In the simplest terms, strategy is about figuring out where to play and how to win to maximize long-term value.
To define your business strategy, answer these three questions:
- Who is the target customer?
- What is the value proposition to that customer?
- What are the essential capabilities needed to deliver that value proposition?
The first question gets at “where to play.” When Southwest Airlines answered it, the company defined its target market as including business travelers, people seeking a low-budget, convenient way of traveling from place to place.
In response, Southwest veered away from the industry’s hub-and-spoke norm, and instead set up point-to-point operations. Its hassle-free model created an effective value proposition for the business-inclined. And it gave the company an edge for growth, compared to other airlines.
Another example: Sir Brian Pitman, former CEO of Lloyds TSB, defined his target market at one level of segmentation lower than the competition did. The company created a separate business unit to target “high net worth” customers, for example, and offered a unique value proposition to those customers.
Pitman believed you could win by more precisely choosing your target market. And he turned around Lloyds, from a laggard to a leader.
— Adapted from “Strategy: An Executive’s Definition,” Ken Favaro, Kasturi Rangan and Evan Hirsh, strategy+business.