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.

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

Critical Catalysts for Effective Organization Change

In these challenging times, executive teams must frequently drive quantum-leap changes in business performance. Unfortunately, these change efforts frequently fall short of their objectives.

To maximize the chance of success, executives must ensure six critical change catalysts are in place:

1. Vision: Where are you trying to go with the organization? A vision provides a rallying cry for the organization and provides necessary context for the strategy.
   
2. Strategy: What is the strategy for getting there? A pragmatic strategy provides focus, a basic business model construct, and critical boundaries for the desired changes.
   
3. Action plan: What specific steps are required? To create value, strategies must be broken down into discrete steps required to accomplish the goal. Ideally, these steps should be aligned with other change initiatives across the organization.
   
4. Skills: What skill set (e.g., functional, analytical, political, IT, collaboration) is required to successfully execute the action plan? For significant change efforts, holistic skills are just as important as more tactical skills.
   
5. Resources: Are the right resources (e.g., personnel, capital, leadership bandwidth) at the right magnitude allocated to the effort? Are they actually being applied? To enable change, an appropriate level of resources must be budgeted and applied to the change effort. While all companies are resource constrained (particularly those involved in a turn-around), starving a change effort for resources is usually a quick path to failure.
   
6. Incentives: Are incentives in place to properly motivate the organization? The full spectrum of incentives should be considered (e.g., monetary, promotion, recognition). For intensive change efforts, significant incentives for key personnel may be warranted.
   

For incremental change efforts, most companies rely upon their existing policies, processes, and organizations to drive change. However, major change efforts (e.g., restructuring, turn-around) typically require substantial deviations from a company's norm.

Without a tailored approach, major change efforts frequently fall short due to a handful of missing catalysts:

• Strategies and operating plans incorporate over-optimistic assumptions.
  
• The team's skill set lacks holistic perspectives leading to (i) missed critical interdependencies in the action plan, (ii) mis-aligned policies, processes, or goals (e.g., sales comp plan vs. margin target, cost reduction vs. retention of key talent), and (iii) wide-spread sub-optimization in project execution.
• Budgeted resources (i) are not applied in a timely matter due to over-commitment or excessively long transition-times, (ii) do not match the required skill sets (e.g., stretched "development opportunity"), or (iii) lack sufficient leadership bandwidth to provide appropriate guidance and "air cover."

While change introduces many unknowns, the six catalysts underpin all successful change efforts. Fortunately, these catalysts are largely within the control of the executive team.

Monday Morning Actions

• Select a key change effort that is currently underway and identify deficiencies in the effort's critical change catalysts.
• Pursue external assistance where critical skills or resources are not available within the organization.
• Incorporate a catalyst assessment into the project approval/funding process.
  

I Can't Beat Tiger Woods

"However beautiful the strategy, you should occasionally look at the results."
Winston Churchill
Former British Prime Minister

When I go golfing, I visualize how every hole should be played. Power draw off the tee to the right side of the fairway...lofted 7-iron just below and to the left of the hole...firm putt at the left edge of the hole...BIRDIE!

The strategy is flawless, yet it rarely happens. Why? Success in golf isn't driven by strategy, it's about execution. The golf player who executes at the highest level on the most consistent basis will win. Despite the strategic perfection in my mind, I will never beat Tiger Woods.

Like golf, superior business performance requires superior execution. Given a choice between superior strategy and superior execution, I'll take the execution every time. In fact, I'd go so far as to claim strategy enables value, but only execution creates value. That's borderline heresy from a former McKinsey consultant.

Winston Churchill was right -- results matter. Results require execution.

Monday Morning Actions

• When analyzing strategic options, heavily weigh execution ramifications in your final decision.
• Re-assess the value of the marginal effort you are putting into your strategy activities. Your organization may be better off focusing those resources on executing the strategy.
• Examine your company's job mobility and rewards policies. Are employees in roles long enough to truly evaluate their ability to execute? Are employees with superior execution skills rewarded appropriately?
  

P.S. I'll never win a Masters Championship, but feel free to ask about my eagle or my 430 yard drive. :-)