Strategy is one of the key disciplines of management, complete with its own vocabulary, tools, and no shortage of expert opinions on what it means and how to best develop it. And like everything else in management in this era of accelerating change and increased volatility, our understanding and our approaches to developing and executing on our firm’s strategy must evolve as well.
The purpose of this post is to help you understand the concept of strategy and some of the key terms.
Bringing Strategy to Life with Your Favorite Restaurant
Think about a special restaurant in your life. Perhaps it’s where you and your significant other go on your anniversary. Or, perhaps it’s the go-to location for great local cuisine when you have out-of-town guests staying with you. Regardless of location, your favorite restaurant has made some key choices, including:
- Menu, including style of cuisine and featured or rotating specials
- Types of customers they are most interested in attracting and retaining
- Ambiance or feel, including décor, lighting, noise level, and temperature
- Experience, including the tone and tenor of the host or hostess and waitstaff
These and other key decisions reflect the restaurant’s core strategic choices. And of course, since there are so many options for us to choose from for eating, ranging from staying home to all manner of casual, fast, fine-dining, independent or chain restaurants, the owner makes her decisions based on her targeted customers and taking into account how she wants to be unique or different from competitors.
It’s the choices of “what to do” and “what not to do,” focused on a specific audience that defines the restaurant’s strategy. The same goes for your firm. An independent, high-end, fine-dining restaurant targeting an affluent audience interested in a great dining experience will not offer a discount or budget menu option. The pricing will reflect the core strategy and audience.
What Strategy Is Not
In the corporate world, strategy is often a term and concept that is widely misapplied. For example:
- Growth is not a strategy, it’s an outcome. “Our strategy is simple. We’re going to grow by 20% for the next three years.” This is definitely not a strategy.
- Lofty goals and numbers such as, “Over the next five years, we’ll move from 1,000 to 10,000 customers,” or, “We’ll move from 10-percent to 40-percent market share,” are not strategies.
- Your company’s mission statement isn’t a strategy, although, it is often a factor in choosing strategies.
- Strategy doesn’t have to be something all-new or never-been-done-before. It’s a misnomer that strategy must equal innovation.
What Strategy Is and What it Provides
- It is a description of how your firm is going to find and keep customers.
- It is a description of how your firm is going to establish a meaningful (in the minds of customers) difference versus your competitors.
- It is a series of coordinated actions in pursuit of building an advantage over your competitors with specific customer targets.
- It is a description of how your firm will compete and win.
- It is a description of how your firm will make money.
- A clear strategy provides a filter for decisions. It helps decide what your firm will and won’t do.
- A clear strategy provides a playbook for everyone in a firm on selection actions, investments, and setting goals.
What a Proper Strategy Includes
There’s a great book on strategy that we encourage all managers to read and keep, entitled "Good Strategy/Bad Strategy: The Difference and Why it Matters" The author, Richard Rumelt, does an outstanding job offering a clear, simple description of the components of a good strategy. These include:
1. The Diagnosis
A clear assessment and statement of the situation. Imagine that you are suffering from a number of ailments and you go to a doctor for help. Your doctor will spend time assessing many different factors before arriving at a diagnosis and certainly before selecting a treatment. The same goes for corporate strategy, where a team will work to assess and describe the current and expected future conditions in their markets.
2. The Guiding Philosophy
Drawing upon the medical example, after completing a diagnosis, your doctor will suggest an overall approach for dealing with your ailments. In a corporate setting, we do the same with strategy. After assessing market and customer conditions and our own firm’s situation, we define a general approach that will help us compete and win in select markets with specific customer groups.
3. The Coherent Actions
Your medical treatment regimen will include a series of specific steps or actions designed to cure or minimize your malady. In a corporate setting, we define the specific, coordinated actions necessary to implement the guiding philosophy.
That’s it. The explanation is simple, but the development and execution of a strategy are by no means simplistic.
The Bottom-Line for Now
While strategy is filled with terms and approaches and tools and discussed mostly by executives, consultants, and academics, you don’t have to let the topic frighten you away. On the contrary, the most valuable and successful managers and leaders work hard to simplify this complex topic and help their teams and firms develop clear, relevant and widely understandable strategies.