What is Strategy?

“Strategy is buying a bottle of fine wine when you take a lady out for dinner. Tactics is getting her to drink it.”
Frank Muir, English comedy writer

The word “strategy” is commonly used in business conversations, but frequently misunderstood. Given the impact of strategy on the value creation potential of an organization, creating a broader understanding and appreciation of strategy is far from an academic exercise.

Fred Nickols provides a good overview of strategy definitions found in management literature:

‘The many definitions of strategy found in the management literature fall into one of four categories: plan, pattern, position, and perspective. According to these views, strategy is:

1. A plan, a "how," a means of getting from here to there.
2. A pattern in actions over time; for example, a company that regularly markets very expensive products is using a "high end" strategy.
3. A position, that is, it reflects decisions to offer particular products or services in particular markets.
4. A perspective, that is, a vision and direction, a view of what the company or organization is to become.’

Unfortunately, I believe much of the literature mixes strategy with strategic inputs and outputs.

From my perspective, strategy is a set of general rules and boundary conditions that enable an organization to achieve a vision, resulting in a plan and a pattern of actions over time. This definition (displayed graphically below), provides enormous flexibility and can be applied at all levels of an organization: holding company, corporate entity, business unit, function, organization unit, or process.

For example, corporate strategy is a specific approach a company takes to win in the marketplace – including customer and product selection, strategic positioning, and a consistent set of reinforcing activities (essentially answering the classic “where” and “how” strategy questions). In contrast, strategy for a corporate function is a specific approach to support the corporate strategy – including alignment of priorities, policy guidelines, and supporting activities and processes.

For more information on the differences between a vision, business model, strategy, and tactics, this chart from Harvard Business Publishing provides an excellent overview.

Critical Observations

In his classic Harvard Business Review article "What Is Strategy?," Michael Porter makes a number of critical observations about strategy:

1. At the corporate level, strategy is about creating a unique strategic position in the market: Distinction occurs by performing different activities from rivals, or performing similar activities in different ways. Sources of strategic positioning include: (a) variety-based positioning (produce a subset of an industry’s products or services), (b) needs-based positioning (serves most or all the needs of a particular group of customers), and (c) access-based positioning (segmenting customers who are accessible in different ways).
2. Strategy requires you to make trade-offs – to choose what not to do: Some competitive activities are incompatible; thus, gains in one area can be achieved only at the expense of another area. A strategic position that involves trade-offs facilitates sustainable advantage (it is difficult for straddlers and repositioners to imitate the position).
3. Strategy involves creating “fit” among activities: Fit has to do with the ways a company’s activities interact and reinforce one another. First order fit = consistency (i.e., alignment); second order fit = reinforcing (i.e., 1 + 1 > 2); third order fit = optimization of effort (e.g., coordination and information exchange). Fit drives both competitive advantage and sustainability.
4. Strategy must have some degree of continuity – it can’t be constantly reinvented: History is littered with great companies that failed to evolve as landscapes around them changed (e.g., General Motors). Consequently, strategies must evolve over time. However, frequent adjustments to strategic positioning, trade-offs, and activities (a) create confusion in the organization, (b) reduce the quality of front-line decisions, and (c) and prevent operational effectiveness. Strategic continuity makes an organization’s continuous improvement efforts more effective.
5. Operational effectiveness is not strategy: Efficient and effective operations (i.e., reaching the “productivity frontier”) are necessary but not sufficient to achieve superior performance. Best practices are easily emulated and do not provide sustainable competitive advantage. A siloed pursuit of operational effectiveness can actually degrade the competitive position of a company by negatively impacting the “fit” between activities.
6. Strong leadership is essential: Leaders must make the difficult trade-offs to develop a strategic position and complementary set of activities, communicate the strategy to the organization, drive the execution of the strategy (along with operational effectiveness), assess industry conditions and the effect on the strategy, instill strategic discipline in the organization, and defend the strategy against internal threats (e.g., growth trap).

In periods of dramatic strategic change (e.g., turnarounds), it is particularly important to assess strategic trade-offs and activity “fit.” Extreme care must be taken during the transition period between the old and new strategies to minimize confusion of customers and employees. Extensive communication and a rapid transition will help minimize the negative effects of the strategic change.

