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Sunday, June 27, 2010

So, What is Strategy Anyway?

From the blog of Bill Tyson, formerly Executive Vice President of Ampac Insurance Marketing, who presents this excellent examination of the meaning of strategic planning.

Given the relevance and timeliness of Michael Porter’s advice on strategy during tumultuous times, I began my first blog post “Strategy in Action” (See April 2010) with that material because it really hit home for those of us working day-to-day in one of the most distressed industries – insurance.

At this juncture, I think it is important to take a brief “step back” and lay a bit of a foundation before delving further into a down-in-the-trenches, best practices approach to strategy and execution.

During most, if not all of my 25 years as a practitioner of the art and science of strategic planning, there has been confusion about what strategy is and how it differs from other elements of a strategic plan such as: objectives, goals and tactics. So, before moving forward into the realm of strategy development (which I will surely do in this blog), it is important to understand a few definitions.

So, what exactly is Strategy?

As a student (and now a reporter on the subject) I can tell you that there are many different perspectives on the subject of strategy. Some of my favorites are presented here – from the broadest to the simplest definitions:

Merriam-Webster begins with a classic definition of strategy from a military perspective and then gets a little closer (but not by much) to a definition that can be applied to corporate or business strategy:

1. a. the science and art of employing the political, economic, psychological, and military forces of a nation or group of nations to afford the support to adopted policiesor war. b. the science and art of military command exercised to meet the enemy in combat under advantageous conditions.

2. a careful plan or method; a clever strategem; the art of devising or employing plans or strategems towards a goal.

According to this Merriam-Webster Dictionary definition – strategy requires the following ingredients: science and art, careful planning, support, cleverness, advantageous conditions and employing plans toward a goal.

In terms of corporate and business strategy, there are a quite a few definitions that I have come across:

In Blue Ocean Strategy, the authors challenge companies to strategize to “break out of the red ocean of bloody competition by identifying and developing uncontested market space that makes competition irrelevant”.[2] A little dramatic but their point is well made and I recommend their book as it has plenty of good case studies.

Michael Porter, in his classic 1996 Harvard Business Review article called “What is Strategy?” defined strategy in terms of positioning which can be summarized by 3 key principles:

1. Creation of a unique and valuable position, involving a different set of activities than your rivals.
2. Making tradeoffs in competing – choosing (and defining) what you will not do.
3. Creating a “fit” between company activities so to develop synergies (as a result, the whole being greater than the sum of the parts) between interlocking parts of the company. (Porter, 1996)[3]

If you are involved in strategic planning in anyway, this article is a “must read”.

Meanwhile, the Balanced Scored Card folks (Robert S. Kaplan and David P. Norton) define strategy as: “how an organization intends to create sustained value for its shareholders, leveraging intangible assets for sustainable value creation.” (Norton, 2004)[4]

And, in his seminal direct marketing handbook Ed Nash defines strategy as it relates to direct marketing in this way as simply: “Harnessing combined resources to achieve a selected goal”[5]

No matter what definition applies to your organization, in any business there are two levels of strategy:

1) the corporate or enterprise-wide strategy and

2) the business level strategy (that covers a division, SBU or functional area).

So, how does a Strategy differ from Objectives, Goals or Tactics?

Objectives:

“a. something toward which effort is directed; an aim, goal, or end of action.

b. a strategic position to be attained or a purpose to be achieved by a military operation[6].”

and in my view, they are simply goals set to develop and improve the growth and profitability of your business.

Goals: same as an objective or can serve as a subset of an objective. Merriam-Webster defines it as: “The end toward which effort is directed”[7]. So a goal can be thought of as a destination or a finishing line of sorts.

Tactics: the art or skill of employing available means to accomplish an end; a device for completing a task relating to a strategy. [8]

In my next posts, I will cover the best practices of the strategy development and the very important execution process from which successful businesses are built.

Essentially, there are four pre-requisites to successful strategy development and execution:

1) The need for sound planning and clear, focused strategies at both the corporate and business levels.

2) The vital importance of integrating corporate and business strategies and conducting strategic reviews.

3) The need to define and communicate clearly the key operational components of the strategy and the measurement of execution results.

4) The importance of understanding the demands of strategy, their effects on the development of organizational resources and capabilities, and the impact of the resources and capabilities on execution. [9]

The 4th prerequisite is what Michael Porter called “Trade offs” that must be made with any strategy since good strategies necessarily consume limited resources.

If you are interested in the topic and are a practioner of strategy development you can access a whole series of .pdf formatted and downloadable strategy articles at Harvard Business Review at:

http://hbr.org/product/hbr-s-must-reads-on-strategy/an/12601-PDF-ENG?referral=00304

I sincerely hope that you can apply some of this information in your planning efforts. Comments, suggestions and additional perspectives on Strategy and Execution are welcome!
[1] Merriam-Webster Online Dictionary. See http://www.merriam-webster.com/dictionary/strategy

[2] (Kim, 2005), Blue Ocean Strategy, Harvard Business School Press, Boston, MA, 2005.

[3] What is Strategy?, Michael Porter, Harvard Business Review, 1996.

[4]Strategy Maps, Robert S. Kaplan and David P. Norton, Harvard Business School Press, Boston, 2004.

[5] Direct Marketing: Strategy, Planning and Execution, Ed Nash, 4th Edition published by McGraw Hill

[6] Merriam Webster Online Dictionary

[7] Merriam Webster Online Dictionary

[8] Merriam Webster Online Dictionary

[9] Hrebiniak, Lawrence G. Making Strategy Work: Leading Effective Execution and Change, Wharton School Publishing, Upper Saddle River, NJ. July 2005.


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