What is Strategy?

Strategy involves setting goals, determining the best course of actions and allocating resources to achieve those goals. Here’s an introduction to Strategy and Strategising.

Strategy is a set of processes and activities which involves: assessing environmental changes to identify opportunities and threats, assessing internal strengths and weaknesses and ability to respond to environmental change, creation and evaluation of options and choosing appropriate option, considering values and preferences of interested parties including ethical considerations.

So strategy formulation is a highly complex process.

Various Definitions of Strategy

Intellectuals in the area of strategy have included different elements in the definition e.g. Chandler includes moving from goals and objectives to the allocation of resources. Porter focuses on choices, difference and competition. Drucker focuses on how an organisation will win.

“The determination of the long-run goals and objectives of am enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.” – Alfred D. Chandler.

“Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value” – Michael Porter

“a firm’s theory about how to gain competitive advantages” – Peter Drucker

“a pattern in a stream of decisions” – Henry Mintzberg

“the long-term direction of an organisation” – Exploring Strategy

“…the long-term direction of the organisation.” Johnson, Whittington & Scholes (2012)

“Provides a framework to make decisions on how to allocate organizational resources, address challenges and take advantage of opportunities that arise along the way” (Enterprise Foundation, 1999)

Strategy is about two questions: ‘What business(es) should we be in?’ and ‘How do we compete in a given business?’ (Hofer, 1975)

The definition by Johnson et al. (2017) has three main components, namely, ‘the long term’, ‘direction’ and ‘organisation’.

• The long term: Strategies are measured over a number of years, and even a decade or more.
• Strategic direction: Over the years, strategies follow particular trajectories or long-term directions.
• Organisation: Organisations have many internal and external stakeholders, therefore many relationships with different groups, and many different interests and views within.

What is a Business Strategy?

A business strategy refers to all the decisions and actions that an organization may undertake to accomplish its business goals and also to gain a competitive advantage in the market, compared to its competitors.

Strategic decisions are about:

• The long-term direction of an organisation
• The scope of an orgaisation’s activities
• Gaining advantage over competitors
• Addressing changes in the business environment
• Building on resources and competencies (capability)
• Values and expectations of stakeholders

Characteristics of Strategic Decisions

Strategic decisions are likely to:

• Be complex in nature
• Be made in situations of uncertainty
• Affect operational decisions
• Require an integrated approach (both inside and outside an organisation)
• Involve considerable change

Three Horizons of Strategy

• Horizon 1: Current core activities – extend and defend these activities.
• Horizon 2: Develop emerging activities – to generate new sources of growth and/or profit.
• Horizon 3: Create viable strategic options for the future – higher risk activities that may take years to generate growth/profits.

Things to Consider:

• Summarise the strategy of an organisation in a ‘strategy statement’.
• Distinguish between corporate, business and functional strategies.
• Identify key issues for an organisation’s strategy according to the Exploring Strategy Framework.
• Understand different people’s roles in strategy work.
• Appreciate the importance of different organisational contexts, academic disciplines and theoretical lenses to practical strategy analysis.

Firm Strategy vs Business Plan

The business plan of a firm is created when the business is initiated; it is made to decide where the firm will obtain the financing from and the direction.

The life of a business plan is lesser than a year, whereas the strategy of the firm covers a period of 3 to 5 or more years.

The concern of the business plan is mainly with the financing options whereas, the strategy of the firm is focused on the resources required by the company which includes people, money and time.

Purpose of Strategy and Ways to Define Purpose

The purpose of Strategy is to define and express the purpose of an organisation to its stakeholders.

There are Four ways to define an organisation’s purpose:

• Mission Statement
• Vision Statement
• Statement of Corporate Values
• Statement of Objectives

These themes should be concise and to the point.

Vision statements

A vision statement is concerned with the future the organisation seeks to create.

‘What do we want to achieve?’, ‘If we were here in twenty years what do we want to have created or achieved?’

An Organisational vision can be defined as a bigger picture which describes what the organisations actually want to accomplish in the future. The Vision statement inspires individuals in its statement. It tends to motivate people by putting their time and energy to achieve their future goals and objectives. In simpler words, the vision statement of Vista reflects the purpose of the firm by focusing on the future and that what the firm exists to accomplish. It is the foundation of the firm. Therefore, it must not be revised as it is for the longer term, and it is the essence of the business of the firm.

Mission statements

A mission statement aims to provide employees and stakeholders with clarity about what the organisation is fundamentally there to do.

‘What business are we in?’, ‘What would be lost if the organisation did not exist?’, ‘How do we make a difference?’

The mission statement specifies the purpose of the firm, i.e. what is the firm’s purpose behind its existence and what are the objectives and aims of the firm. However, the mission statement goes beyond its vision statement as it develops a more precise delineation of the objectives and goals and that how the vision of the firm will be achieved. The mission statement tends to express the firm’s vision practically.

The mission statement of the firm is disseminated internally and issued by the stakeholders, leaders and employees throughout the firm. While the vision is focused on the future, the mission of the firm combines the thinking of the future with the current goals. Unlike vision statement, the mission statement can be revised or modified according to the changes in the market, but both the mission and vision are bound to stay true to the values and image of the firm.

The strategy of the firm is neither a mission statement nor a vision statement, rather the mission and vision statements of the firms are used to identify the objectives and goals of the firm, and based on that, the strategy is developed. The strategy of a company includes both the long and short term goals of the firm and it explains how those goals will be achieved. Unlike the vision, it is focused on the present outcomes and actions which are needed to move forward and closer to the achievement of the mission of the company.

