I’ve been asked the question many times: Isn’t strategy simply about how businesses can grow more profits? Well, no. Its not simply about that and it may not even be about that. The context in which a business operates – think industry, societal, and internal factors – determines what is strategically important.
A good example appeared in the news a few days back. The most valuable U.S. car company as measured by market cap is now – can you guess? – Tesla. That’s right, not GM and not Ford, but Tesla. And for those of you who track such things, Tesla has posted only two profitable quarters throughout it’s entire history as a public company.
Yet the strategic goal of Tesla, at least for now, is not about profits. It’s about scalability, brand dominance, and separation from real and potential competitors in the emerging, high-potential market for electric vehicles. And creating enough buzz to drive the stock price to provide the funds to fuel the infrastructure that Tesla needs to become dominant. Investors are betting on potential, not proof of earnings.
That strategy isn’t unprecedented. There is another fast-growing company that had a similar strategy, was at best marginally profitable for many years, yet also has a through-the-roof market cap (hint: it’s an online retailer named after a jungle in South America).
Now, it’s true that market cap may not be the best measure of a company’s true value. And it’s also true that market cap is a highly volatile measure (the value of United Airlines dropped close to a billion dollars after release of the “customer re-accommodation” video!). Yet market cap may very well reflect the success of a company’s chosen strategy.
Maybe your strategic goal should be about scalability; maybe it should be about innovation; maybe it should be about the customer experience. Or maybe it should be about profitability.
Just remember this: Context drives strategy. Understand the context, and the strategic priorities and options become clearer.
That’s a profitable insight.
Make it happen.