Encyclopedia of Leadership

3.4

THEFUNDAMENTALS OF BUSINESS-UNITSTRATEGY

Inspired by Anil K. Gupta.

Strategic thinking is the bedrock of effective leadership, and it’s almost impossible for a leader

to overemphasize this activity. Yet, while much has been written for senior executives about

defining corporate strategy, much less emphasis has been placed on thinking strategically at

the business-unit level. Corporate strategy deals with broad issues like what business to be in

and how to exploit synergies across divisional businesses. Business-unit strategy focuses on

how to compete within a market defined by the corporation. Strategy formulation at the busi-

ness-unit level has a twofold purpose: a) to provide focus so that the business unit can sustain

and develop its internal (and perhaps external) market position, and b) to enable the business

unit to adapt faster than its external (and perhaps internal) competitors. Business-unit strate-

gy has five critical elements. Depending on the nature of your business unit, these elements

will need adaptation.

SECTION 3 TOOLS FORSTRATEGICTHINKING 79

Who are our target clients or customers?

• By demographics—Clients or customers can be identified by age, income levels, psychological characteristics, and so on.


• By market segment—Clients or customers can be identified by industry classification, company size, country, and so on.


• Prioritize these client or customer groups: Which customer groups will yield the most value?
  What client or customer needs are we trying to fulfill?


• Define in terms of the underlying generic problem faced by the client or customer, rather than in terms of your
  products or services (e.g., not courier services; rather “the urgent transfer of documents”).
  What core competencies are required to fulfill these client or customer needs?


• Examples include product technology, process management, project management, marketing innovation, and so on.


• How can your business unit capitalize on corporate competencies?

Defining Business-Unit Scope

Financial goals(e.g., sales volume, growth in revenue base, cash flow, profitability, growth in assets):

• What financial success measures will you use to report to the corporation?
  Market position and customer satisfaction goals(e.g., market share, new customer initiatives):


• While both market position and profitability are important, long-term financial success is ultimately a consequence
  of winning in the marketplace.
  Internal business-unit goals(e.g., cycle time reduction, employee satisfaction).
  Innovation and learning goals(e.g., percent of sales from new services).

Business-Unit Goals

Define dimensions on which we intend to be superior to external competitors.

• Where will you be clearly superior? Where you will remain at par or accept being at a disadvantage to competitors?
  Define client- or customer-relevant outputs.


• What matters in your marketplace (e.g., price, delivery time, quality, technology, aesthetics)?


• These may be relative to competitor’s outputs rather than absolute, or they may change over time (e.g., the cheap
  quartz watch keeps better time than an expensive mechanical watch).


• In what way will you differentiate your service or product (e.g., cost leadership, reliability)?

Relative Competitive Advantage