Congruence Model Summary
A business must have a strategy, the strategy must necessarily have parts. A strategy has five elements, providing answers to five questions:
- ARENAS: where will we be active? The most fundamental choices strategists make are those of where or in what arenas the business will be active. In articulating arenas, it is important to be as specific as possible about the product categories, market segments, geographic areas and core technologies as well as the value-adding stages (e.g. product design, manufacturing, selling, servicing, distribution) the business intends to take on. In choosing arenas, the strategist needs to indicate not only where the business will be active, but also how much emphasis will be placed on each.
- VEHICLES: How will we get there? Specifically, the means for attaining the needed presence in a particular product category, market segment, geographic area, or value-creation stage should be the result of deliberate strategic choice. If we have decided to expand our product range, are we going to accomplish that by relying on organic, internal product development or are there other vehicles – such as joint ventures or acquisitions that offer a better means for achieving our broadened scope? If we are committed to international expansion, what should be our primary modes or vehicles – Greenfield start-ups, local acquisitions, licensing or joint ventures? The means by which arenas are entered matters greatly. Therefore, selection of vehicles should not be an afterthought or viewed as a mere implementation detail. A decision to enter new product categories is rife with uncertainty.
- DIFFERENTIATORS: How will we win in the marketplace? how it will get customers to come its way. In a competitive world, winning is the result of differentiators and such edges don’t just happen. Rather, they require executives to make upfront, conscious choices about which weapons will be assembled, honed, and deployed to beat competitors in the fight for customers, revenues and profits. Achieving a compelling marketplace advantage does not necessarily mean that the company has to be at the extreme on one differentiating dimension; rather sometimes having the best combination of differentiators confers a tremendous marketplace advantage. Regardless of the intended differentiators – image, customization, price, product styling, after-sale services or others – the critical issue for strategists is to make upfront, deliberate choices. Without that, two unfortunate outcomes loom. One is that, if top management doesn't attempt to create unique differentiation, none will occur. Again, differentiators don’t just materialize; they are very hard to achieve. And firms without them lose.
The other negative outcome is that, without upfront, careful choices about differentiators, top management may seek to offer customers across-the-board superiority, trying simultaneously to outdistance competitors on too broad an array of differentiators – lower price, better service, superior styling and so on. Such attempts are doomed, however, because of their inherent inconsistencies and extraordinary resource demands. In selecting differentiators, strategists should give explicit preference to those few forms of superiority that are mutually reinforcing (e.g. image and product styling) consistent with the firm’s resources and capabilities and of course, highly valued in the arenas the company has targeted.
- STAGING: What will be our speed and sequence of moves? the speed and sequence of major moves to take in order to heighten the likelihood of success. Most strategies do not call for equal, balanced initiatives on all fronts at all times. Instead, usually some initiatives must come first, followed only then by others and then still others. Of course, in business strategy there is no universally superior sequence. Rather the strategist’s judgment is required. Decisions about staging can be driven by a number of factors. One, of course, is resources. Funding and staffing every envisioned initiative, at the needed levels, is generally not possible at the outset of a new strategic campaign. Urgency is a second factor affecting staging; some elements of a strategy may face brief windows of opportunity, requiring that they be pursued first and aggressively. A third factor is the achievement of credibility attaining certain thresholds – in specific arenas, differentiators or vehicles – can be critically valuable for attracting resources and stakeholders that are needed for other parts of the strategy. A fourth factor is the pursuit of early wins. It may be far wiser to successfully tackle a part of the strategy that is relatively doable before attempting more challenging or unfamiliar initiatives. These are only some of the factors that might go in to decisions about the speed and sequence of strategic initiatives. However, since the concept of staging has gone largely unexplored in the strategy literature, it is often given far too little attention by strategists themselves.
- ECONOMIC LOGIC: At the heart of a business strategy must be a clear idea of how profits will be generated – not just some profits, but profits above the firm’s cost capital. It is not enough to vaguely count on having revenues that are above costs. Unless there’s a compelling basis for it. The most successful strategies have a central economic logic that serves as the fulcrum for profit creation. In some cases, the economic key may be to obtain premium prices by offering customers a difficult-to-match product. For instance, the New York times is able to charge readers a very high price (and strike highly favorable licensing arrangements with on-line information distributors) because of its exceptional journalistic quality.
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Reference: Donald C. Hambrick and James W. Frerickson.
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