Architecture/Engineering (A/E) firm strategy is one of the main topics of this blog. I have discussed in previous posts how a firm’s strategy is the key to its long term success and is key to avoiding commoditization or settling for average. If you have good strategy, you are likely outperforming in the industries and market segments that you choose to compete in.
Having good strategy is incredibly important, but how do you know if your strategy is good? You could look to your results for the answer to this question. If you are consistently delivering higher levels of profitability that the average for your industry, then you very likely have a good strategy in place. That is looking in the rear view mirror though. It is much more valuable if you can tell if your current strategy is likely to deliver results in the future. How do you do this? The Harvard strategy guru, Michael Porter, describes five tests of good strategy that can help you answer this question
- Do you have a distinctive value proposition? Your value proposition describes which clients you will serve, what needs of theirs you will serve, and at what price point. Is your value proposition unique when compared to your competitors? If your strategy is good, it should be.
- Are your systems and activities tailored to your distinct value proposition? For example, maybe you utilize prescriptive design procedures and outsourcing to deliver standardized designs at a low price. Doing things in a unique way that support your value proposition is the key to delivering your competitive advantage. If your strategy is good, you should be doing things differently than your competitors.
- Are you making choices that result in trade-offs? The choices you make for how to uniquely deliver on your value should involve trade-offs. For example, you may decide to be overly responsive at the expense of efficiency in delivering your services or you may decide to tell some clients “no”. Trade-offs protect you from imitation. Strategy is just as much about what not to do as it is about what to do.
- Do your systems and activities fit well together? Not only do your unique systems and activities need to support your unique value proposition, they need to support and even strengthen one another.
- Does your strategy exhibit continuity over time? It takes time for good strategy to deliver results. Continuity of strategy helps managers make good, consistent decisions that support the fit of your unique systems and activities. While you need to remain agile enough to change when your environment changes, you need to be stable enough to allow strategy to work its magic.
Porter contends that your management team should fully understand the answers to, and the details of, the five tests above to ensure that your strategy is successful. Can your firm and your team pass the five tests above? If not, it may be time to think through your strategy a little further.