Understanding What is Strategy?

Strategy_AdobeStock_148776066.jpeg

What is strategy?

Strategy is a cohesive plan, or series of actions and resource allocations designed to achieve a specific goal. According to Peter Pan, it’s a “plan of attack.”

 

What is strategy not?

A mission statement, a goal, an objective, a business plan, a tactic or technique.

 

Where does strategy come from?

Many people think that strategy starts at the top, with whoever is running the company. In fact, the basis of strategy usually starts from the bottom and then makes its way to the top. This is why it is so important to have a “managing-up” culture and bottom-up feedback system in place so that top management can make the best strategic decisions.

You will often see a company’s strategy outlined in its financial statements, such as the first page or so in its 10-K. You will also see it internally in a company’s business plan and externally on a company’s webpage, such as the “for investors” page.

 

What is the difference between corporate strategy and business strategy?

Corporate strategy answers the question, where to compete? This is formed by the C-level suite and involves having a more macro-level view of how the firm plans to make money. The C-suite needs to decide what industry they want to compete in, where to position the company in that industry, what is the scope of their market, geographic boundaries, and vertical integration.

Whereas business strategy answers the question, how to compete? This strategy is formed by senior managers who must come up with the basis for the company’s competitive advantage that will maximize profits.

 

Why do you even need a defined strategy?

It is the basis for making all decisions down the line, facilitating coordination among all units and keeping the focus on how you are going to achieve your long-term goals. It helps managers leverage, stretch, and align resources in a way that will help meet the outlined objectives in the best and quickest possible way.

 

What are the main ingredients?

  1. Clear, long-term goals
  2. Profound understanding of the external environment (local and global industry and economies)
  3. Astute appraisal of internal resources and capabilities
  4. Effective implementation through the design of structures and systems

 

 Other key components of strategy

  • “Only 10-30% of intended strategies are realized.” (Grant) A strategy should be flexible. It should have the ability to bend and evolve as the environment changes.
  • It should be sustainable. It should stand up to the obstacles of competition, technology, and time.
  • It should take into consideration the bargaining power of your supplier and buyers. It tells you how you are going to addresses the threats of potential new entrants to the market as well as current competitors.
  • It should also take into consideration PEST factors – political, economic, social and technological factors.

 

Should I share my strategy publicly?

If you are a public company, then yes, to get investors to invest in you, you need to tell them what your plan of attack is for the next 1 to 5 years. There can sometimes be value in keeping strategy confidential however, which is what some private companies tend to do. Keeping your strategy confidential externally to the company can keep your competitors guessing which can make it hard for them to copy or respond in a way that leverages your strategy for their benefit. Some public companies will keep their strategy vague externally, but communicate the specifics internally. But more common than not, most companies will publicly share their strategy. The reason being is that a strategy should have to rely on confidentiality to be competitive. It should be innately competitive.

 

SOURCES:

Grant, Robert M. “Contemporary Strategy Analysis” 9th Ed. Wiley. 2016.

Advertisements

Leave a Reply