A common answer to the question ‘What is strategy?’ would be something like this. A strategy is a plan of action designed to achieve a specific goal. Strategy is all about gaining or at least attempting to gain, a position of advantage over adversaries or competitors.
Being forward looking there is always uncertainty and risk associated with deciding strategy. The question ‘what is strategy?’ therefore also implies a set of strategic options from which one chooses a course of action to achieve advantage. Strategy is more about a set of options or "strategic choices" than a fixed plan.
Henry Mintzberg from McGill University addressing the question what is strategy argues the word strategy has multiple meanings.
The word "strategy" has a multiplicity of meanings, and in his writing on strategic management theory, Henry Mintzberg, more than most authors explicitly acknowledges this. He identifies five common usages of the term strategy, each beginning with ‘P’.
In common usage, strategy is a plan - a somewhat deliberately and consciously chosen course of action. This means people make strategies in advance of the actions to which they apply, and they develop strategies consciously and purposefully.
A strategy may be a ploy, in the sense of a particular manoeuvre designed to mislead or distract a key player, such as a business competitor.
This takes us to the result of plans that turn into action, decisions that are having some result or impact. If strategies can be intentions embodied in plans to take action, the strategies are the realized decisions.
The results of decisions in the form of a cascade of actions can take on forms, which may or may not be very close to the original intentions. There will be a pattern, or a set of patterns, in the stream of actions. Mintzberg affirms that a strategy may be consistency in behaviour, whether or not intended.
The definitions of strategy as plan and pattern can be quite independent of one another: plans may go unrealized, while patterns may appear without a prior formally documented set of decisions or plan.
What is strategy? Plans are intended strategy, whereas patterns are discernible in realized strategy. From this Mintzberg distinguishes deliberate strategies, where prior conscious intentions that were realized, and emergent strategies where patterns develop in the absence of such prior planning, or despite it.
What is strategy? Mintzberg suggests that it may be considered as a position. He has in mind the location of an organisation in its environment. This may be a geographic intention like expanding internationally, or the position of a business in a particular industry. By this definition strategy becomes a matching mechanism, mediating the relationship between organisation and its context.
Strategy may be a perspective in the sense of a persistent mindset regarding the world in which the organization operates. The most influential members of the organization share this mindset or perspective. This prevailing view is like an organizational personality. This worldview shows in the intentions and/or the actions of members, as individuals bound by common thinking and behaving.
All five of Mintzberg’s P words seem to be plausible suggestions of the use of the word strategy in various contexts. However in general management practice, probably plan or position are the most usual meanings of the word strategy.
Remember at the start of this section on what is strategy, I said that a strategy is a plan of action designed to achieve a specific goal. Strategy is all about gaining or at least attempting to gain, a position of advantage over adversaries or competitors. In many contexts, strategy is both plan and position of advantage.
Lets us look at this business of strategy as position of advantage.
Harvard University’s Professor Michael E Porter addressing the question ‘What is strategy?’ in a classic article by that name in 1992 defined strategy by separating it from operational efficiency and effectiveness, and putting it in terms of market positioning.
The article is still available at Harvard Business Review.
Porter asserts that operational effectiveness (OE) means performing similar activities better than rivals do. Better means more efficient, faster, and cheaper. It is necessary to achieve superior profitability. However, while OE is necessary, it is not sufficient. Operational effectiveness by itself is not a strategy. It is just the price of admission to game so to speak. An enterprise needs to establish a difference that it can sustain.
Strategy is about differentiating your organization from competitor enterprises. What is strategy? It is about being different in the choice of a different mix of activities to provide a product or service. Strategic positions can emerge from three distinct sources, which serve as a basis for positioning:
Trade-offs required when two activities are incompatible (e.g. you sell low-cost chairs while offering highly customized office design and fit out services. Companies have to make sure that their activities are coherent. This implies refraining from certain activities.
Strategy is about choosing what not to do, as much as it is choosing what things to do.
Another important aspect is how an organization combines activities. By creating a fit among activities, competitors find it harder to imitate the configuration of activities and resources that make up the value delivering business model.
Obviously, the strength of an enterprise can result from a combination of activities. We can think of themes (e.g. low-cost), which span across activities. Strategic fit is fundamental not only to the competitive advantage, but also to the sustainability of that advantage.
The biggest threat to strategy is the desire to grow. Trade-offs set by the strategy seem to limit growth. Trying to compete at numerous levels at once create confusion and undermine organizational motivation and focus. The solution is to grow by deepening the strategic position. This means making the activities even more distinctive, strengthening fit, and communicating the strategy to new customers.
Helpful as the Porter insights can be in strategic planning discussions and decision-making about the company marketing strategy, it may not provide the comprehensive answer to the question what is strategy required for all organizations.
Elsewhere I have defined strategic planning as a systematic, formally documented process for deciding the handful of key decisions that an organisation, viewed as a corporate, whole must get right in order to thrive over the next few years. The process results in the production of a corporate strategic plan.
A set of statements describing the purpose and ethical conduct for an organisation together with the specific strategies designed to achieve the targets set for each of these.
So there we have it - strategic planning, and strategic plan defined.
Note that the definition does not confine itself to the kind of ‘key decisions’. They are not just only marketing decisions. Therefore, this definition of strategic planning is applicable to non-business organizations, as well as to business enterprises. It also allows for the fact that not all strategic decisions faced by a company necessarily fall into the market strategy basket. ’
So now, let me offer an alternative answer to the ‘what is strategy’ question.
Let us distinguish between 'A strategy' and 'A Strategic Plan'. To do this I see the need for these five criteria.
A strategy has five essential elements, which distinguish it from all other planning types including, of course, operational, budget, business, project....
A strategy is 'a decision which will make a substantial difference to the long term performance of an organization. Inevitably, therefore, only a very senior member of management can determine it. Moreover, because it takes effect over a long time horizon, a statement as to its risk to an organization is an essential concomitant.'
In other words, any decision that is approved by a very senior manager, has effects that are substantial and long term, and is accompanied by an integral risk analysis is strategic. The absence of any one of these suggests it is not strategic.
A Strategic Plan consists of a very small number of strategic decisions which, taken together, are intended to have a very substantial effect on the long-term performance of an organization. Such a plan will contain an integral risk analysis and is approved by the organization's CEO, and in some cases the governing body.
‘Very small number’ may bother you. I suppose it is a judgment thing: a strategic plan containing 20 strategies might be strategic, and must surely contain a large number of non-strategic decisions. Why? Because, by the above definition, the strategies in a strategic plan, aim to have 'a substantial effect...' and it is not practically conceivable for a strategic plan to embrace 20 individual strategies all of which have a 'substantial effect' on overall performance.
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What is strategy?
Check out this useful collection of articles from Harvard Business Review on strategy. It includes the classic article -
“What Is Strategy?”
by Michael E. Porter.