Strategy can be a confusing topic. Countless books and articles are still being written explaining what strategy is and how to do it. New strategy models are constantly being developed and sold like snake oil as the cure for all corporate ills. Early in my career, I watched an executive off-site derailed over the confusion between a strategy and a goal. Additionally, examples can found everyday where companies struggle because they lack a clear understanding of strategy.
Since strategy is such an important topic, people are afraid to ask: “what is strategy” and “how do I do strategy”? This article provides a simple definition of strategy, and outlines various corporate activities associated with strategy. All of these activities are happening everyday in organizations, but most people lack an understanding of how these activities fit together.
This articles doesn’t address the “art of strategy”, which is how to choose the right strategy. Also, this article doesn’t address why strategies fail in execution and how to improve your success. The first step is to understand the basic framework of strategy before tackling these other topics.
Simple Strategy Definition
Strategy is simply: how you intend to achieve your goals. The four key components are:
- Goals: a strategy needs a clear goal. You need to clearly define what you are trying to accomplish. Your goals are distinct from the strategy by which you wish to achieve these goals. For example, some companies state their strategy as “growing by 20%”. This is actually a goal that they want to achieve, but it doesn’t explain how they intend to achieve this goal.
- Achieve: this is how a company intends to win. Winning can be accomplished by deceit, flanking maneuvers, overwhelming force, surprise attack, lowest cost, etc. Most strategy models and tools fall into this category. These models show you how to achieve your goals. The classic strategy model is Michael Porter’s 5 Forces, where an industry’s competitiveness and attractiveness is assessed utilization 5 factors. These strategy models guide decision-making by capturing a unique insight about the world and by providing a simple framework to understand the insight.
- Intend: strategy requires an overt act of decision-making. If you accidentally discover a great innovation, that isn’t a strategy. However, once you recognize the innovation and begin to develop a plan to utilize the innovation, then your activities are intentional and are a strategy.
- How: these are the activities necessary to achieve the goal. Strategy requires marshaling the team, equipping the team, placing them in position and giving them execution orders. Without understanding the activities necessary to achieve the goal, a strategy is simply an idea.
Strategy in Business
Within organizations, numerous formal activities are part of the strategy process. Below is a summary of the primary activities involved with strategy. These activities are normally performed by some combination of the CEO, finance organization, corporate development, or marketing. BU leaders and product managers engage in similar activities for their respective organizations.
Strategy Objectives (Goals)
- Vision. The CEO articulates a vision for the company, establishing its long-term direction. The vision may be formalized in documents or may be ascertained from the CEO’s speeches and talking points.
- Mission Statement. The mission statement articulates a variety of core principles about the organization, such as its purpose and core values. This informs the employees and the public about what is important and where to focus their energy. For example, many mission statements declare a customer centric focus to the company.
- Corporate Goals/Priorities. The CEO sets strategic priorities for the next year and coming years. These priorities focus the company’s attention and resource allocation. Some CEO(s) prefer setting “big hairy audacious goals” forcing a company to stretch to achieve these stretch goals. The priorities usually establish 3-5 new projects or things that must get done for the year. For example, a priority can be entering an emerging market segment or cutting 10% for the operating expenses.
Strategy Development (Achieve)
- Industry Landscape. As part of strategy development, companies assess the competitive landscape and assess their positioning in the market. Getting a realistic assessment of the industry and competitors is essential for knowing how to win. For example, if your company is in a highly competitive market with a slow growth rate, your company may look to diversify into different markets. On the other hand, if you are the market leader in a high growth market, your company may focus efforts on capturing more market share and consolidating your position in the market through M&A.
- Market Segmentation. Companies assess where they can position themselves (play) in the market. By segmenting the market, a company is assessing whether it can discover any patterns and opportunities. The market segmentation can be by customer, geography, white space, vertical, emerging technologies or other segmentations. A detailed analysis of the different segmentations is essential and can reveal insights into how to attack the market.
- Competitive Advantage. Companies decide how they will compete, i.e., the low cost leader, new product innovator, entire solution, etc. The competitive positioning will drive the corresponding activities, such as marketing, financials model, product design, and all other related activities. A unique competitive advantage will significantly increase a company’s chances for success.
- Core Capabilities. Companies assess their core capabilities to isolate what makes them unique. These capabilities can be the distribution model, the sales model, the engineering capabilities or anything in the organization. Identifying core capabilities enables a company to assess how they won and provides valuable insights for potential expansion plans.
Other Models. Countless other models exist for strategy development. These models cover every imaginable scenario, such as growth options, creating a new product market, M&A strategies and countless others. All these models are providing some insight into how to achieve your goals.
Strategy Management (How)
- Corporate Roadmap. To enable a winning strategy, companies need to establish a corporate roadmap as the execution plan. This process ensures that everyone understands what it takes to be successful and their role. A good corporate strategy will lay out all the steps necessary to achieve the goals.
- Functional Strategy. In functional organizations, companies often have functional strategies for how they will support the corporate strategy. This process ensures that the functional teams understand what it takes to be successful and their role in the corporate strategy.
- Strategic Planning. The strategic planning process is essential for establishing financials metrics and budget allocation. Strategic initiatives must be given the funding necessary to be successful or else these initiatives will likely fail.
- Portfolio Management. With large and diverse organizations, a core function of corporate strategy is portfolio management. The business unit’s are individual companies that need to be managed as assets. One of the primary decisions is resource allocation among the different BU(s), which includes setting the P&L parameters.
With a basic strategy framework, you will significantly improve your decision-making and execution by providing a clear understanding of what you are trying to accomplish and how to achieve these results. You will also understand how the new strategy models fit into the overall strategy framework and whether the latest models are relevant to your organization.