Every business exists for a purpose. Usually, that purpose is to make money. However, making money is not a business strategy. Selling products or services is not a strategy, either. It is entirely possible to run a business by selling products or services to make money, without having a strategy in place. It is possible, but it is dangerous because the business will be reactive to customers, competitors, and other market forces, instead of proactively driving toward a specific posture within the competitive landscape.
From a legal perspective, in order to be a partner to the business (as suggested by Ben Heineman in The Inside Counsel Revolution) an attorney must understand the business. In the March 2020 Docket article from the Association of Corporate Counsel, Vincent Cordo, Jaap Bosman, and Jim Merklinger emphasize the importance of “understanding business economics, how the company actually makes money, and how any legal issues affect this process.” These authors discuss the importance of understanding how a legal issue potentially impacts profitability and opportunity costs, both in terms of financials and timing.
These concepts are fundamental to legal strategy, but are insufficient to reach the level of strategic thinking. Paul Godfrey and his co-authors in Strategic Risk Management provide a useful understanding of strategy, which is “the set of resource allocation decisions that help a firm create and sustain a competitive advantage over its rivals in the pursuit of its strategic ambitions.” I like to break this down, in my own words, into the following component parts:
When the concept of “how the company actually makes money” is viewed in a strategic framework, it becomes apparent that “how the company actually makes money” is much more nuanced. This nuanced assessment is what I refer to as a company’s Business Strategy Profile.
While the business strategy profile is important to offer direction to a team and their stakeholders, the underlying framework to assess the business strategy profile is more important because it provides a cohesive vocabulary for the team and stakeholders to systematically discuss, understand, change, and evaluate their strategy. In turn, communication of the strategy throughout the organization is facilitated.
An assessment of the business strategy profile for an organization relies on the following areas:
Once an assessment of these factors is completed, it is possible for management, directors, or other stakeholders to systematically consider the company’s strategic positioning within the industry (or perhaps as a new entrant in another industry) and, importantly, provide guidance to management and personnel throughout the organization. This allows all units, divisions, and levels of the organization to understand the strategic position of the business and how to implement operations, risk management, and strategic initiatives that are coherent and align with the business strategy profile.
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Legal Disclaimer: This general information does not establish a legal relationship with any attorneys or law firm without a written and signed legal representation engagement agreement.
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