Creating business strategy often involves selecting a meta-strategy objective and then designing specific sub-strategies to drive that objective based on market conditions, company resources and company DNA. One of the most common meta-strategy objectives is maximizing short-term economic opportunity. While this can generate high returns on company resources, it can leave a company economically exposed if market or company conditions change. To maximize the possibility of building sustainable value, companies should also consider building strategy on a broader set of meta-strategy possibilities, such as robustness and resilience. This approach to strategy can provide a broader framework for reacting to different types of company and market changes.

What is Business Strategy?

Business strategy is a company’s intended business direction given current or expected circumstances. While there can be many strategic objectives, the ultimate goal of strategy is to build company value. If a company does not build value, its ability to implement almost every business initiative will generally fall over time.

The specifics of business strategy can be very different from one company to the next and can include focusing on a wide range of company factors. One company may heavily weight its strategy on entering a new market; another may primarily focus on developing a new product. A company’s strategic path typically depends on its DNA, its particular characteristics and market circumstances. The alignment of these factors is a vital factor in strategy success.

The Strategy Continuum and Opportunity Maximization

The general strategic path a company follows can be viewed as the combination of a meta-strategic objective and then sub-strategies that drive that meta-strategic objective forward. These sub-strategies are then comprised of business tactics.

A business strategy is typically comprised of a meta-strategy and sub-strategies to drive the meta-strategy.

Meta-strategic objectives can be viewed as falling on a strategy continuum comprised of three points:

• at one end of the strategy continuum, opportunity maximization
• at the mid-point of the strategy continuum, resilience; and
• at the other end of the strategy continuum, robustness.

The three key points on the strategy continuum are opportunity maximization, resilience and robustness.

Most firms heavily weight their strategy toward the opportunity maximization side of the strategy continuum. This involves the attempt to take advantage of the greatest opportunity for economic gain for generally the least amount of corporate resources necessary. Some examples of opportunity maximization strategies are:

Current demand and product matching. This is one of the most common opportunity maximization strategies. Demand-matching strategies tend to look for emerging trends and then move quickly to take advantage of those trends by increasing corporate visibility, sales and prices. Selling sports paraphernalia for sports teams that become very popular after winning a major sports competition, such as the World Cup, is an example of demand matching.

Discounted asset acquisition. The opposite opportunity maximization strategy is taking advantage of the absence of demand to purchase assets that are available for below-market prices. Assets that can be targeted in an opportunity maximization strategy include land, technology or even human resources. These assets are often acquired with the expectation that they can either be directly used or converted into assets that can be used to support different types of demand-matching tactics.

Low-cost market entry. Another type of opportunity maximization strategy is identifying blue ocean business opportunities and moving quickly to take a beachhead position so a company can benefit from the new market demand as it emerges. Because blue oceans are generally at early stages of growth and are not characterized by large numbers of competitors, market entry costs can be quite low compared to client acquisition and revenue capture costs.

While opportunity maximization strategies can quickly generate a large amount of value, their weakness is that they are often based on market conditions that can very quickly change. Sports paraphernalia will rapidly decline in value if the sports team it is focused on starts to lose.

Other examples of changes that negatively impact opportunity maximization strategies are:

• a fall in demand due to a change in macroeconomic conditions or a drop in interest rates
• the entry into a market of new competitors with better products, services or pricing terms
• sudden increases in labor costs
• market disruption caused by new technology that negatively affects a company’s business model
• regulatory changes that significantly change the rules affecting a particular sector or doing business costs.

Misalignment of opportunities and resources can force companies into a state of strategy churn where they move side-to-side rather than forward.

This can be significantly damaging for a company because, in addition to missing the opportunity and the loss of resources that had been allocated to it, a company can be forced into a state of “strategy churn” where it must reinvent itself or parts of its business to once again search for opportunity and resource alignment. This can be very time-consuming and effectively keep companies in a state where they are moving side-to-side for a long period of time rather than moving forward.

The Strategy Continuum and Robustness

At the other end of the strategy continuum is robustness. A strategy based on robustness strives, rather than on maximizing short-term opportunity, to resist the largest amount of market or other types of shocks. The underlying assumption of a robustness-based strategy is that the real key to value creation is simply to remain in business as long as possible.

Robustness-based strategies are often characterized by one or more of the following elements:

Redundancy. This involves designing systems that are replicated, in whole or in part, so that there is no or limited loss of operations if a system breaks down. Redundancy can be applied to many areas of corporate operations, including:

• supply chains
• IT systems
• workforce skills
• inventory
• communication channels; and
• financial reserves.

Bureaucracy. Bureaucracy is often present in the implementation of a robustness-focused strategy by requiring multiple approvals for corporate actions and multiple internal or external checks and balances. This focuses on reducing the risk of error at the expense of corporate speed and agility.

Low-Volatility Market. A third characteristic component of a meta-strategy focused on robustness is the choice of a market characterized by relatively low levels of volatility and stable competitive environments.

While robustness can increase a firm’s tolerance to shocks and have a positive impact on a firm’s longevity, it also has several disadvantages. These include:

• making it difficult for a company to shift focus if a firm business model loses viability or becomes obsolete
• requiring firms to expend significant financial and other resources to maintain redundancies
• the complexity of managing multiple redundant systems, such as supply chains, can lead to inefficiencies; and
• leaving firms poorly prepared for low probability and black swan events.

The Strategy Continuum and Resilience

Between opportunity maximization and robustness on the strategy continuum is resilience. Resilience refers to the ability of a company to not only resist adverse circumstances but to quickly react to them and turn them into an advantage.

Resilience includes the ability to:

• continuously read market conditions to identify when they are changing
• quickly define alternative courses of action to react to those changes
• communicate changes in strategic direction to employees, partners and clients, convey the advantages of those changes in strategic directions and motivate partners to move down that path
• be able to obtain, reallocate or convert resources into tools that can help a firm take advantage of a new strategy opportunity
• launch new strategic initiatives on an agile basis so a company can backtrack or switch directions again if conditions change.

While a resilience-driven strategy has multiple benefits, its key drawback is that what it achieves in flexibility it generally sacrifices in both the ability to maximize existing market opportunities and the ability to resist shocks. It tends to be most beneficial in markets with high degrees of uncertainty and volatility.

The Strategy Continuum and Strategy Weighting

Given that each point along the strategy continuum has advantages and disadvantages, the key strategic challenge is to build a balanced strategy that combines different meta-strategy elements based on expected market conditions, firm resources and firm DNA.

For companies seeking high returns with a high risk threshold, the strategy should be weighted towards opportunity maximization. For companies with significant resources and market entrenchment, greater weight should ordinarily be placed on robustness. For companies operating in highly volatile business environments, a resilience focus can make most sense.

Strategy combinations, like strategy, are meant to be flexible. As market or a company’s conditions change, a company can adjust its overall strategy position to maximize its ability to create value.

Conclusion

This article discussed the strategy continuum, different points on that continuum and how a blended strategy can be created which weights these points based on business conditions, company resources and company DNA. This approach to strategy gives companies the ability to identify and take advantage of the best opportunities for long-term value creation.

The photo for this article was taken by Casey Horner and is available on Unsplash.