Also, the strategies of the company are updated and evolved over the period to remain adjusted with the current economic, social and political conditions of the market. Strategy provides a direction and action it needs to take accordingly.

Statements of Values

Statements of corporate values communicate the underlying and enduring core ‘principles’ that guide an organisation’s strategy and define the way that the organisation should operate.

These values do NOT change with circumstances.

Statements of Objectives

Objectives are statements of specific outcomes that are to be achieved.

• These are often stated in financial terms (e.g. Profit).
• May also be market-based objectives (e.g. Market Share).
• May emphasise basis of competitive advantage.
• ‘Triple Bottom Line’ – economic, social and environmental objectives.

Strategy Statements

According to Collis and Rukstad (2008), an organisation’s strategy should be able to be summarised with a ‘strategy statement’. Strategy statements should have three main themes:

• Mission, vision and objectives. Fundamental goals that the organisation seeks, which reflect the stated mission, vision and objectives.
• The scope or domain of the organisation’s activities.
• Competitive Advantage. The particular advantages or capabilities it has to deliver all of these.

Read: Levels of Strategies: Corporate Level Strategy, Business Level Strategy, Functional Strategies

Exploring Strategy Framework

The Exploring Strategy Framework includes understanding the strategic position of an organisation; assessing strategic choices for the future; and managing strategy in action.

Strategic Position

The strategic position is concerned with the impact on strategy of the macro-environment, the industry environment, the organisation’s strategic capability (resources and competences), the organisation’s stakeholders and the organisation’s culture.

Fundamental questions for Strategic position:

• What are the macro-environmental opportunities and threats?
• How can the organisation manage industry forces?
• How are stakeholders aligned to the organisational purpose?
• What resources and capabilities support the strategy?
• How does culture fit the strategy?

Strategic Choices

Strategic choices involve the options for strategy in terms of both the directions in which strategy might move and the methods by which strategy might be pursued.

Fundamental questions for Strategic choice:

• How should individual business units compete?
• Which businesses to include in the portfolio?
• Where should the organisation compete internationally?
• Is the organisation innovating appropriately?
• Should the organisation buy other companies, form alliances or go it alone?

Strategy in Action

Strategy in action is about how strategies are formed and how they are implemented.

The emphasis is on the practicalities of managing.

Fundamental questions for Strategy in action:

• Which strategies are suitable, acceptable and feasible?
• What kind of strategy-making process is needed?
• What are the required organisation structures and systems?
• How should the organisation manage necessary changes?
• Who should do what in the strategy process? Which people and what activities?

The Strategy Checklist

Sixteen fundamental questions in strategy.

Strategic Position

• What are the macro-environmental opportunities and threats?
• How can the organisation manage industry forces?
• How are stakeholders aligned to the organisational purpose?
• What is the basic purpose of the organisation?
• How does culture fit the strategy?

Strategic Choices

• How should business units compete?
• Which businesses to include in a portfolio? Where should the organisation compete internationally?
• Is the organisation innovating appropriately?
• Should the organisation buy other companies, ally or go it alone?

Strategy in Action

• Are strategies suitable, acceptable and feasible?
• What kind of strategy-making process is needed?
• What are the required organisation structures and systems?
• How should the organisation manage necessary changes?
• Who should do what in the strategy process?

Working with Strategy

All managers are concerned with strategy:

• Top managers frequently formulate and control strategy but may also involve others in the process.
• Middle and lower level managers have to meet strategic objectives and deal with constraints.
• All managers have to communicate strategy to their teams and can contribute to the formation of strategy through ideas and feedback.

Organisations may also use strategy specialists:

• Many large organisations have in-house strategic planning or analyst roles.
• Strategy consultants can be engaged from management consulting firms (e.g. Accenture, IBM Consulting, PwC).
• There are a growing number of specialist strategy consulting firms (e.g. McKinsey & Co., The Boston Consulting Group).

Strategy’s three branches

1. CONTEXT – internal and external.
2. CONTENT – strategic options.
3. PROCESS – formation and implementation.

Exploring strategy in different contexts

The Exploring Strategy Framework can be applied in many contexts.

In each context the balance of strategic issues differs:

• Small businesses (e.g. strategic purpose, growth issues and retaining independence).
• Multinational corporations (e.g. geographical scope; cultural issues and structure/control issues).
• Public sector organisations (e.g. service/quality and managing change issues).
• Not-for-profit organisations (e.g. purpose and funding issues).

Summary

• Strategy is the long-term direction of an organisation.
• The work of strategy is to define and express the purpose of an organisation through its mission, vision, values and objectives.
• Ideally a strategy statement should include an organisation’s goals, scope of activities and the advantages or capabilities it brings to these goals and activities.
• Corporate-level strategy is concerned with an organisation’s overall scope; business-level strategy is concerned with how to compete; and functional strategy is concerned with how corporate- and business-level strategies are actually delivered.
• The Exploring Strategy Framework has three major elements: understanding the strategic position, making strategic choices for the future and managing strategy in action.
• Strategy work is done by managers throughout an organisation, as well as specialist strategic planners and strategy consultants.
• Research on strategy context, content and process shows how the analytical perspectives of economics, sociology and psychology can all provide practical insights for approaching strategy issues.
• Although the fundamentals of strategy may be similar, strategy varies by organisational context, for example, small business, multinational or public sector.
• Strategic issues can be viewed critically from a variety of perspectives, as exemplified by the four strategy lenses of design, experience, variety and discourse.

References

Exploring Strategy (Text & Cases) by Gerry Johnson et al.