In his famous book, “Competitive Advantage: Creating and Sustaining Superior Performance” (1985), Michael Porter developed the now well-established model for competitive advantage. According to Porter’s Generic Strategies model, three basic strategic options are available to organisations for gaining competitive advantage. These are cost leadership, differentiation and focus.
- Organisations that achieve cost leadership can gain market share by lowering prices (while maintaining profitability) or by maintaining average prices and increasing profits. This is achieved by reducing costs below those of the organisation’s competitors.
- Companies that pursue a differentiation strategy win market share by offering unique features valued by their customers.
- Focus strategies involve achieving cost leadership or differentiation within niche markets in ways that are not available to more broadly focused players.
Exploring these elements of Porter’s model from a different perspective, In Part 1 of this blog post, Andrew Dallison examines the focus strategy as a key element to success in business.
FOCUS
The idea of being focused in a manufacturing-based business, is a well-known ‘strategy’ that seems to have stood the test of time and has some equally well-known parallel concepts such as the ‘Pareto Principle’ (or 80/20 rule); and is hidden in phrases such as “Don’t try and be everything to everyone” and “stick to your knitting”. A niche manufacturing business is usually focused because it’s typically smaller in scale and targets a narrowly-defined market with highly specialised products or services.
At the other end of the scale, a large manufacturing concern is typically chasing economies of scale, and will invest in big/fast machines that make big volumes of ‘standardised’ products quickly at the lowest possible cost, in what can only be described as a very focused way.
Being focused is easier to understand by considering what might happen if a business is not focused.
- A poorly-focused business typically promotes a confused value proposition to its markets. It will attempt to cover everything and be known for nothing in particular.
- A business without focus inevitably spreads its resources across too many ‘things’ and does not do any of them well. A symptom will be inefficient factories drowning in a sea of SKUs, trying to make “everything”, consuming capacity with too many changeovers, low machine utilisation, high waste, bad quality and ultimately a high (uncompetitive) cost position.
- If a business is not focused, it will inevitably lead to greater complexity in the business model, resulting in the need for more overhead to manage it. A complex business is more likely to have a higher risk ‘value chain’ and a higher rate of failure or mistakes, where customers and suppliers are impacted, and ultimately the business suffers. In short, complexity is expensive.
- In a poorly focused B2B sales context, selling resources will likely be thinly spread across a broader portfolio (of products & customers). This will result in weaker customer relationships and an even higher reliance on more commoditised selling techniques (i.e. price-focussed selling). In these circumstances, salespeople will tend to favour products (and customers) that require less effort (i.e. easier to sell to). This is a dangerous mix and will deliver mediocre results across a confused portfolio of products, services, and customers.
But let’s consider for a moment if there are downsides to being focused.
- Does focus stifle innovation?
- Does focus put the proverbial blinkers on a business?
- Is a focused business, by definition, less flexible and less agile (slower to react)?
- If focus means a narrow product/service scope, what happens when new competitive products come on the scene that is more appealing to customers?
- If your business is not innovating, you will likely be at a competitive disadvantage.
In reconciling these conflicts, it could be that there are potential downsides of being too focused, to the point of becoming disconnected or unwilling to consider a change or failing to react to new circumstances. It could also be that if an organisation is too internally focused, then it will likely miss important external (market) opportunities or at least be less aware of external issues or trends and consequently be at a competitive disadvantage.
So whilst a manufacturing business should be focused, we can refine this further by saying that the internal focus should be aligned with an external focus on the customers and those segments the business has chosen to participate and invest in.
With enough forward vision, this business can readily adjust its plans or strategy (eg, develop new products) to remain relevant to its customers.
In Part 2, Andrew explores the second key element of success.
If your manufacturing business could benefit from a fresh perspective, contact Andrew Dallison at andrew@oxygen8.co.nz or on 027 650 5768