By Gary Shawhan, Phil Phillips, , The CHEMARK Consulting Group
Of the many books written in recent years on business management and methodologies for achieving and sustaining growth, Verne Harnish authored two books that offer some valuable insight. These books include: “Mastering the Rockefeller Habits”, published by Gazelles in 2002 and “Scaling Up” published by Gazelles in 2014.
In this article I want to focus on his observations about strategy and how he suggests constructing and maintaining a successful business strategy for your business. Harnish refers to this process as the “7 Strata of Strategy”.
One can argue that the word “Strategy” is used too frequently to describe a wide range of actions and activities that occur during the course of managing and running a business. Alternatively, it can also be argued that “Strategy” is not sufficiently incorporated into the process of shaping the long-term direction of the business.
An effective and successful business strategy requires vison, commitment, and consistency from the company’s leadership. While day-to-day business activities present a moving target that requires adjustment and adaptability, the company’ business strategy needs to remain consistent over time. “Strategy” in this context, drives the company’s long-term direction.
The development and implementation of a successful business strategy is, of course, individual to each organization. Regardless of size, the company “Strategy” needs to be the focal point which should be continually reinforced and one that can be built-upon. Stated in one way, a companies business strategy should be clearly connected to its identity in the marketplace. This includes current and potential customers as well as competitors. It should also have a link to the company’s core competencies as well as to those elements of the business that are considered to be favorable differentiators.
“The 7 Strata of Strategy”
“The 7 Strata of Strategy”, as identified by Harnish in “Scaling Up”, are as follows:
Harnish’ 7 Strata of Strategy
- Words you Own
- Sandbox and Brand Promises
- Brand Guarantee
- One-PHRASE Strategy
- Differentiation Activities
- Profit per X and BHAG
Verne Harnish’s “7 Strata of Strategy” focuses on the importance of having set a strong foundation within the company and creating a unique identity in the marketplace from which you can build and strengthen your overall business strategy.
1. Words you Own
What does “Words you Own” mean? It is your company’s identity in the marketplace. It is a word or several words that customers, competitors, and elements of the supply chain immediately identify with your company. They make you stand-out from competitors in some way.
As Harnish emphasizes in his book, “Brand” identity is a fundamental component in constructing a successful business strategy. “Brand”, in this context, can be many things.
“Brand” may be a particular field of technology for which the company is known. It can be the company name and its reputation for service, quality, or innovation that elevates the company image in the marketplace. In certain cases, it can be a trademark or trade name but only if the impact goes far beyond the merits of the product itself.
In business, today, having this identity and recognition throughout your company’s supply chain and perhaps forward to the final customer is a key strategic asset. Tactically, Harnish emphasizes the importance of nurturing and reinforcing “Brand” identity through a very active and sustained effort. Today, employing the internet as a tool is a critical element in strengthening your “Brand”.
Insuring search engines effectively position your company and its products or services at or near to top of the list is a necessity today. Making your company findable and standing out from competitors needs to be part of the job of reinforcing and managing the company’s business strategy.
2. Sandbox and Brand Promises
The next tier in Harnish’ “Strata of Strategy” is what he refers to as “Sandbox and Brand Promises”. He emphasizes the importance of making sure of the external view of your business you want to project (from which you base your strategies going forward). The company image should be founded on knowing who your key customers are and that it reflects an understanding of their needs. Key customers are not only the most important contributors to your current profits but also represent the best prospects for future revenue growth and sustained profitability.
It is critical that you understand the values that your company brings to these key customers. This value may be found in the performance of the products your manufacturer. It can just as likely be found in the technical support you provide, the manufacturing logistics offered or the supply chain relationships that your company has in place. Alternatively, personal relationships through the sales and technical support staff may be the most important value in determining success with these key customers.
Each of these or a combination of these values become what Harnish refers to as the “Brand Promises”. Identifying and nurturing these values is an essential building block in constructing a viable business strategy.
3. Brand Promise Guarantee
The “Brand Promise Guarantee” is your customer’s expectations of the values that they receive through doing business with your company. Often these expectations extend forward in the supply chain to their customer and sometimes further forward to the final end-user.
