Redefining the Strategic DNA is critical when battling for limited profit in a hypercompetitive environment.
Strategic DNA comprises both big picture vision and short-term executional tactics. Companies must first design a strategy, depicting where it wants to go in the long-term to fulfill its overarching mission. This requires companies to strongly define the perfect customer and the value proposition. In the design phase, organizations must distinguish the critical trade-offs that will impact firm direction including where to compete and how to compete (as demonstrated in the figure below). A detailed design phase positions a company for success. However, when companies stop in the design stage, they fail to realize the strategy. Sixty percent of employees describe their companies as weak at execution. Competitive advantage, defined as above industry average profits, can no longer be realized without tactical advantage. Effective execution relies on people buying into the strategy and having access to the information they need. Much of executional success can be determined by the visible structure of the organization. The number one reason for failed execution is that managers were unclear about their roles and responsibilities. Complex layers of management create bulk and confusion for decision-makers. Barriers of communication and action result in strategic deadlock. The secret to success relies on a structure that enforces accountability, process precision, and employee satisfaction, all factors encompassed in the strategic DNA. A study of 125,000 employees revealed that the tactical advantage, the ability to effectively execute the day-to-day items, boils down to four main strengths listed below:
- Employees are aware of their roles and responsibilities.
- Companies closely monitor and quickly communicate changes in the competitive environment.
- Once decisions are made, employees rarely waver.
- Information flows freely throughout the organization.
Defining your Profit Pool.
The vast majority of companies compare benchmarks to specific organizations in the same industries to evaluate performance. While maintaining an awareness of competitor performance reveals a company’s competitive advantage or lack thereof, benchmarks often focus on mean rather than median which can heavily distort the outcome. In addition to having a base expectation of median industry profit, companies should have an understanding of the industry profit pool. This profit pool is defined as all profits earned in the specific industry available to all companies competing. Displayed below is the United States construction industry profit pool, aggregated by industry sector. In defining revenue and profit goals, management must be aware of their current market size and recognize their potential profit capture. As all competitors battle for a limited amount of revenue and profit, companies can avoid establishing unrealistic strategic goals that they will fail to meet and will ultimately leave the employees disheartened. As companies become less defined by the products and services they offer, core competencies and resources may allow companies to alter the boundaries of supply chain and engage in vertical integration within the profit pool. Reimagining the borders of competition can present companies with the opportunity to capture greater profits.
If you would like to know more about the Coltivar strategic process, please visit coltivar.com/institute.