Strategy - The driving force of business
Strategy specifies how an organization matches its own capabilities with the opportunities in the market place. It describes how an organization can create value for its customers while differentiating itself from its competitors.
The essence of Strategy is choosing a unique and valuable position rooted in activities that are much more difficult to match. Operational Effectiveness, though necessary to superior performance, is not sufficient, as its techniques are easy to imitate.
For example, when Marketing is strategy, the important question is not What else can we make? but What else can we do for our customers?
In formulating a Strategy, an organization must first thoroughly understand its industry, focusing on five forces:
2 Potential new entrants
3 Equivalent products
4 & 5 Bargaining power of customers & input suppliers
The collective effect of these five forces shapes an organization's profit potential. In general, profit potential decreases with greater competition, stronger potential entrants, products that are similar, and more-demanding customers and suppliers.
A CFO in partnership with CEO is required to respond to these challenges. Two of the many options to deal with this are: differentiating one's products or achieving cost leadership.
Strategy is as much about 'what to do' as it is about 'what not to do'.
*First before taking up any job or project, to see whether it is consistent with company's strategy.
*Second, are these the kind of jobs or projects the company want to be doing more of?
*Thirdly, is this an attractive segment of the market?
*Fourthly, will the company be able to develop competitive advantage over its competitors?