The most visible aspects of a company to its customers, employees and the rest of the outside world are its products and services. As a result most companies now have their identity tied to their product and service categories.
For example, how often have you heard managers introduce their companies this way? “We are a clothing company.” “We are manufacturing company.” We sell accounting services.” “We are an insurance company.”
Although this is often a natural thing to do, it has unfortunate side effects. Some of the disadvantages of having your company’s identity closely fixed to your product and service categories are:
- This approach doesn’t differentiate you from every other company in your industry because in most cases you are retaining the same industry structure previously adopted.
- It makes it more difficult to align your products and services with your company’s capabilities system and in turn you are forced to develop a strategy aimed at fitting your existing product and service categories.
- Your business becomes more risky in the sense that if the market for your products and services changes, you might be left with nowhere to go and a huge blow to your identity.
Achieving products and services strategic fit is all about having a perspective shift about your products and services. This means defining your company according to the way you choose to play as well as your capabilities system. If you do this, you will be able to differentiate yourself and adapt to market changes without experiencing an immense blow to your identity. Remember effective strategy development and execution is about deciding how to play in your chosen market and industry and implementing these ways for maximum performance and competitive advantage.
The value potential of your company’s products or services depends mainly on their significance to your strategy instead of the other way round. It is therefore important for the management team to regularly re-evaluate the line up of the company’s products and services as well as how they are strategically fitting within the company’s overall strategy. Achieving strategic fit does not mean that the products and services have to be in the same sector. If two products are falling within the same sector this does not automatically mean that they fit together naturally. This is because two products may seem related but in actual fact they require different capabilities to perform well in the market.
This is why it is important for management to first define their approach of playing to win before making critical decisions about products and services. Doing this will help them to align products and services not with one another but with the company’s overall strategy. When products and services are not aligned to the overall strategy and in fact dictate strategy formulation, the company is bound to incur huge costs and inefficiencies as it tries to create demand for the not-so popular product by investing more money in it.
Because huge sums of monies are being spent on products and services that are not fitting the company’s strategy, those parts of the business that are strategically aligned but are not receiving the required investment and attention end up paying the largest price of this incoherence. To avoid spending a lot of money on unfitting products and services, management should divest those products and services that are not aligned to the company’s capabilities system. This will help release short-term capital to reinvest in more strategically aligned products and services.
Building your products and services portfolio is not about what you sell rather what sets you apart. It is therefore important that analysis of your company’s product and service fit is done earlier during the strategic planning process and not at the end when performance targets have already been set and agreed upon.
By focusing only on those products and services that fit within your company’s capabilities system, you will be able to improve value creation as you will now be able to invest more in the capabilities that set you apart, are important to your strategy and result in improved performance and maximum competitive advantage.