Got strategy? 27 April, 2010

Well, do you? I suppose the harder question is defining what strategy actually is. Once that's done, answering the question "Got strategy?" will probably be equivalent to answering the question "Are you prepared for how long you want to last?" Many people think it's just a synonym for planning. Some think it is the way you do something, and others have no idea. There are a few definitions of strategy. All are correct, but each offers its own perspective:

Definitions

• How you compete
• Using and improving your competitive advantage
• A single, detailed plan that's based off of a company's goals and competitive advantages

Before I go further, I should address some things to avoid when thinking about strategy. You can't predict the future, you can't detach planning and implementation, you can't be too formalized, and you must finish a strategy before it becomes obsolete.

There are strong advocates (Mintzberg) of informal emergent strategy who let it flow more than they guide it, and there are more formal methods like Porter's generic strategies. Although many successful strategies have emerged without much planning, having a concrete plan will help find holes as well as ensure actual implementation.

Strategy can be broken down into four distinct levels (Corporate, Global, Business, and Functional). The following describes the details of each.

Corporate Strategy

• Answers the question "What value should be created in what industry?"
• This can include the acquisition or divestment of other companies.

Global Strategy

• Shows how to gain advantages over/with competition by competing internationally.
• Helps identify strengths and weaknesses of international competition.

Porter created a theory of "Competitive Advantage of Nations" that is described by the following diagram. It introduces relationships between global factors that must be synchronized to gain global advantages.

Diamond of National Advantage

It prompts questions like:

• Are suppliers global?
• What are demand differences in different countries?
• Can capabilities and resources be developed and used more effectively in other countries?
• How does a specific international culture affect competition?

Business Strategy

This is the business model. A business model answers the following questions:

• What does a customer want?
• Who is the customer?
• How are the wants satisfied?

Examples of business models include the following:

• Razor and razor blades (cheap upfront costs, higher upkeep costs)
• Franchise
• Direct sales (no fixed locations, market directly to customers)
• MLM (multi-level marketing)
• Service model
• Subscription model
• Loyalty based business (iteratively better deals, or continuous improvements)
  

Functional Strategy

This is all about efficiency. By efficiency, I mean the ratio of required inputs to desired outputs. Some major areas where levels of efficiency can exist are:

• Economies of scale
• Learning in the organization
• Project selection
• Processes

Feedback

Finally, it is extremely important to acquire feedback from all strategic levels, and send it back to the top. This is how missions, visions, values, and goals can be refined and become even better inputs to new corporate, global, business, and functional strategy.