Harnish’s point is that failure to deliver on the “Brand Promise” can be damaging if not devastating to a company’s position in the market. When your customer’s customer expresses concern about your company as a supplier it spells trouble. It opens up opportunities for competitors to capitalize on your mistakes. The hunter can become the hunted.
The other aspect of “Brand Promise” that deserves comment is the importance of benchmarking competitors and identifying what comprises their “Brand Promise”. In one respect, this exercise can identify weaknesses in your current approach to current and potential customers that requires some course adjustment. This is especially true if it reveals viable threats from competitors which target weaknesses in your approach. These items need immediate attention!
Alternatively, effective benchmarking of competitors can reveal weaknesses that represent opportunities if addressed through the implementation of actions that elevate your company’s image and “Brand Promise” versus specific competitors.
4. One Phase Strategy
The “One Phrase Strategy” identifies the #1 element in your business that drives profitability. It is normally not something that you promote openly. It is, instead, the centerpiece upon which the company’s business strategy is based.
The “One Phase Strategy”, as defined in Harnish’s book, is the key lever in your business model that drives profitability and helps you choose which customer desires to focus on and satisfy and which ones to ignore. Put another way, it creates The Focal Point for your business strategy going forward.
5. Differentiation Activities
“Differentiating Activities”, in the context of Harnish’s “7 Strata of Strategy”, focuses on your company’s approach and methods you use to provide your products or services to customers. This point is not related to the specific performance properties of certain products or individual features of the services your company offers. It is, instead, the way in which you construct your business strategy to create a unique view of your company in the eyes of existing and potential customers.
Differentiating activities are ones that build “Brand” loyalty. In markets where there may be 2-5 or more competitors vying for a customer business (with products of similar performance), it is often the way in which you are able to enhance the value for doing business with your company that makes the difference.
Differentiators in the coatings space may include, technical support, supply logistics, personal relationships through the sales/marketing staff or easy-to-do-business tactics such as the ability to talk directly with key R&D people versus talking to a recorded voice mail message.
The “X-Factor” refers to a unique business strategy that is internally developed and implemented. It targets an underlying weakness in the business strategy of your competitors. The “X-Factor” is something that customers do not see. Instead, it becomes an internal organizational driver within your company that everyone can get behind. The result is a higher level of energy and purpose as compared to key competitors.
7. Profit per X and BHAG®
In the last strata of Harnish’s 7 Strata of Strategy, “Profit per X and BHAG® Harnish references KPI (key performance indicator). This is a concept credited to Jim Collins in his book “Hedgehog concepts in Good to Great: Why Some Companies Fail… and Others Don’t”. KPI is the central profit goal for the company. It is the #1 financial metric that needs to be tracked to measure company performance. This metric is not the only key to how the business is run day-to-day but critical to how your economic goals for the business are set and then measured year-over-year.
BHAG®, (Big Hairy Audacious Goal) is a term that comes from a book by Jim Collins and Jerry I. Porras” – Built to Last: Successful Habits of Visionary Companies “. The point Harnish makes here is that the best measure for achieving the long-term goal for the business is the measure of profit.
Analytics, and the availability of this tool today to deliver in-depth information and real-time data, have aided a company’s capability to track financial performance versus financial goals. This adds to the availability of information that can sharpen management’s ability to make course corrections more accurately.
The final element in the “7 Strata of Strategy”, according to Harnish, is to establish the ultimate, long-term goal for the business. This is the vision for what you want the business to be 10 or more years in the future. In order for this goal to be sustainable and valid over time it needs to be supported by successfully executing the previous 6 Strata. The strength of a company’s long-term business strategy becomes dependent on the thoroughness with which the strategic business message has been constructed and accepted by all elements of the organization.
- Mastering the Rockefeller Habits, What you must do to Increase the Value of Your Growing Firm, Vern Harnish, Published by Gazelles, 2002
- Scaling Up, How a Few Companies Make it… and Why the Rest Don’t, Vern Harish, Published by Gazelles, 2014
- Good to Great: Why Some Companies Make the Leap…. And Others Don’t, Jim Collins, Harper Collins, 2001