Always start by defining terms. It sounds sensible and straightforward – especially with a subject like strategy, which has been studied from every angle.
But it is not.
In 1987 Henry Mintzberg offered five definitions of strategy for consideration: plan, ploy, pattern, position and perspective. Strategy is perhaps most commonly envisaged as a plan – consciously intended action developed in advance. A related concept is strategy as a ploy – a specific manoeuvre designed to outfox opponents. Strategy as pattern – the focus of much of Mintzberg’s research – is a consistency of behaviour intended or otherwise. Strategy can be a position, an organization locating itself in an environment as Mintzberg describes it. This definition of strategy is consistent with the preceding definitions; an organization can position itself via a plan, a ploy, or as a pattern of behaviour. Finally, suggests Mintzberg, there is strategy as a perspective. In this instance it is effectively the ingrained perspective the organization has, it is collective and shared outlook on the world.
In The Financial Times Guide to Strategy, Richard Koch provides two senses for strategy:
“1. A good strategy is the commercial logic of a business, that defines why a firm can have a competitive advantage and a place in the sun. To be complete, a strategy must include a definition of the domain – the lines of business, types of customer and geographical reach – in which the firm competes. It must also include a definition of the firm’s distinctive competencies and the competitive advantage that gives the firm a special hold on the chosen business domain.
2. Strategy also means what a company does, how it actually positions itself commercially and conducts the competitive battle. You can always attempt to describe a competitor’s strategy, whether or not you think it sound. In this sense a strategy is what a firm does, not what it says it does, or what its strategy documents propound.”
This provides some reassuring clarity, but also establishes that the scope of strategy is incredibly broad – from the logic of a business to what it actually does. And, as we shall see, the scope of strategy is ever broadening.
Costas Markides, the charismatic London Business School professor, provides this overview: “There is general agreement that every company needs a strategy – either explicit or implicit. Yet, there is surprisingly little agreement as to what strategy really is. Within both business and academic circles, it is not easy to identify two people who share the same definition of ‘strategy’. Differences in opinion on the content and process of developing strategy are passionately argued. Yet these debates cease to matter when we realize two important points. First, strategy needs to be approached from a variety of perspectives. Second, rather than adopt a single perspective at the expense of all others, good strategies have to achieve a fine balance between seemingly divergent views.
“When it comes to strategy, I have found that there are three problem areas of controversy. I believe that sound strategic thinking achieves a fine balance between the arguments surrounding: (1) what constitutes the content and process of strategy, (2) strategy as analysis or creativity and (3) strategy dynamics. Analyzing each area in turn will help in achieving that fine balance.
“Strategy is both of these things: strategy must decide what game we want to play and then determine how to play that game well. As practised today, strategy is preoccupied with fixing the problems in the existing business rather than thinking about future businesses. The essence of a good strategy is to create new markets, new products and new industries. This leads to the position that strategy should be about competing for the industries of the future rather than competing for market share in the industries of today. It is hard to argue with the need to focus the organization’s attention on discovering new markets. But this should not come at the expense of today’s businesses.
“Therefore, the key question for any company is not whether it should try to create the industries of the future but how to take care of its existing business while at the same time attempting to create the industries of the future. Every company should also prepare for an unknown future — either by trying to create this new future itself or by creating the conditions that would allow it to exploit the future when it unfolds.”
As these takes on strategy suggest, strategy really is a moveable feast, an awkward hybrid of delivery in the present and mapping out a persuasive future and route to get there. The challenge for all those charged with leading organizations is to reach their own definition of what strategy is and what it should do. Without this as a starting point, strategy is as useful as whistling in the organizational wind.
At the heart of strategy is the ability to create a plan of action, which will lead to victory – whatever victory is thought to be in this instance. But, before the strategy is created a more basic question needs to be asked. ”The strategist’s method is very simply to challenge the prevailing assumptions with a single question: Why? and to put the same question relentlessly to those responsible for the current way of doing things until they are sick of it,” explains Kenichi Ohmae in The Mind of the Strategist.
Before setting off it is worth returning to first principles and asking some vital questions. Like these:
1: Where are you?
The starting point must be a solid understanding of where you are and the dilemmas you face. If organizations are not in touch with the reality of their situation – however depressing this may seem – they have no hope of moving forward.
2: Where do you want to be?
If you don’t know where you want to be you are unlikely to get there. In pursuit of this starting point organizations throughout the world have developed mission statements. “Most companies do have a mission statement. About 99.9 percent are useless,” observes Costas Markides. Mission statements are also, confusingly, known by a variety of other labels (strategic intent, core objectives, visions, etc.) but the end-result is usually remarkably similar. Blandness does not differentiate or motivate.
Mission statements are, or should be, a pithy explanation of why a company is in business, what it intends to achieve and by what methods. The exercise of distilling an organization’s raison d’etre into less than 100 words is often useful in itself. However, the results are often fatuous in the extreme. Mission statements have become meaningless PR exercises, pinned on noticeboards, printed on corporate keepsakes and generally ignored by the people they aim to influence. “Many managers misunderstand the nature and importance of mission, while others fail to comprehend it at all,” concluded Andrew Campbell and his co-authors in A Sense of Mission.
