What is Strategy?
Strategy is an act of knowing where to go and how to go there with the ability to execute and actually get there. Strategy is knowing what to do and what NOT to do. Solid strategy is built on knowing the options and trade-offs and making a CONSCIOUS choice, it is proactive, not reactive.
What does the chart above show?
This chart represents the total market size for technology related products and services. It is used fairly commonly in consulting firms as it can represent a large size of data very efficiently. The total IT market size is $3.74 Trillion. This means that if you added up all the sales of tech related products, the value would add up to $3.74 Trillion globally. Every large market like this has segments and sub-segments, which represent the overall size of the pie for companies. You could think each of the five rectangles in the chart as the “battlefield” for the companies that compete. For example, data center systems is $141B in size and is divided mainly into servers, networking and storage. Main players in this segment such as HP, Cisco and EMC compete to get the most of the rectangle in their target data center segment. When companies look at attractiveness of new markets, market size and its forecast is one of the key variables to calculate the attractiveness of a new market.
Strategy is a means to grab the most of the market size rectangle. It is the grand plan for how different resources will work together to grab a targeted piece of the market pie while positioning the company strongly relative to others for long term sustainable growth.
Who is this website for?
This website is tailored to all students of strategy and management, whether they are currently finishing their undergrad or MBA or they are working in organizations, large or small, that require a strategy. This site will have two main sections: concepts for general management strategy concepts and strategic issues very relevant for high-tech companies. This site has both general strategy topics and topics specific to high-tech. It is best to digest both the general and specific concepts to think holistically about a business.
In this website, in addition to the concepts, we will look at strategies of high tech companies. We will have an outsider view based on the results they announce, recent news and key technology trends we observe. We don’t claim to have figured out the ultimate strategy for each company and we sure won’t have the same depth of information as the executives themselves. We will base our views on public information only.
Elements of Strategy
Strategy has three key elements: target customers, competitors and products / processes of the firm. Most firms say that they are focused on their customers; but actually they are not. It is the right thing to say; but not the easiest thing to do. Most firms are focused inwardly. It is natural to do so. Few really follow their competitors and can develop counter strategies or actions. They just look at market share charts and think that it is competitive analysis. And thirdly, understanding the strengths of a firm is key to develop the right strategy. If a firm cannot leverage its existing assets when venturing into a new area, it is very unlikely they will be successful. The thinking that firms should go after every attractive market regardless of cost and rate of return is a big risk that does not pay often. Not investing enough in R&D to develop internal capabilities is another problem high tech firms face because decreasing R&D expenses is a short term fix for earnings that would have negative impact after a couple of years as attractiveness of product portfolio goes down. We believe that high-tech companies that want to grow should at least invest 10% of their revenues to R&D. The ones that fail to do that is unlikely to achieve meaningful organic growth.
Strategy has been in the domain of war and battlefields with the stakes of thousands of lives. It has been adapted to business world in the last few decades, driven by intellectual property of management consulting firms and books written by management gurus. Every MBA student and Fortune 100 executive would know Michael Porter’s Competitive Strategy, Peter Drucker’s ‘The Practice of Management’
Why is strategy important for high-tech companies?
Strategy is of particular importance for high-tech companies because of the rate of change, driven by technology and innovation. Making a wrong choice could lead to significant share loss in a short period of time. Stakes are also high since successful technologies are replicated quickly across the world and products with different price points.
In no other space, inferior products are this easily wiped out. You could keep going to your local supermarket even if it is not the best quality for price compared to another one farther from your house; but you will never keep buying an inferior product / service given your price point. Superior technologies, business models dominate the market, so this superior products and product strategy a key ingredient of high-tech business strategy. You would see less fragmentation in high-tech markets compared to other industries.
Cisco, Google, EMC, Intel, Microsoft all have over 60% share in some of their target markets and they have maintained their high share throughout many years because they can out-invest competitors given their initial edge and always stay ahead. This does not mean they will always enjoy the economic profits that they enjoy now. Complacency in high-tech is the most dangerous disease that the management of high-tech companies should be extra careful about. History is full of companies that lost their dominant market share positions: IBM in PCs, Kodak in cameras, Osborne computer in operating system, Wang in word processor, and many more examples could be cited for companies that lost their lead in tech markets.