Applying business strategy and working variables to your advantage
Business strategy variables and tactics when actually executing and evolving business strategy can appear complex and infinite.
Here we attempt to define and categorise those elements that influence and counter even the most well-planned of business strategies.
The information below is designed to provide a link between what can be dry reading regarding the subject of business strategy and the challenges and excitement of taking actions in the real world.
Take an easy read through. Pause and think about your situation and objectives; and how these apply to your business.
You may only need a part of this, but still turn over each stone and look – there may be something that inspires your next winning move.
Also see this as a reference to fall back on: a backdrop to clarify and provoke your thinking regarding the moves you could make.
When it’s thought about creatively and logically, a good business strategy is potent.
Having no business strategy therefore means you will lose against a competitor that has a good or even just a mediocre but relevant one.
This is not a dry subject.
In fact, once you dig into its potential, business strategy is wonderfully exciting and is the only place from which you can forge that key for success.
The three elements to business strategy development and execution
Every thing within and beyond your business falls into one of three categories:
Variables, Constants or Constraints.
This means that every task involved with the consideration, manipulation and application of your business strategy has to wrestle with at least one of these three entities.
Understanding how and where each element of your business and market fits as regards these categories will provide insight that will enable you to develop a more effective business plan and more efficient use of your time and efforts in building a successful business.
Just like an intense game of chess, knowing the ability and limitations of each piece, how they interact with other pieces and the potential consequences of each move will allow you to understand the extent of your power.
And once you know that then all you have to do is focus on what you can change with the insight and energy to get it done.
Below is a summary explanation of each of these categories along with examples
Variables
Variables are things that change in your business world.
Some you can change and some are changed for you.
If you choose to not manage the variables you can change – then these are also changed for you.
Understanding how and to what degree you want or should attempt to change variables and then completing the tasks required to confirm the consequences of those actions is the essence of running a business.
There are two types of variables.
1. Internal variables
These are the things you have at least some control over.
You would usually change these to influence or react to external variables or evolve them to tackle Constants or work around Constraints.
More on Constants and Constraints can be found below.
A few examples of your internal business variables:
- Product or service prices: what price, change price, when change price.
- Product or service range: new product, remove product, develop product.
- Logistics: distribution channels, change location, more locations, less locations.
- Chosen market: new market, leave market.
- Equipment: buy, lease, hire, not buy.
- People: expand team, reduce team, more internal, change external, added skills, added experience.
- Suppliers: supplier convergence, less suppliers, more suppliers, new suppliers.
- Financial: invest, disinvest, refinance.
- Strategic positioning: premium, cost lead, move away from SIM (stuck in middle).
- Business status: stay in this business or exit.
2. External variables
These are the things that were initiated by someone or something else.
Your internal variables may change or evolve in reaction to external variables.
These will be your defensive moves.
Some of your internal variables will be coordinated in an attempt to influence and evolve external variables.
These will be your offensive moves.
Note that external variables are good. Although some will place you on the defensive, many will provide opportunities.
A few examples of external business variables:
- Competitor actions and reactions to what you do.
- New competitor entrants into your market.
- Competitors leaving your market.
- Market or competitor prices: rising, falling.
- Products: new products, products leaving.
- Interest rates: up, down, same.
- Customer behaviour: changing, evolving, coming, going.
- Macro economics: change.
- Technological developments: none, new.
- Fads: in, out.
Influencing external variables
Some external variables are linked to you in that the owner of those variables are connected to your business in some way. These include suppliers, customers and competition and each will be paying attention to you by varying degrees.
Competitor variables are obviously owned and controlled by your competition which means that you cannot change them directly.
However, you can change the variables you do own to provoke your competition to change theirs.
You can even nudge and tame them by manipulating their reactions to what you do.
Linger on this statement for a moment.
This means you have some control over your competition.
And that means you might become master of the universe after all.
Constants
These are entities that remain the same for the foreseeable future given current circumstances.
Constants are more robust than those variables that sit still for awhile – given all things equal.
Constants therefore tend not to change despite variable movements but over time can change to a new state given consistent pressure from evolved variables.
Constants do not evolve, they change.
A changing constant can be abrupt and a shock to the market and the business. A changed constant often means a changed circumstance.
Where variables are evolving and staying evolved will indicate that a changed constant is on the horizon. You should start planning or amending your business strategy to cope with this potential new circumstance.
Appreciating the influence and impact of variables on a constant and therefore monitoring their state is the closest you will get to owning a crystal ball.
A few examples of Constants:
- Long-term contracts.
- Premises.
- Current competition players.
Variables that become Constants will suppress opportunity unless of course you can develop a disruptive variable or wave of variables that changes things to your favour (see below).
