By not providing all those extras -- extras the La Quinta customer does not want anyway -- the hotel chain is able to lower dramatically the cost of providing a room. So even if it sells the rooms for $38 a night, as compared with $80 or $100 or even $120 at a Marriott, it can make a lot of money. That is focus.
Note one thing, however: if the typical hotel customer wandered into a La Quinta, there would be a lot of dissatisfaction. Room service? "Sorry, we don't have it." How about a playground for the kids? "Sorry." A good focused strategy inevitably makes many customers unhappy. But it is going to make a certain group of customers very, very happy, and that is the logic. You target all your efforts on those customers, and you achieve either lower costs or uniqueness in meeting their needs. Best of all, the big boys cannot easily move in on your turf. How is Marriott ever going to sell rooms for $38 a night?
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Five Fatal Flaws
Any strategy, of course, is only as good as its execution. And owners of small companies frequently make critical mistakes in applying strategic thinking to their own competitive situations. In my experience, I have seen the same five errors repeated over and over.
Mistake number one: misreading industry attractiveness. Entrepreneurs always have a tendency to think the attractive industries are those that are growing fastest. Or those that involve the fanciest technology. Or those that are the most glamorous. It is not so. Attractive industries are those that have high barriers to entry, the fewest substitutes, and positive scores on the other factors mentioned previously. The more high-tech or high-glamour a business is, the more likely a lot of new competitors will enter and make it unprofitable.
Mistake number two: possessing no true competitive advantage. For many companies, "strategy" means imitating their rivals. That is easy and gives managers a sense of security. But imitating means you have no competitive advantage -- you are stuck right in the middle of the pack. To succeed you have to find different ways of competing. That is both risky and hard.
Mistake number three is most common for otherwise successful companies: pursuing a competitive advantage that is not sustainable. A lot of companies succeed initially because they discover a hot new product or service -- a new piece of software, for example. But they are so busy getting off the ground and finding people to buy their products that they forget what will happen if they succeed. In software, for example, a successful program will be imitated in a matter of months. So the advantage it alone gives you cannot be sustained. Real competitive advantage in software comes from servicing and supporting buyers: providing regular upgrades, getting a company on-line with customers so that their computer departments depend on your organization. That creates barriers to entry.
Sometimes, of course, small companies simply cannot sustain an advantage. In these cases you would be wise to regard your business as an investment rather than an ongoing institution: get in, grow, then sell out.
Mistake number four: compromising a strategy in order to grow faster. Remember People Express Airlines? Founder Donald Burr found a price-sensitive market in the Northeast Corridor and developed an artful strategy for delivering no-frills air travel at rock-bottom cost. People Express made a lot of money. But then Burr decided he wanted to run a major airline and started expanding nationwide. He began to add services, just like other airlines. (The ultimate irony was when People began offering first-class seats.) Pretty soon the major airlines started to pay attention and offered blocks of incredibly low-fare seats on each flight. Burr was unable to match them.
Eventually, Burr was blown away by this competition. If he had kept his focus, he probably would still be running a profitable airline.
Mistake number five, finally, is a twin bill: not making your strategy explicit and not communicating it to your employees. In a lot of entrepreneurial companies, the CEO thinks up a strategy in the shower and never tells it to anyone else. But without an explicit strategy, how can you test the assumptions on which it rests? How can you modify it over time? You do not need a planning staff or even a formal planning process to develop an explicit strategy. All you need to do is write it down and talk about it every so often with your key managers, directors, or close counselors.
A similar issue is communication. One of the fundamental benefits of developing a strategy is that it creates unity, or consistency of action, throughout a company. Every department in the organization works toward the same objectives. But if people do not know what the objectives are, how can they work toward them? If they do not have a clear sense that low cost, say, is your ultimate aim, then all their day-to-day actions are not going to be reinforcing that goal. In any company, employees are making critical choices every minute. An explicit strategy will help them make the right ones.
Well executed, strategy is a powerful tool -- one that is far too important to be left to the strategic planners in America's biggest corporations.
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Michael E. Porter is a professor at Harvard Business School and an adviser to numerous companies and governments. He has written widely on the subject of competitive strategy and national economic policy. He is the author of The Competitive Advantage of Nations (1990), Competitive Advantage (1985), and Competitive Strategy (1980), all published by Free Press. His ideas are also presented in the video "Michael Porter on Competitive Strategy."
