Strategy Secrets of Successful Companies

Part one of this series presented the hard truth about good strategy:  almost no one gets it. Part two presented the universal structure of strategy:  goal, advantage, and activity set, with a focus on creating a winning value proposition. In this installment, we take a closer look at how managers can stay focused in their efforts to win in the marketplace by being clear about their strategic positioning.

To recap, strategy is the gradual, non-random process by which organizations build more or less competitive advantage in a market as a function of the choices of their leaders. These choices can be thought of as an integrated set of choices leaders make to create unique and valuable positioning for their enterprise, one that fulfills the organization’s vision, and ultimately its mission.

This set of choices can be depicted quickly and easily in an activity system map. An activity system map captures the investments that managers make to build a set of interlinked  activities inside or connected to the firm that are distinctive in that they make the firm’s value proposition(s) real. When we look inside an organization—any organization—we observe the real investments managers have made to enable their value propositions (see figure).

From the chart you can see there are three main elements to an activity system map: higher order strategic themes (dark ovals), supporting activities (gray ovals) and connectors (lines). Note that the elements in the map do not correlate to functions (e.g., finance, operations, human resources, etc.) like in an organization chart. Activity system maps can be sketched quickly on a single page.  This forces managers to be concise and to zoom in on just those activities that are distinctive, either individually or as part of the set.  There is tremendous value in thinking through which activities are distinctive and how they fit together to make the firm’s positioning distinctive, and to do so iteratively through time.

Note too that five ovals are outlined in red; these ovals define the limits and trade-offs inherent to the positioning. These are critical. It’s impossible for organizations to do it all, or to be all things to all people.  Any well-constructed activity map includes notation of the positioning’s limits.

Note that an activity set also touches on the degree of vertical integration of the enterprise: which activities will be done in-house and which will be outsourced. In the language of strategy, this addresses the specifics of a firm’s value chain: the discrete steps in the sourcing, production, and distribution of goods and services the firm does itself, and which it contracts or partners for.

Competitive advantage—a much misunderstood term—grows from the degree to which the activities in the set fit together; that is, the degree to which they are consistent with and reinforce each other.  So in building competitive advantage, it’s the set that matters, not any one activity in isolation.

While this may sound straightforward, in practice most managers are not accustomed to being explicit about their strategic positioning and its inherent trade-offs. It is common for companies, even young ones, to lose focus around strategy and to begin to drift, particularly as circumstances change. Some even end up “straddling” incompatible market positions, with disastrous results.

In summary, an activity system map is a useful tool to help managers focus on the things that make them different and enable their value propositions, and to define their current and desired strategic positioning and its limitations.  It should form an integral part of any meaningful internal strategy dialogue.  Examples of activity system maps can be found online.

Part four of this series will delve more deeply into what managers can do to lead strategy powerfully in the context of rapid change.

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