How We Think about Strategy at Four Pillars Investors

How We Think about Strategy at Four Pillars Investors

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  • On January 30, 2015
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How We Think about Strategy at Four Pillars Investors

 

Many business owners, particularly those in manufacturing, think of strategy as operational effectiveness (OE). However, while OE is a way to make your business more efficient through streamlining productivity and other methods, it is not the same as having a successful business strategy.

 

A successful business strategy hinges upon one key element: the business must not provide the exact same product or service as another business. Instead, it has to offer something unique that keeps customers coming back again and again. That is what gives a specific business a competitive advantage over other businesses that have similar products or provide similar services.

 

For the past few decades, the concept of competitive advantage has been used throughout business. I often hear the term used and it seems as though it means something different to each person, department, and company. At Four Pillars Investors, we talk about competitive advantage in terms of performing tasks differently or performing different tasks.

 

Performing Tasks Differently

One way a company can derive a competitive advantage is by performing similar tasks differently. For example, some manufacturers choose high mix over high volume. If a company pursues a high mix strategy, there will be some unique tasks that must be performed, but largely the difference is in internal processing. In a high mix environment, a cycle time reduction of, let’s say, 10% might be viewed less favorably than reducing the time it takes to get the design to the shop floor.

 

Performing Different Tasks

Some businesses perform completely different tasks that help establish a competitive advantage. For example, some firms choose to add assembly or other value-added services. The skills and expertise required to manufacture extremely low tolerance CNC-machined parts are different than those required for assembly. Even so, some manufacturers choose to add assembly because it lessens the burden on the customers while increasing each customer’s reliance on the company.

 

One key test of strategy is how easily a specific strategy can be copied. In the first example, shifting from high mix to high volume would be costly and time consuming. One reason for this is that the skills required to quickly design and manufacture small lots are much different than those required to design a process to produce several thousand parts per month, if not per day.

 

At Four Pillars Investors, we look for companies with competitive advantages just like any other buyer would. However, our definition revolves around providing a unique product or service to the market. Does your company do this?

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