THE ACADEMY OF BUSINESS STRATEGY
STRATEGY DEVELOPMENT BLOG
Strategic positioning diagram
Alain Delecroix (CBS) MBA MEEA BEng
We have stressed why all strategic decisions should be the outcome of a detailed analysis of the company positioning within its environment and/or its market (ref CBS-002). We have then developed 2 drivers that are critical for this analysis: the market attractiveness (ref CBS-003) and the company competitive strength (ref CBS-004); should we want to go a step further within this analysis and more important facilitate the strategic decision which will be made, the strategic positioning diagram is then a solid tool to complete that process.
What we call the strategic positioning diagram is also known under the name of SPACE for Strategic Position and Action Evaluation; this diagram splits both the environment assessment as well as the company assessment into 2 drivers; the environment is split between the already studied market attractiveness (return on investment, profitability, level of investment, market size, etc.) and what we call the stability of the environment (evolution of the market in quality and quantity, price influence on the market, number of competitors, speed of technology innovation, etc.); the company assessment is split between the already studied competitive strength (entry barriers, market share, quality of the products, competitiveness, sales and marketing efficiency, etc.) and what we call the company financial strength (available cash, access to the financial market, EBITDA, quality/age of the different assets, etc.).
Of course we can make a global assessment but it’s much more efficient to spend some time in order to perform a detailed analysis and build 4 balanced score cards which will allow to display the strategic positioning diagram. We have already developed the process for the market attractiveness and the competitive strength; a similar analysis using the same process must be performed for the 2 new drivers which are the stability of the environment and the financial strength with: 5 or 6 performance indicators for each driver, a weight for each indicator, then a quotation for each indicator and an average of the weighted quotation; the strategic positioning diagram will outline a drawing joining the 4 weighted quotations which are 4 points on 4 axis.
Of course this assessment must be done for each Strategic Business Unit (a consistent set of products/solutions sold to a consistent set of customers requesting each a dedicated strategy). The market attractiveness and the company competitive strength must be on the same axis but in opposite direction lets say horizontal while the environment stability and the financial strength must be on the vertical axis and again in opposite direction.
One of the benefit of such diagram is that according to its shape, and of course with some training, it provides with key indications about the current strategic positioning of the SBU but even more important this diagram tells us about the most relevant strategy according to the SBU strategic positioning; in order to do that we must first build the “resulting vector”; it is the geometric computation of the 4 weighted quotations on the 4 axis; depending of the location of the resulting vector in one of the quarter of the diagram it tells us what is the most recommended strategy.
The 4 quarters and therefore the 4 sets of strategies can be summarized as follows:
-Aggressive positioning when the company is in the “green zone” for the 4 weighted quotation, in that case the main risk is the arrival of new competitors; the recommended strategy is to keep fighting in order to hold this comfortable position through: on going product innovation, increasing of market share through the acquisition of competitors, price decrease in order to keep away the competitors, etc. Apple, Microsoft or German car manufacturers give an example of such positioning.
-Competitive positioning when the company has a good competitive strength within an attractive market but with a relatively weak financial position that may not allow it to follow the changes within the environment; the recommended strategy is to leverage its competitive strength and the robustness of the market as to reinforce its finances through for instance: increasing the products range and the products quality, increasing the sales and marketing efforts, reducing the fixed cost, etc.
-Conservative positioning when the company has good financial strengths in a relatively stable environment but within a low attractive market and limited competitive strengths; the critical issue is the lack of competitive products; the recommended strategy is to leverage the financial strength in order to develop competitive advantages and to progressively move toward more attractive markets through for instance: selecting and focusing on the most competitive products, selecting the most profitable and most growing markets, developing competitive advantages to the existing products, developing new products, entering new markets, etc. Thales was in such a position when it was 100% defence company; it is today a defence & security, aerospace and transportation company with defence representing 50% of the business.
-Defensive positioning when the company is in the “red zone” with the 4 weighted quotation, the market is not attractive and changing very often it has limited financial leverages and low competitive strength; what is at stake is the company survival; the recommended strategy is to reallocate the company resources towards activities where the company can play a more active role through for instance: stop non profitable products and customers, reduced sales and marketing efforts, reduced the manufacturing capacity, kill all non vital costs, etc.
It is recommended to start such detailed analysis for the most critical SBU and to perform it top down as it is quite heavy and time consuming; for each SBU it is better to start to assess globally the 4 weighted quotation and then progressively to refine the assessment with the detailed balanced score card for the 4 drivers in order to reach the accurate strategic positioning diagram.
ABOUT THE AUTHOR
Alain Delecroix (CBS) MBA MEEA BEng is an approved Certified Business Specialist (CBS) with the Academy of Business Strategy and his specialist subject is strategy development. He has achieved an MBA from the Institut d’Administration des Entreprises, a BEng from Ecole Nationale Supérieure d’Electronique d’Electrotechnique d’Informatique et d’Hydraulique de Toulouse and a MEEA from Paul Sabatier University. He has been employed as President, Vice President, CEO, Marketing Director, Sales Director and Consultant for various companies and has experience within the aerospace, telecommunications, defense and security industries. His clients or employers have included Almade Consulting, Thales, Alcatel, Omera, Astrium and Laboratoire Central de Télécommunications. He has geographical working experience in France, United Arab Emirates and China. He speaks French and English. His service skills incorporate strategic planning, international operations, organizational and strategy development.