Constraints
These are things that constrain what you can do and will not change in the foreseeable future given current circumstances.
Knowing these will enable you to save time by not attempting activities that will not be “allowed” to be successful due to the discipline brought upon them by constraints.
There are two types of constraint: natural and artificial.
Natural constraints
Natural constraints are those that either exist or evolve in any market. They are the consequences of human interaction and simple logic.
Examples of natural constraints.
- Size of some markets.
- Maximum price levels – e.g. due to disposable income.
- Cultural perceptions and current moral codes.
- Relatively powerful competitor.
- Limited scalability.
- Available finance.
- Limiting technology.
Artificial constraints
Artificial constraints are those that have been purposely structured to manage an element of the marketplace or actively control behaviour within that market.
Artificial constraints are tangible and usually written down and created by a person or group of people – usually politicians or bureaucrats.
The motives, morals or reasons for creating artificial constraints are not considered here: simply their effect on a market’s ability to fulfil its natural potential to create wealth.
A few examples of artificial constraints:
- Government regulations.
- Law.
- Tariffs.
- Generic and punitive tax.
- Cartels.
The consequences of increasing artificial constraints
Government regulations and standardisations reduce variables by turning them into constraints.
Increasing regulation and standardisations will therefore further limit the number of variables that would have otherwise been contributing to the vibrancy of a natural market.
Command market sectors, much like command economies, very much reduce variables.
Free market sectors and open economies provoke more variables and therefore more interaction and positive exchange.
Positive exchange is the dealing of variables between people in exchange for money.
This means:
More variables = increased positive exchange = more opportunities and increased wealth.
Increased constraints = reduced variables = less opportunity and reduced wealth.
Conditions that might encourage corruption
Artificial constraints can be manipulated by corruption or enable favourable conditions for corruption to occur.
Sometimes unofficial artificial constraints are created simply for the purposes of corruption and the blunt objective of making money without the complication of having to deliver any market driven value.
In other words, where artificial constraints exist, there is often the potential for them to be sold. Corruption enables wealth creation opportunities for its participants at the cost of everyone else.
In many mixed economies, artificial constraints are created and then “officially” sold. Given its tendering process or transparent procedures this is not corruption but the “system”.
However, except for the advantage of control and a degree of answerability, the sum effect of compromising or removing variables from the market is much the same.
In essence, the value stored in wealth creating variables have been frozen and spent as accessible constraints by the few and on the few that are engaged with the practice.
The extent to which this diminishes opportunity will depend on the size of the constraint and the variables removed relative to the market.
There is not much you can do to develop a strategy that circumnavigates artificial constraints – except perhaps to avoid entering that sector or region in the first place.
This means you have to make a careful assessment of all artificial constraints that currently exist or might potentially exist in your chosen sector and region.
If you find you are already in a market or region with an increasing encroachment of artificial constraints and your wealth generating variables are being compromised then you have to enable that free market principle of voting with your feet.
Why play in a game with the dice loaded against you?
But there is much more you can do to tackle natural constraints.
When thinking about entering a new market, consider the variables and the extent of their movement.
Typical example
Identifying a Constant within your competition could mean you develop a strategy that penetrates the market to which your competitor cannot respond.
For example, a Constant might be that your competitor has an established and stable loyal customer base.
From your perspective this is a Constraint in that you cannot cost-effectively change this.
But the loyal customer base is also a Constraint for your competitor in that the competitor cannot make moves that would alienate this customer base to which it relies on to stay in business.
This means you can consider moves in the market that your competitor cannot respond to if it means alienating their customer base.
This concept can be expanded to include logistics and in that for competition to respond would create disruption to its current arrangements and even send it into a loss if it had to respond to your strategy.
Likewise for product development where tactical changes to product features not only penetrate the market but also exposes competitor weaknesses where for them to react would cause financial stress.
An example of taking advantage of Constraint vulnerabilities is when a competitor attempting to react to your considered first move may become temporarily weaker and therefore open to exploitation by your second move.
The potency of variable waves
Executing a strategy can often involve the changing or influencing of multiple variables.
The potency of a broader strategy is again you having control over the order of variables to be changed and the timing of their execution.
This really comes alive when considering potential competitor reactions to your activities and how you have already planned for those reactions.
One variable change by you is relatively manageable by competition over time because they will work out a solution. But a series of carefully scheduled changes is much more difficult for competition because they now do not know the journey you are taking them on.
With thoughtful strategic planning, you can release an activity designed to change one variable which would leave another competitor defensive variable or variables exposed or compromised.
You can then orchestrate a series of activities that will disrupt many competitor variables and interrupt their interactions.
