Your team has completed the market research. Segments have been identified and ranked for their attractiveness. Company leadership are agreed on the segment where they want to play. The company has already won deals in that segment so you know you can compete there. Job done.
Really? No doubt you can compete in this segment, but is that the sum total of your aspirations? Surely the more important question is “where can you play to win”? How can you become the Gorilla in the Niche?
To answer these questions the leadership team must include another dimension in their decision making. They need to look internally and take an honest appraisal of the company’s existing capabilities and resources and decide if these are sufficient to become the dominant player in that segment. Most likely the answer will be “not yet”.
The difference between the Company’s current capabilities (or performance levels) and those required to dominate the chosen niche is called the “Strategic Gap”. This is the difference between the Company’s vision of how and where it aspires to perform, and the current reality of its performance. Unless this gap is both identified and resolved over time, then it is almost impossible for a strategy to be successfully executed. A company that is focused on minimizing this gap is said to be maximising “strategic fit”. For example, a company that plans to achieve its goals through an effective channel partner strategy will need to ensure it has a solid channel partner sales training program in place.
Strategic fit indicates the degree to which an organization is matching its resources and capabilities with the opportunities in the external environment, and specifically, its target segment. The matching takes place through strategy and it is therefore vital that the company has the actual resources and capabilities to execute and support the strategy. Selecting a market positioning without reference to strategic fit is likely to lead to a failed strategy and the company missing its objectives.
And strategic plans fail…a lot! According to a study by the Economist Intelligence Unit “61% of respondents acknowledge that their firms often struggle tobridge the gap between strategy formulation and its day-to-day implementation. Moreover, in the last three years an average of just 56% of strategic initiatives have been successful.” Various studies over the years have similarly shown that anywhere between 60% and 90% of management strategies fail.
What can executive leadership teams do to maximise strategic fit with their market positioning and thereby reduce the potential for failure? One of our favourite strategy tools for achieving this is the GE / McKinsey Matrix.
The GE / McKinsey Matrix
Although originally conceived as a framework to evaluatea company’s portfolio of strategic business units, the GE / McKinsey Matrix can be adapted to provide guidance to smaller companies seeking to make strategic choices and establish strategic fit. The matrix requires that the leadership team look at its future environment from both an external industry attractiveness perspective and an internal business strength perspective. This forces the leadership team to acknowledge and address the strategic gap that currently exists, and how close (or far away) they are from a reasonable strategic fit.
At the beginning of this article we assumed that the leadership team had already chosen an attractive market segment where they desired to position the company in the future. The missing piece in order to determine strategic fit and gap would be evaluating “Business Strength” for that segment. The GE / McKinsey Matrix framework requires the leadership team to consider the factors such as the following in making this determination:
- Market share
- Growth in market share
- Brand equity and differentiators
- Distribution channel access and channel partner sales
- Production / service capacity and training
- Profit margins relative to competitors
- Alliances and channel partner sales training
By analysing these elements in the lights of their chosen market segment the leadership team may decide that the strategic gap is so large, and the required investment to achieve strategic fit is too great.
What’s The Solution?
Despite the fact that they have achieved some success in that segment to date, the leap required to become the dominant long-term player in that segment is simply too great. Such a realistic appraisal will allow the team to analyse other market segments that may offer a more realistic opportunity for success.
Alternatively, they may conclude that with well-targeted strategic investments, achieving dominance in that segment is entirely realistic.For example, the company could:
- Compete on logistical excellence, and make strategic investments to provide a dramatically superior delivery service to customers.
- Compete in a channel niche, and make strategic channel partner sales training investments over the next five years to develop skills and resources that are rare in that niche.
- Compete on “whole product”, developing alliances, partnerships and possibly acquisitions so that customers are not just buying “your product” but a total solution that delivers all of their needs.
There are endless solutions available. The challenge is picking a good one, sticking to it, and most importantly, putting the strategic investment and focus behind it to make it a distinctive competitive advantage in the medium to long term.
Mike Kelly is an entrepreneur, founder of Ridge Consulting and a qualified Chartered Director. His speciality is working with fast-growing technology companies worldwide to help them build effective business strategies and market positioning. Mike writes for various publications on the topics of strategy development, international growth and disruptive innovation.