Though they might help to encapsulate an organization’s goals, mission statements are not strategy. They are more accurately described as the potential end-result of strategy, the objectives of the organization. Indeed, Henry Mintzberg defines strategy as the embodiment of a company’s visions.
Mission statements should be bold, but achievable, goals. It sounds straightforward, but the means of identifying these objectives is clouded by controversy.
3: What do you want to achieve?
Any statement of intent relies on some knowledge of what it is you wish to achieve. Michael Porter argues that what every company should aim to achieve is competitive advantage. It must be better than its competitors in some way.
This has led to the elusive and almost mythical notion of sustainable competitive advantage. (One of the most important strategy books of the past decade, by Columbia Business School’s Rita McGrath, is entitled The End of Competitive Advantage.) In reality, any competitive advantage is short-lived. If a company raises its quality standards and increases profits as a result, its competitors will follow. Businesses are quick to copy, mimic, pretend and, even, steal.
The logical and distressing conclusion is that an organization has to be continuously developing new forms of competitive advantage. It must move on all the time. If it stands still, competitive advantage will evaporate before its very eyes and competitors will pass.
The dangers of developing continuously are that it generates, and relies on, a climate of uncertainty. The company also runs the risk of fighting on too many fronts. This is often manifested in a huge number of improvement programmes in various parts of the organization which give the impression of moving forward, but are often simply cosmetic.
Constantly evolving and developing strategy is labeled strategic innovation. The mistake is to assume that strategic innovation calls for radical and continual major surgery on all corporate arteries. Continuous small changes across an organization make a difference. “We did not seek to be 100 percent better at anything. We seek to be one percent better at 100 things,” said Jan Carlzon when he was CEO of the airline SAS.
4: What needs to change?
Even major surgery has its compromises. More realistic than most, Kenichi Ohmae, says that a good business strategy “is one, by which a company can gain significant ground on its competitors at an acceptable cost to itself”. He believes there are four principal ways of doing this:
- Focus on the key factors for success (KFSs). Ohmae argues that certain functional or operating areas within every business are more critical for success in that particular business environment than others. If you concentrate effort into these areas and your competitors do not, this is a source of competitive advantage. The problem, of course, is identifying what these key factors for success are.
- Build on relative superiority. When all competitors are seeking to compete on the KFSs, a company can exploit any differences in competitive For example, it can make use of technology or sales networks not in direct competition with its rivals.
- Pursue aggressive initiatives. Frequently, the only way to win against a much larger, entrenched competitor is to upset the competitive environment, by undermining the value of its KFSs – changing the rules of the game by introducing new
- Utilizing strategic degrees of freedom. By this tautological phrase, Ohmae means that the company can focus on innovation in areas which are “untouched by competitors”.
“In each of these four methods, the principal concern is to avoid doing the same thing, on the same battleground, as the competition,” Ohmae explains.
5: What are you good at?
The phrase core competencies has now entered the language of management.
In layman’s terms, core competencies are what a company excels at.
Gary Hamel and CK Prahalad, who made the term famous, define core competencies as “the skills that enable a firm to deliver a fundamental customer benefit”. Hamel and Prahalad argue that strategic planning is neither radical enough or sufficiently long-term in perspective. Instead its aim remains incremental improvement. In contrast, they advocate crafting strategic architecture. The phraseology is unwieldy, but means basically that organizations should concentrate on re-writing the rules of their industry.
6: What is the context?
Nothing in the corporate world exists in a vacuum. Formulating a mission or any set of objectives must involve a plethora of people, as well as consideration of the broader forces at work in and on the organization.
This process was neatly summed up by Peter Drucker in a 1994 Harvard Business Review article. Drucker argues that every organization has a theory of business – the assumptions on which it has been built and is being run. To create a “valid theory of business” requires four elements:
- The assumptions about environment, mission and core competencies must fit
- The assumptions in all three areas have to fit one another
- The theory of the business must be known and understood throughout the organization
- The theory of the business has to be tested
Along similar lines, Kenichi Ohmae argues that an effective strategic plan takes account of three main players – the company, the customer and the competition – each exerting their own influence. The strategy that ignores competitive reaction is flawed; so is the strategy that does not take into account sufficiently how the customer will react; and so, of course, is the strategic plan that does to explore fully the organization’s capacity to implement it.
7: How do your achieve your objectives?
Implementation is where most strategies fail. Success relies on matching an organization’s resources, culture, structure and people to the strategies, which emerge from consideration of an organization’s core competencies and the environment it exists in.
Of course, no list of questions provides a foolproof answer or set of answers. The challenge for any organization is to develop its own culture of asking questions and interrogating reality. Passive acceptance is the route to failure; robust, continual questioning the path to strategic success.
This is an excerpt from Strategy@Work, a Brightline and Thinkers50 collaboration bringing together the very best thinking and insights in the field of strategy and beyond.
About the authors
Stuart Crainer and Des Dearlove are founders of the Thinkers50 (www.thinkers50.com).
- Gary Hamel, & CK, Prahalad, Competing for the Future, Harvard Business School Press, 1994
- Richard Koch, The Financial Times Guide to Strategy, FT Prentice Hall, 2011 Costas Markides, Diversification, Refocusing and Economic Performance, MIT Press, 1995
- JI Moore, Writers on Strategy and Strategic Management, Penguin, 1992 Kenichi Ohmae, The Mind of the Strategist, McGraw Hill, 1982