A strategy is a plan to create value. Value for customers, value for employees, value for suppliers. It is planning for the future. Strategy doesn't begin with a focus on profit. Financials, profitability, return on investor capital is the result of strategy. It is not the starting point.

Strategy is simple

We can create more value in two ways.<ol><li>By increasing the willingness to pay. It describes the customers. It's the most a customer would ever pay for a product or service. Value can be created by focusing on "customer delight".</li><li>By decreasing the willingness to sell. It is the least amount of compensation an employee would accept and still work for this particular company. ]t is a measure of the quality between what someone is looking for in work and what a company can offer.</li></ol>

How to create more value

<ul><li>Product quality. The higher the quality, the more appealing the service, the higher the willingness to pay.</li><li>Product complements. A compliment is a product or service that supports willingness to pay. For example, razor and razor blades, or printer and printer cartridges.</li><li>Network effects. The more popular the product, the more widespread its adoption, the greater my willingness to pay.</li></ul>

Ways to raise willingness to pay

Two ways to be more attractive in the market for talent:<ol><li>Pay more money. When you pay more money, you will be more competitive in the marketplace for talent.</li><li>Make the job a better job. Create more attractive working conditions, for example, better training plan, more generous promotion rules, working some days from home.</li></ol>

How to lower willingness to sell

Value is the difference between a willingness to pay and a willingness to sell. This can be shown with a value stick. <ul><li>At the top, we have a willingness to pay.</li><li>At the bottom,  we have a willingness to sell.</li></ul>The difference between the two is the value the company creates. The value is split in three ways:<ul><li>Some go to customers. (The difference between willingness to pay and price.)</li><li>Some go to employees (the difference between willingness to sell and compensation.)</li><li>The middle wedge is the margin of the company.</li></ul>

Value explained

To many people, strategy is a total mystery. But it’s really not complicated, says Harvard Business School’s Felix Oberholzer-Gee. 00:00 To many people, strategy is a mystery. 00:25 Strategy does not start with a focus on profit. 00:52 It's about creating value. 01:00 There's a simple tool to help visualize the value you create: the value stick. 01:30 What is willingness-to-pay? 02:30 What is willingness-to-sell? 03:14 Remind me: Where does profit come in again? 03:48 How do I raise willingness-to-pay? 05:00 And how do I lower willingness-to-sell? 06:18 Real world example: Best Buy's dramatic turnaround Companies should simplify and focus on two value drivers, he argues: customer satisfaction and employee satisfaction. By aligning strategic initiatives on these alone, leaders make their workers’ jobs less complicated and improve customer experiences. Oberholzer-Gee is the author of the Harvard Business Review article “Eliminate Strategic Overload” (https://hbr.org/2021/05/eliminate-strategic-overload) as well as the book “Better, Simpler Strategy: A Value-Based Guide to Exceptional Performance” (https://www.amazon.com/Better-Simpler-Strategy-Value-Based-Exceptional/dp/1633699692/). Produced and edited by Scott LaPierre Video by Dave Di Iulio and Elie Honan Animation by Alex Belser Follow Harvard Business Review: https://hbr.org/ https://www.linkedin.com/company/harvard-business-review/ https://www.facebook.com/HBR/ https://twitter.com/HarvardBiz https://www.instagram.com/harvard_business_review Sign up for Newsletters: https://hbr.org/email-newsletters #HarvardBusinessReview #Strategy #WhatIsStrategy Copyright © 2022 Harvard Business School Publishing. All rights reserved.

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To many people, strategy is a total mystery. But it’s really not complicated, says Harvard Business School’s Felix Oberholzer-Gee, author of "Better, Simpler Strategy". 

00:00 To many people, strategy is a mystery.
00:25 Strategy does not start with a focus on profit.
00:52 It's about creating value.
01:00 There's a simple tool to help visualize the value you create: the value stick.
01:30 What is willingness-to-pay?
02:30 What is willingness-to-sell?
03:14 Remind me: Where does profit come in again?
03:48 How do I raise willingness-to-pay?
05:00 And how do I lower willingness-to-sell?
06:18 Real world example: Best Buy's dramatic turnaround 

Companies should simplify and focus on two value drivers, he argues: customer satisfaction and employee satisfaction. By aligning strategic initiatives on these alone, leaders make their workers’ jobs less complicated and improve customer experiences. 

Oberholzer-Gee is the author of the Harvard Business Review article “Eliminate Strategic Overload” (https://hbr.org/2021/05/eliminate-strategic-overload) as well as the book “Better, Simpler Strategy: A Value-Based Guide to Exceptional Performance” (https://www.amazon.com/Better-Simpler-Strategy-Value-Based-Exceptional/dp/1633699692/).

Produced and edited by Scott LaPierre
Video by Dave Di Iulio and Elie Honein
Animation by Alex Belser

Follow Harvard Business Review:
https://hbr.org/
https://www.linkedin.com/company/harvard-business-review/
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Sign up for Newsletters: https://hbr.org/email-newsletters

#HarvardBusinessReview #Strategy #WhatIsStrategy

Copyright © 2022 Harvard Business School Publishing. All rights reserved.

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