be engaged for one-off assistance or short-term help, or as part of a long-term relationship. An advisor’s role is to help the entrepreneur learn and develop their business skills by offering impartial advice and suggestions.
One area that many business owners seek help with is strategy. Defining and setting the business strategy requires time and must be done purposefully, since this plan describes the competitive actions that a firm takes to achieve its objectives. Getting it right ensures an entrepreneur has a framework to analyse potential opportunities, sense and mitigate potential risks, make optimal use of resources, and address any weaknesses.
Nilesh Waghela, a retired independent business advisor, has provided advice to numerous clients on how to come up with business strategies. On this topic, Mr Waghela has discussed various aspects of strategy, but he is particularly drawn to Michael Porter’s work on this topic.
A popular figure in business management and strategy, Michael Porter’s work on business strategies has been studied and adopted by businesses and individuals worldwide. He identifies three strategies that help a company stand out in the marketplace.
Cost Leadership
A company that adopts a cost leadership position essentially chooses to reduce its costs and charge industry-average prices without sacrificing quality. Such a strategy can work where a firm achieves several objectives through economies of scale and better technology, or gains access to raw materials more affordably. The cost leadership strategy is a tough one if competitors also adopt the same stance and can potentially lead the industry on a cost-cutting spiral that can be hard to recover from.
Differentiation
The differentiation strategy requires a business to provide products or services that are of better value than its competitors. It requires an investment on the company’s part, meaning that it also has to cost its offering(s) higher than other industry players. Offsetting the higher costs of production might mean reducing costs in non-core aspects of the business, with outsourcing of non-essential services being an example of such a measure.
Focus
The focus strategy calls for a business to develop its products or services with a specific market segment in mind. The product offering is often a niche product tailor-made for a specific audience that other competitors are not servicing. Typically, companies that adopt this strategy will ignore all other market segments.
According to Porter, adopting more than one strategy is not beneficial as it risks a company getting confused about which way to go. While there are instances where two strategies might work together, a business should master one strategy rather than attempting to adopt a dual approach. The choice of which strategy to use is influenced by an in-depth analysis of the various forces that exist in a business environment.
A successful firm is one that tirelessly pursues its strategy, even when there are challenges. However, a business owner must keep in mind that nothing is set in stone. A cost leader in an industry may face competitors who decide to price even lower. A differentiator may lose its edge if customers no longer care for the offering’s superior qualities, while a focus-based company may find itself in rough waters if other competitors decide to target their market segment.
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