Monday Morning Actions

• Assess your strategic position – have you made choices on what not to do? If not, why not? Discuss the issue with your strategic thought partners.
• Make a decision on pending strategic choices. Don’t be afraid to say “no” and not pursue an opportunity.
• Identify an activity that doesn’t “fit” with your strategy. Work with the owner of that activity to gain better strategic alignment.
• Identify an operational improvement that may be degrading the “fit” between activities. Redirect or kill the operational improvement.
• Evaluate the continuity of your strategy. Are you unnecessarily creating organization confusion and sacrificing operational effectiveness? If so, consider modifying your approach to strategic change.

What's Your Growth Challenge?

"Be not afraid of growing slowly, be afraid only of standing still."
Chinese proverb

Despite today's challenging economic environment, forward-looking business leaders can't forget about growth. Why?

• There are still pockets of growth in the economy (e.g., pharmaceuticals, clean tech)
• If your balance sheet is strong, this is an ideal time to make strategic moves to enhance future growth prospects
• If your balance sheet is weak, remember that the objective of a turnaround isn't just survival -- it's the resumption of sustainable, profitable growth.
  

However, growth is not homogeneous. As companies mature (see technology adaption life cycle and product life cycle) they face six discrete growth challenges. The chart below provides a brief overview of each growth challenge and a sample of the associated issues and pitfalls. (Note: while the chart frames growth from a product perspective, it applies equally to services.)

Challenge	Description	Common issues	Common pitfalls
1. Creation	Creating a new product and/or business model that provides a compelling value proposition to a target customer / market space Relevant to both start-ups and turnarounds Example: Aquarius Consulting Group	Capturing unarticulated customer requirements Acquiring initial customers Maintaining market (vs. technology) focus	Overemphasis on product (e.g., technology) at the expense of customer needs Failure to envision / develop a sustainable business model
2. Breaking out	Transitioning from early adapters (visionaries and tech enthusiasts) to fast followers (pragmatists) Particularly relevant for discontinuous innovation (i.e., Crossing the Chasm) Example: Tealeaf Technology Customer Experience Management Solutions	Adjusting to changes in customer purchase criteria Completing the “whole product” Maintaining market focus, not sales focus	Failure to target a specific (and strategic) market niche (i.e., pursue any sale at any cost) Refusal to adjust sales model (e.g., direct consultative sales)
3. Scaling	“Stepping on the accelerator” by selling more products (including product extensions and platforms) to existing customer segments within existing geographies Examples: Google AdSense; BMC Service Resource Planning	Formalizing processes Attracting talent Maintaining core elements of culture Upgrading infrastructure	Failure to adjust leadership and management styles Underinvestment in post-sales customer support Channel conflict as market saturation increases
4. Replication	Replicating existing product portfolio and business model in a new geographical area Examples: McDonald’s franchise; new consulting office	Developing extensive documentation on business model / processes Replicating culture in new locations Maintaining product consistency	Replication before readiness Lack of tailoring for local requirements Failure to leverage legacy talent in new locations
5. Stepping out	Establishing a presence in a new market segment (e.g., new product in a related market, derivative product in a new market) Examples: Cisco blade servers; Oracle database 11g Enterprise vs. Standard vs. Express	Tailoring existing go-to-market strategy Positioning product against entrenched competitors Sustaining commitment (e.g., budget, leadership bandwidth) for new market segments	Attempt to step out on 2 or more dimensions at once Reflexively applying legacy business model to new segment Failure to gain support of sales force / channel
6. Cross-selling	Capturing synergies by bundling or cross-selling related products to existing customers Examples: Solution selling; cable television and VoIP	Overcoming resistance of incumbent account owner Navigating customer accounts with multiple points of purchase Providing incentives to sales channel to overcome inertia	Insufficient incentives for channel Failure to frame value proposition from customers’ perspective

Start-ups typically face the growth challenges sequentially. However, mature companies pursuing simultaneous growth initiatives will likely encounter more than one challenge at a time.

For all challenges, growth is not just about hiring more people and pumping more product through the system. More often than not, there are material issues the business must overcome and pitfalls that must be avoided. Despite the current economic environment, it's our job as business leaders to overcome these challenges and position our companies for future growth.

Monday Morning Actions

• Identify in which phase(s) of the growth life cycle your company is operating. What systemic issues are you facing that jeopardize success?
  
• Drill down on key challenges. What current initiatives are addressing these areas? If possible, incorporate growth elements into these initiatives.
  
• If your balance sheet is healthy, launch initiatives to address key challenges that have been neglected.

Turnaround Process: Flexible Approach for Corporate Renewal

"Failure is not fatal, but failure to change might be."
John Wooden
Legendary UCLA basketball coach

In today's harsh economic environment, businesses can face a wide range of strategic and operational challenges. If the situation is sufficiently severe, a corporate turnaround may be necessary.

