Business

No. Cost-cutting is not a strategy!

Sales Pitch

Herman Alvaranga

Wednesday, November 01, 2017



WHAT IS A STRATEGY?

A common misconception that this marketer has observed from the classroom all the way to the boardroom is that cost-cutting is a strategy. And then there is brand awareness. That also is not a strategy. So what, then, is a strategy? Let's turn to an impeccable source:

A strategy is a fundamental pattern of present and planned objectives, resource deployments, and interactions of an organisation with markets, competitors, and other environmental factors.

- Walker and Mullings (2012)

This definition suggests that a strategy should specify:

1. What: objectives are to be accomplished;

2. Where: on which industries and product markets we should focus;

3. How: which resources and activities to allocate to each product market to meet environmental opportunities and threats, and to gain a competitive advantage.

THE COMPONENTS OF STRATEGY

A well-developed strategy contains five components, or sets of issues:

1. Scope. The scope of an organisation refers to the breadth of its strategic domain — the number and types of industries, product lines, and market segments it competes in or plans to enter. Decisions about an organisation's strategic scope should reflect management's view of the firm's purpose or mission. This common thread among its various activities and product markets defines the essential nature of what its business is and what it should be.

2. Goals and objectives. Strategies also should detail desired levels of accomplishment on one or more dimensions of performance — such as volume growth, profit contribution, or return on investment — over specified time periods for each of those businesses and product-markets, and for the organisation as a whole.

3. Resource deployments. Every organisation has limited financial and human resources. Formulating a strategy also involves deciding how those resources are to be obtained and allocated across businesses, product markets, and functional departments and activities within each business or product market.

4. Identification of a sustainable competitive advantage. One important part of any strategy is a specification of how the organisation will compete in each business and product market within its domain. How can it position itself to develop and sustain a differential advantage over current and potential competitors? To answer such questions, managers must examine the market opportunities in each business and product market, and the company's distinctive competencies or strengths relative to its competitors.

5. Synergy. Synergy exists when the firm's businesses, product markets, resource deployments, and competencies complement and reinforce one another. Synergy enables the total performance of the related businesses to be greater than it would otherwise be — the whole becomes greater than the sum of its parts.

THREE TYPES OF STRATEGIES

Explicitly or implicitly, these five basic dimensions are part of all strategies. However, rather than a single comprehensive strategy, most organisations have a hierarchy of interrelated strategies, each formulated at a different level of the firm. The three major levels of strategy in most large, multi-product organisations are:

1. Corporate strategy. At the corporate level, managers must coordinate the activities of multiple business units and, in the case of conglomerates, even separate legal business entities. Decisions about the organisation's scope and resource deployments across its divisions or businesses are the primary focus of corporate strategy. The essential questions at this level include: What business(es) are we in? This is critical. For example, here in Jamaica this writer's favourite magazines are no longer on the shelves. It seems that reality caught up with Novelty. For if Novelty Trading was in the business of distributing magazines rather than disseminating information, technology may sadly have put an end to their business.

2. Business-level strategy. How a business unit competes within its industry is the critical focus of business-level strategy. A major issue in a business strategy is that of sustainable competitive advantage. What distinctive competencies can give the business unit a competitive advantage? Which of those competencies best match the needs and wants of the customers in the business' target segment(s)? For example, a business with low-cost sources of supply and efficient, modern plants might adopt a low-cost competitive strategy. One with a strong marketing department and a competent sales force may compete by offering superior customer service.

3. Functional strategies. Given the writer's specificity, we will look at just one functional strategy — marketing strategy. The scope of marketing strategy includes target market definition, product line depth and breadth, branding policies, product market development plans, line extension, and product-elimination strategies.

It must be noted, however, that in small companies, which include almost all companies here in Jamaica, corporate and business-level strategic issues tend to merge. Strategies at all three levels contain the five components mentioned earlier, but because each strategy serves a different purpose within the organisation, each emphasises a different set of issues.

THE LAST WORD

Having read the above, you will doubtless agree that neither cost-cutting nor brand awareness qualify as strategies. But if they are not strategies, what then, are they?

Herman Alvaranga is a fellow of the Chartered Institute of Marketing and president of the Caribbean School of Sales & Marketing. For more insights on sales and marketing please go to his blog at www.cssm.edu.jm

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