THE MIDDLE

strategy May 31, 2021

Investors Warren Buffet and Charle Munger like to invest in firms that are low-cost producers. These firms often aim to be The Cost Leader in their field. Becoming The Cost Leader results in high levels of operational efficiency. However, operational efficiency is not a strategy. Every business should aim to be operationally efficient. 

Indeed, most companies have 'money lying around on the ground' waiting to be collected once processes and operations can reduce cost and create more value. Operational efficiency should be a goal for all companies, whether they choose to compete uniquely using a Cost Leadership, Differentiation or Focus approach. 

When it comes to your strategic approach, it is essential not to get 'stuck in the middle.' Firms that Focus on a particular segment or Differentiate from the pack will often scale well, to a point. However, achieving massive scale is often challenging (but not impossible) without ultimately becoming a Cost Leader in some way. Firms with complex strategic approaches may get stuck in the middle, where profitability and the acceptable rate of return tend to suffer.  

In the final analysis, it is good to have a simple strategy that scales to a happy limit or a simple strategy that scales massively.  

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