Clarity is extremely valuable for building profitable strategies and conducting sustainable business. Without clarity many firms refrain from taking strategic steps in fear of the unknown, leaving them stagnant and eventually uncompetitive. Only by understanding the key concepts that underpin successful strategies, can a firm confidently take steps along the strategic pathway of their choice.
The profitability of an organization’s strategy is a function of:
1. Strategic decisions made in favor of cost, benefit, or niche provision
2. Operational execution of the strategy
Given these variables, I have created what I call the “Strategic Profitability Frontier Curve” (see figure 1) to visually understand a firm’s position on the competitive landscape and plot it in relation to its key competitors.
Figure 1: Strategic Profitability Frontier Curve
Note that a niche provider is a unique position in which a firm combines specialized benefit advantages with the cost advantages of experience and economies of scale.
Strategic decisions depend on a firm’s ability to translate market knowledge into innovative (i.e., unique) tactics involving the product, service, price, brand image, promotion, and processes required to maximize their return on investment. Execution is the extent to which a strategy’s elements are successfully implemented. Given that marketing and innovation are the key functions required for success, firms must be committed and passionate about both. The absence of either function can be crippling in the long term.
The importance of marketing and innovation within a firm is shown in the matrix in figure 2, using the simple metaphor of a car.
Figure 2: Sustainability matrix
Worn tires: With worn tires, a vehicle has limited traction. Without adequate marketing, a business may use its innovative skills to develop products, services, and processes that ultimately fail to deliver value to their customers and fail to produce adequate return on the investment. The lesson in this case is that businesses must not only do things right, but they must also be sure that they are doing the right things.
Broken-down vehicle: A broken-downvehicle does not move. In the simultaneous absence of marketing and innovation, a firm is left standing still in a race, competing against other firms that will inevitably overtake its position. This is the least favorable position on the matrix.
Running on fumes: A vehicle running on fumes may be moving forward based on momentum, but it can only continue to do so based on that momentum because it has no gas left to create more power. Without an effective, innovative presence in a firm, it is left to marketing to fight an uphill battle of building brand image and incentive programs to compensate for the firm’s inability to keep current and relevant.
Race ready: A race-readyvehicle is one that has a full tank of gas, and working parts. A business that has effective marketing and innovative functions has the ingredients for long-term sustainability.
Is your business race ready? Is it fully committed to marketing and innovation so that it may combine informed strategic decisions with differentiating tactics to generate profit? If the answer to either of these questions is no, then this must be reconciled before making an organized effort to compete and attain long-term sustainability and profit. I strongly urge all businesses to focus on building a deep understanding of marketing.