In other words, punch, then punch from a different angle and punch again from another angle until the opponent is on the canvass. Then punch again until the objective is truly achieved beyond debate.
Fast follow-through that is in tune with the tempo of the market and beyond the timescale to which competition can respond is important.
One of the few reasons to hesitate a follow-through is when you require your competition to commit further into a plan or reaction to a point of no return or an about-turn would be devastating to its circumstance.
Your campaign plan advantage should not be underestimated. The competition will not have this plan: they will be on the defensive and can only respond to the current action you have instigated. They cannot respond to the next unknown action that you have planned.
Executing a multiple approach like this delivers three things:
- It keeps you ahead of the competition.
- It compromises or even destroys the effectiveness of any competitor reactions.
- It maintains the competition on the defensive or on an offensive of your design.
Intelligent scheduling of activities requires discipline
It is tempting to strive to deliver the very best in business offering: to produce the very best in product features and benefits and marketing material – but all you need to do is keep ahead of the competition just enough to convince your prospects and customers.
Scheduling your business strategy actions in tune with the pace and expected reactions from the market will enable you to keep just one definitive inch ahead of the competition.
If you don’t need it now, keep the better stuff in reserve for when you do need it. Anything more than this minimum effective benefit is wasted time and costs.
Aiming too high will simply allow the competitor to know what the duck looks like so that it can take aim.
And once you put on your best show then you have nowhere else to go once the competition can match or surpass it.
Your plan should be a journey where you know the direction and places it will visit. This means you have the advantage of knowing what happens next.
The advantage of you dictating the journey is that you have additional rooms to go in – to evolve as competition react. There then comes a point where the market agrees that you are the unbeatable brand.
The brand that is always ahead of the competition.
A good business strategy therefore includes a plan for the future beyond what is being done today.
So always know the next room to go in. If you run out of rooms, the competition will catch you.
Avoid the bidding trap
Competition may respond with activities that require from you additional resources to counter in terms of time and cost.
Typical examples include: trying to climb over your back on the Google front page, price wars, added free service, more intensive advertising.
In effect, these are bidding wars which require additional cost (reduced profit) simply to protect what is, in effect, the status quo in terms of market share.
A good business strategy will evolve to navigate around these costly head-to-head encounters.
You might even develop a reaction that wrong-foots the competition. For example; let the competition have top spot on Google while you intensify below-the-line marketing activities.
Mission creep
When executing activities be sure to keep each of them within the perspective of each other.
In the general fog of running a business it is easy to lose this perspective and to keep chasing the task like a dog with a ball; regardless of its progress to your expected success.
Do not allow any activity to demand more time or cost – no matter how tempting or close the perceived success might be.
Keep progress measurable and have set times for review.
Resources required to make or react to variable changes
If you are taking a seat at the poker table then make sure you have enough chips for where the game may go.
Before you instigate a plan, be sure to assess not just what you expect will happen but also the potential chain of events that might happen.
Managing progress and potential developing circumstances could require additional resources. Be sure you have enough in the tank before taking on the challenge. Leaving a task unfinished may backfire and leave you in a worse position – this could at least expose your incomplete plans to your competition.
Expected reactions
Expect customers and competition to react in odds ways that seem stupid as to the consequences.
Competitor culture and belief can often dismiss logic.
For example, a competitor may think only about the next order and sincerely believe price discounts or price reduction is the only effective reaction to the pressure of falling sales or meeting sales targets.
This is known as dumb competition (check out Michael Porter and his work on business strategy) and this could mean that your competition is likely to have a mono strategy or is simply reactionary with no strategy at all.
This can be a good thing because you now know how your competition will react and that means you have control.
Remember also that competition is not aware of your strategy to the point of confirmation and clarity. They are likely operating on incomplete information or parts of information that is expanding to fill the gaps left by the unknown. This means competition may react in illogical and unexpected ways; or even not at all.
So rather than be puzzled by these actions, simply be reassured that competition may not have a grasp of what is really going on. You should evolve your strategy to take advantage of this.
The enigma of apathy
It can be puzzling and frustrating why customers and competition appear non-responsive to your efforts.
This is usually because people primarily focus and respond to what they perceive as their interests. And this remains even though you might be attempting to enhance their interests or threaten them.
Competition is often very good at gazing on the blind side and not comprehending a threat until it becomes a reality. Sometimes they are too busy concentrating on another perceived threat and not the one you are engineering for them.
Even then, it takes time for the headless chicken to realise its predicament.
There are countless numbers of companies that never did see the picture and are no-longer in business.
They took the zombie walk into oblivion and wouldn’t listen to anyone who told them to do otherwise.
This is a common fault; but a fault not to be yours.
Design your strategy so that an inert response from competition does not impede its momentum.