The first step in strategy

I’ve written before about strategy. I’ve been thinking about presenting it because of my talk at Columbia Business School on the 24th.
This decision tree — Figure 1.3 from Competition Demystified — summarizes how to start creating your strategy. It’s written in business lingo, but it applies to strategy in many other arenas, like politics, war, law, and some sports, for example. It applies to large businesses, for which the book was written, but it applies to entrepreneurial ventures too. I wouldn’t get involved with a company that didn’t understand the concepts.
It requires you understand the concept of a sustainable competitive advantage — the first decision point. It also requires you know understand the realm of strategy, as opposed to tactics.

Competition Demystified Strategy Decision Tree
Competition Demystified Strategy Decision Tree (click to enlarge)

Overall, I find this decision tree an excellent starting point for any strategic thinking. It embodies the important concepts at the highest level.

  • If you have no sustainable competitive advantage, ultimately your business is efficiency and your revenues will eventually only cover your costs.
  • If you have a sustainable competitive advantage and you are the single large player, your business is to maintain the advantage.
  • If someone else has a sustainable competitive advantage, you probably should leave the field (if you can’t get one yourself).
  • If several players have sustainable competitive advantages, you have to compete more carefully.

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