Business Strategy Testing and Application

Subject: Strategy
Pages: 3
Words: 1071
Reading time:
4 min
Study level: Master

Ten Questions of Strategy

Detail on Granular Choices

The question on granular choices implies the need to define the specific market a company is going to beat. The strategy of granular choices allows to consistently reallocate resources moving between the outlined segments. According to Teece (2018), microfoundations (granular foundations0 facilitate the development of a company’s capabilities and the recombination of existing ones.

Tap into a True Source of Advantage

A true source of advantage means a competitive advantage consisting of positional advantages and special capabilities. For example, a company’s positional advantage could stem from the paternalistic policy, the ratio between price growth and inflation, the technological advances in the industry. Special capabilities might include possessing privileged rare resources or things a company is especially good at, such as particular innovations. Every source of advantage should be carefully tested, and managers should provide steps to defend that source from competitors. Teece (2018) states that the success of a business depends on the selection of technologies and the operation of tangible assets merged the model for technologically innovative utilization of tangible and intangible assets.

Rest on Privileged Insights

Cheap and accessible data available to competitors could not shape a company’s winning strategy: the focus should be put on unique insights. There could be various ways to obtain them: analyzing possible problems with the assumptions on their elimination, field observations, searching for new data analysis methods, and looking from the customer’s perspective. For example, Rolls-Royce’s “power-by-the-hour” model of jet engines in the 1960s was introduced in alignment with customers’ needs and appeared profitable (Teece, 2018).

Put You ahead of Trends

Managers can say that their strategy puts their company ahead of trends if they can catch a glimpse of emerging trends and rearticulate their company’s planned steps due to innovations, new demands, or other shifts in the industry. It is essential to analyze the trend-setters’, consumers’, and competitors’ behavior and predict the outcome of that trend adoption. For instance, start-ups are flexible models which could be fine-tuned because they often utilize Internet-based business models and fast feedback from social media (Teece, 2018).

Embrace Uncertainty

Managers have to overcome the uncertainty in their strategy development. The choices should be done at the moment, but the outcome could not be fully predicted. One of the most valuable methods implies the characterization of uncertainty level. A clear vision of the future results in decisive support, while if some tendencies are vague, managers should think of a range of identifiable outcomes. In more uncertain situations, managers work with a probability distribution, and in total ambiguity, it is crucial to collect data to transfer to a more certain vision.

Balance Commitment and Flexibility

More flexibility means less commitment as there is an inverse proportion among these strategy patterns. An effective manager succeeds in the application of both. Commitment provides a company’s sustainability, while flexibility allows making quick decisions in a beneficial situation. As an example of such a balance, Teece (2018) provides the case of Goldman Sachs who used slight transitions that fit with the existing business.

Avoid Biases

Business decision-making could be obstructed by too much optimism, anchoring to a certain point of view, loss aversion tendency, confirmation bias, herding, and champion bias. As Puaschunder (2020) states, an unconnected anchor could change perception. For example, speaking of higher numbers in conversation could trigger higher offers. Herding relates to the inability to choose unique and credible sources of information (Puaschunder, 2020). Confirmation bias is “prior-biased updating” – the case when people update less if the information is opposite to their prior beliefs (Bernheim et al., 2019).

Champion bias implies that the simple coping strategy of thriving companies does not mean that the results will be the same. Managers have to keep in mind that there are many invisible aspects. For example, Van Holten (2017) points out that professionals should include samples of disappearing stocks in the analysis to overcome survivorship bias in currency trades. To prevent bias in decision-making, it is necessary to complement a valid fact base with a fresh view to maintain critical discussion or use the technique of “premortem assessment” to identify the possible reasons for failure.

Summon the Conviction to Act on It

The implementation of strategies depends on the determination of the management team to invest in them. To reach the state of conviction, the old assumptions should be shattered by creating opportunities to persuade decision-makers to support the idea: make a tour to plants, meet key stakeholders, etc. Such steps facilitate the creation of a base of supporters and influencers among team members. In addition, according to Teece (2018), conviction is easier to achieve through the implementation of management’s leadership skills training.

Translate into an Action Plan

An action plan is a clear and detailed identification of a current company’s position, the desired point of destination, and a sequence of steps concerning a company’s capabilities and organization. According to Gagnon (2016), an effective action plan should be elaborated from the definition of the objective, the target group, sales response measuring. In addition, while sticking to a systematic approach, managers should include identifying steps to execute the plan, tracking tools and assessment of results, proper evaluation, and creating further strategies for improvement.

Beat the Market

The question of strategy’s ability to beat the market reflects the company’s opportunity to advance and capture an economic surplus. This question implies if a company has unique features comparing to its competitors and potential entrants, which are rather strong but flexible to fit into the ever-changing marketing situation. For example, Uber and Lyft’s strategies are based on software and data skills (Teece, 2018).

A Good Test of a Business Strategy

A business strategy test is considered good if it helps pinpoint the weaknesses of the company’s strategy and creates a strategic dialogue to determine the strategy output. The most important test is to determine the company’s strength to beat the market. Other stated questions could give a better perspective on the chosen strategy. In addition, there are a great variety of tests that managers could apply. For example, Trevor and Varcoe (2016) offer two questions to assess the company’s strategic alignment: how well your business strategy supports the fulfillment of the purpose and how well your organization supports the realization of the business strategy. Therefore, a good test is multidimensional because different tools help get a fresh view of the issue and look at it from various sides.

Reference List

Bernheim, B. D., DellaVigna, S., and Laibson D. (eds.) (2019) Handbook of behavioral economics – foundations and applications 2. Netherlands: North Holland.

Gagnon, E. (2016) ‘The marketer’s action plan (MAP): six steps to developing effective marketing plans in B2B marketing programs’, International Management Review, 12(2), pp. 56-59.

Puaschunder, J. (2020) Behavioral economics and finance leadership: nudging and winking to make better choices. Switzerland: Springer. Web.

Teece, D. J. (2018) ‘Business models and dynamic capabilities,’ Long Range Planning, 51(1), pp. 40-49. Web.

Trevor, J. and Varcoe, B. (2016) ‘A Simple Way to Test Your Company’s Strategic Alignment’. Harvard Business Review. Web.

van Holten, J. E. C. (2017). Survivorship bias in currency carry trade literature. Bachelor Thesis. Erasmus School of Economics. Web.