The world isn’t standing still. In the 1960’s, variety retailer Kresge transformed into Kmart, which became the largest discount store in the U.S. By questioning our own strategic position, Hudson Valley businesses will realize if that position is shrinking and stake out new ones just waiting to be exploited.

To be strategic innovators, we must focus on improving our existing position while also identifying needs of customers that no competitor is addressing. We have to become better while also becoming different.

Howard Schultz, the president of Starbucks, realized his company isn’t in the coffee business. “Starbucks is in the business of creating a consumption experience, in which coffee is just a part, along with romance, theatrics, and community.”

The first step in creating a strategy is asking: What business are we in? Questioning the very things that we take for granted is the key to strategic innovation. Reward employee ideas that arise from challenges to the status quo. Identify sacred cows and encourage people to question them.

To define your business, begin by thinking of how it could be defined by product; customer; and core competency. BMW could see itself as being in the car business; of serving yuppie customers; or a company with the core competence in engineering.

Next, ask: Who would my customers be, and what would they need? Can I satisfy those needs better than my competitors? Is the market likely to grow in the future, and is it difficult for others to enter?

Ask the same questions for each definition, what business; what customers; and what core competency? Choose the one that gives you the best competitive advantage. You have now defined why the company will invest in certain products and markets, and not in others.

Most companies don’t turn down profitable customers because they’re “not right” for your business. The process of selecting customers is similar to the process of defining your business. After identifying all possible customer groups, select which ones to serve and which not to.

The reality is that you cannot be everything to everybody. The small Danish bank of Lan & Spar, asked it’s corporate customers to do they’re banking elsewhere. Lan & Spar made a decision to serve only white-collar workers and is now the most profitable bank in Denmark. Behind the decision was a shrewd strategic analysis.

The fastest growing companies are those that identify and serve untapped customer segments. Yet most companies never really choose their customers consciously. To do that, you have to look at what your company offers that is unique, and where you can do more for a selected customer group than any competitor.

List all of your possible customers and decide which ones to target. Develop a list of criteria that you can use to define your “ideal customer,” and then apply them to existing and potential customers. Get rid of those who “don’t fit,” and pour all efforts into those present or future customers who meet your criteria.

The final choice is never really final. Just as Hudson Valley businesses must continually ask what is our core competency; and what business are we in; we must ask what customer should we be serving?

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