Page 77 - HBR Leader's Handbook: Make an Impact, Inspire Your Organization, and Get to the Next Level

Developing a Strategy 67

Five tests for your strategy

In her book Understanding Michael Porter, Joan Magretta distills Porter’s
principles of creating and sustaining competitive advantage down to five
tests. You’ve seen how Kerger and Rotenberg and the team shaped their
strategy around these kinds of elements; you can also use them to make
your own key decisions. Every good strategy must have:
• A distinctive value proposition. The decisions you make about
where and how to compete are trade-offs—within the context of
your larger company, which customers will you choose to serve,
and which of their needs, with which offerings, packaging, pricing,
and so forth? How will these be better than and different from al-
ternatives in the marketplace?

• A tailored value chain. It’s one thing to come up with a unique
offering for a selected target audience, but you also must deliver
on it, especially in a way that would be difficult to replicate by
competitors. This may mean changing how you work, restructur-
ing your organization, or taking on (or cutting back on) additional
costs.
• Trade-offs that enable your differentiation from rivals. As

we’ve mentioned, strategy is as much about what you decide not
to do, because without focusing your effort and resources, it will
be difficult to reach a threshold of being distinctive in something.
A lack of focus waters down the emphasis and energy you’re
trying to compete with against other players. Because no orga-
nization can be all things to all customers, and resources are
never infinite, you’ll have to stop doing some things. Choose the
right ones.
(continued)