Lessons from Ramaswamy: Strategy Comes Down to Two Choices
Companies should approach strategy as a choice between two distinct positions, says Thunderbird School of Global Management Professor Kannan Ramaswamy. Do better or do different.
In a recent Thunderbird Master Class which centered around a case study on the European airline giant Ryanair, Ramaswamy explained that strategy is about deciding essentially between one of two approaches: doing the same thing as competitors, but better; or offering a differentiated product or service.
In the first, Ramaswamy explains, “a company does the same thing as its peers but does it better, e.g. more efficiently or more effectively. For example, Southwest Airlines has a strategy of lowering costs during the typical flying experience in order to offer more affordable prices.”
In the second, “a company does something different from its peers to distinguish itself. For example, Emirates has a strategy of offering an indulgent, luxury escape that bears little resemblance to the typical flying experience.”
“Strategy is choosing to do better or do different.” – Click to tweet
An algorithm for decision-making
So, which to choose? Ultimately, choosing a strategy comes with risk. In Las Vegas, Ramaswamy points out, many people who play roulette always bet red or always bet black. That’s a strategy, he says: “You are placing bets on the future as to what you think is likely to happen.”
But in the business world, choosing the right strategy is more than a roll of the dice. Ramaswamy says you must create a system – an algorithm for decision-making – that enables you to make reasonably accurate predictions about what is likely to happen.
For example, about a decade ago Airbus committed to building the A380 double-decker airplane. Boeing had to decide whether to follow suit, betting that the hub-and-spoke airport model would remain dominant, or build a more streamlined aircraft that could fly longer distances, betting that dominance of the hub-and-spoke model would wane.
Boeing did the latter, which was the “right” decision – orders for the A380 have declined – but of course hindsight is always 20/20. “As a CEO, you have a certain scope of vision,” Ramaswamy says. “Given that vision, what direction do you want to go? Sometimes we win, sometimes we lose. We are hoping that the number of times we win is greater than the number of times we lose.”
Clarity of purpose
“We tend to use the term ‘value proposition’ in a flippant way. But in strategy it has a very specific meaning,” explains Ramaswamy. There are three components of value proposition: 1) the customer segment you serve; 2) the needs of that customer segment; and 3) the price.
“Your value proposition is the genesis of your strategy,” says Ramaswamy. It determines whether you want to take the ‘do better’ approach or the ‘do different’ approach. And defining it will color every decision you make, from who you hire and how much you pay to where you locate and how you market.
“Often companies go astray because they lose the compass that is their value proposition. Then they have no clarity of purpose,” Ramaswamy explains. “Focus on activities that work only for you, not for others. Focus on the activities that set you apart.”
“A company’s value proposition is the genesis of its strategy.” – Click to tweet
Good strategy is good strategy
In conclusion, Ramaswamy says three keys to good strategy are just as applicable to students’ own choices about the future (he was speaking at a Campus Preview Day for prospective T-birds) as they are to the airline industry:
- Clarity of purpose – Where are you going, what do you want, and why do you want it?
- Consistent and reinforcing set of resources – What kind of resources are you going to need to carry out your strategy?
- Multiple sources of advantage – How are you going to position yourself, given all of the options and opportunities? Focus on what angle you are going after to decide what fits and what doesn’t fit.
“It all starts with very good planning.” Ramaswamy says. “You need to be able to chart your own course.”
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