Every corporate leader should understand the fundamental steps involved in a turnaround for three critical reasons:

1. By understanding the turnaround process and tactics, you may be more effective at heading off problems that contribute to turnaround situations (e.g., unrealistic business assumptions, failure to promptly address financial under-performance, tolerating less than top-notch talent in key organization roles)
   
2. If your company or business unit is involved in a turnaround, you will be a more effective participant if you understand the process that will be followed (and in a turnaround, you definitely want to be part of the solution)
3. For new business unit managers, the turnaround process (absent the capital structure elements) is useful to quickly size-up the business issues and set the organization on a new path

Turnaround Process

Turnarounds involve the formulation and execution of a strategy and action plan to drive corporate restructuring and renewal, typically in an environment of financial distress.

Every turnaround is unique and merits an approach tailored to its specific needs. However, most turnarounds roughly follow the steps in the following table.

Process Step	Description	Output
1. Ensure appropriate turnaround leadership is in place	New leadership is essential in most cases Anoint an insider or outsider depending on the specific challenges of the organization Supplement gaps (e.g., legal, finance, operations) with external specialists	Change-oriented leadership with the know-how to drive a turnaround
2. Assess the situation and future viability of the business	Quickly assess the balance sheet, the cash burn rate, market dynamics, customer satisfaction, organization strengths and weaknesses, and turnover of key employees Are you making buggy whips?	Inventory of life-threatening issues
3. Communicate the case for change	Get organization leaders on board first, followed by the broader business Include rationale for change and the associated benefits Engage with key external stakeholders (e.g., creditors, customers, suppliers) Set realistic expectations (i.e., there will but pain but there's light at the end of the tunnel)	Organization readiness for swift, dramatic change
4. Implement emergency steps to stop the bleeding	Strategically reduce costs (e.g., headcount, opex, capex) Shut-down hemorrhaging business units Rescind egregious policies Stem customer / employee defection Reassess anything considered a "sacred cow"	Stabilized business with the breathing room to develop and implement the longer-term survival plan
5. Develop a strategic survival plan	Rework corporate strategy as required Assess fit of existing portfolio of business units / products / services with new strategy Develop "get well" plan for lagging operating capabilities Determine viable capital structure and create appropriate negotiation strategy with creditors Demonstrate a viable on-going business model Communicate plan to key internal and external stakeholders Identify key performance metrics Emphasize realism in all elements of the survival plan	Realistic, implementable survival plan that will position the company for future success
6. Ensure appropriate functional leadership is in place	Identify critical roles Assess fit of incumbents against requirements of turnaround Replace mismatches with internal or external talent as required to ensure "A players" are in all critical roles	Motivated, change-oriented functional leadership who are capable of executing the long-term survival plan
7. Restructure the business and execute the survival plan	Sell non-core and underutilized assets Restructure debt Raise capital Rationalize product / service portfolio Re-engineer and align key processes Invest in core elements of business model Strategically acquire to fill business model gaps Reposition corporate brand in marketplace Invest in valuable customer relationships Upgrade talent in organization	Recovering business with new strategic focus, improving operating performance, and more secure financial position
8. Monitor key performance metrics and adjust plan as required	Establish process for monitoring and publishing key performance metrics Religiously track metrics to measure momentum Initiate corrective action as required	Near-time visibility into performance with a corrective feedback loop
9. When business conditions dictate, transition organization leadership from turnaround specialists to sustaining management	Recruit or promote candidates who possess the skill set to build upon momentum created by turnaround Stagger leadership transitions to minimize disruption to the organization	Sustainable business

You may have noticed some similarity between the turnaround process and the critical catalysts for organization change. That should not be surprising, because a corporate turnaround is essentially organization change on steroids.

At the end of the day, turnarounds are built on the foundation of business fundamentals, realism, and ruthless execution -- characteristics that every leader must master.

Monday Morning Actions

If you're involved in a turnaround:

• Passionately engage in the turnaround process; be a part of the solution!
• Identify opportunities to reduce operating and capital expenditures; think cross-functionally to avoid sub-optimization
• Invest extra effort in relationships with customers and key employees -- they are both critically important for a successful turnaround!
  

If you're not yet involved in a turnaround:

• Quickly analyze your business from the perspective of a turnaround specialist; proactively pursue corrective action within your span of control
  
• Initiate steps with HR to replace under-performing individuals in all key organization roles; accept nothing less than "A player" replacements
• Identify one underutilized asset or unproductive sacred cow; build organization support to address it