What is Strategy?

“Good strategy is the exception, not the rule.  A word that can mean anything has lost its bite”  — Richard Rumelt

The problem with strategy today

“Strategy” is probably one of the over-used words in business today. To make a concept, decision or phrase sound important & expensive, just add the word “strategy” or “strategic”.

The net result of this modern buzzword bingo is a strategy for everything: a strategic plan, expansion strategy, online marketing strategy, cloud strategy, strategic offsite, strategic acquisition, even a strategy retreat. But by attaching strategy to everything, the risk is that it ends up meaning nothing. Or at least, nothing more than big, costly or important.

Related to this is the rise of template-driven strategy: that all-too-familiar “going through the motions” activity where you come up with a nice sounding vision and mission, maybe some big hairy audacious goals, do a SWOT analysis, publish a nice glossy document, make a big announcement.. and then keep doing whatever it was you were doing beforehand. All this activity might make you feel better but it is not strategy (and it probably won’t improve performance).

But for those who are genuinely concerned with substance over shine, the question remains: What exactly is strategy? And how do you do it well?

Note: The perspective on strategy I’ll outline here has been shaped by my own experiences & thoughts, but also strongly influenced by scholars like Richard Rumelt, Peter Drucker, A.G Lafley, Roger L. Martin, Catherine Eisenhardt, David Maister, Jeffrey Pfeffer, Robert I. Sutton, Rita Gunther McGrath, and Edward Hess.  I owe a debt of gratitude to them and encourage you to read their works directly.

Defining what strategy really is

At its heart, strategy is about choice.  You can’t be all things to all people. If you try to serve everyone in your market, if you try to match competitors on everything, or if you avoid making the hard decisions about how to organize your operations, then you don’t really have a strategy. Failing to choose is – in reality – choosing to fail.

“It is natural to want to keep options open as long as possible, rather than closing off possibilities by making explicit choices. But it is only though making and acting on choices that you can win. Yes, clear, tough choices force your hand and confine you to a path. But they also free you to focus on what matters” — A.G. Lafley & Roger L. Martin

As David Maister once put it, strategy is about saying no. If you’re not closing off options, you’re not making choices. His advice is that “the very essence of having a strategy is being selective about choosing the criteria on which a firm wishes to compete, and then being creative & disciplined in designing an operation that is finely tuned to deliver those particular virtues.”

In other words, good strategy is about focused and coherent action at a point of high leverage. Remember the Pareto principle or 80/20 rule, i.e. 80% of the results come from just 20% of the inputs.  In a similar way, strategy is about focusing a disproportionate amount of your attention and resources on those few things that really make a difference.

One approach I’ve found useful in my work is Richard Rumelt’s concept of “the kernel of strategy“, which consists of 3 vital elements:

  1. A diagnosis of the critical challenges facing the business
  2. A guiding policy or approach for how you will deal with the challenge
  3. A set of coherent actions and resource commitments

This is not dissimilar to the approach a doctor might take: first take the time to understand the situation and make a formal diagnosis of what needs to be addressed. All too often, people skip this step and end up focusing on the wrong actions. For example, if you think your product range is holding you back, then you might choose to focus on developing new & improved products, but if in fact the underlying issue is that your sales & distribution is woeful, then you’ve completely missed the point and your lovely new products will tank just like the previous ones.

You’ll also notice that the kernel of strategy includes action and resource commitments – in other words, strategy is not just ivory-tower thinking, it’s also fundamentally about making decisions and doing things. That leads us to a very good test of whether you have an effective strategy:  ask yourself if people throughout your organization are using it to help guide their decisions and actions. If the answer is no, your strategy is just an expensive waste of time and paper.

“Plans are only good intentions unless they immediately degenerate into hard work.” — Peter Drucker

How do you design a good strategy?

First up, notice the word “design” above: developing a strategy is a design process. Strategy is inherently creative, usually requires iteration to get it right, and involves piecing together many different elements into a cohesive whole. It also usually works best when a variety of people are involved in the process, bringing different perspectives and expertise to the table.

The best strategies – like the best designs – work because all the elements work together in a way that makes it more than just the sum of its parts. Each element not only works by itself, but also works hand-in-hand with the other elements to reinforce and strengthen the whole.

Rumelt describes this as “chain-link logic“, where the overall output of the system is only as good as its weakest element. For example, you might have superb products and a killer brand, but if your distribution channels struggle or your customer service is poor, then improving your brand further will not help – you need to fix the bottleneck to boost the overall system’s performance. This chain-link property makes it challenging to design & implement an effective strategy, but it also has the nice side-effect that competitors who try to copy it in part will get very little benefit.

So let’s drill down into the choices you need to make in crafting an effective strategy. One of the best approaches is set out by Lafley & Martin in their book Playing to Win: How Strategy Really Works with five fundamental questions to help design your strategy:

  1. What is your winning aspiration?
  2. Where will you play?
  3. How will you win?
  4. What capabilities must be in place?
  5. What management systems are required?

“Strategy is an integrated set of choices that uniquely position the firm in its industry so as to create sustainable advantage and superior value relative to the competition” — A.G Lafley & Roger L. Martin

Each of the choices you make in answering these five questions should make sense in light of the other choices. For example, if your answer to how to win involves a strong global brand, but you have no experience or skills in developing great brands or in marketing internationally, then maybe you should think again. That’s not to say that you can’t develop these capabilities over time, but you need to be realistic and honest with yourself. Effective strategies will usually involve a mix of leveraging what you already have, and investing in the development of new capabilities.

Why is good strategy so hard?

Given the benefits of getting strategy right and the fact so many people invest time and energy on it, you’d think more organizations would have an effective strategy … but the reality is they don’t. So why is a great strategy so rare? I suspect it’s because strategy turns out to be hard work.

One of the things that makes strategy hard is that there are no pre-prepackaged answers – you need to work it out for yourself, based on your organization’s specific circumstances, resources and objectives. This is why diagnosis is so important, because just applying someone else’s strategy won’t work. Frameworks can be useful to direct attention and focus your team’s thinking (which is why I’ve included a few above) but it still takes plenty of hard work to get genuine, actionable insights into your situation. If you just fill in a SWOT template with the first things that come to mind, then your strategy is nothing more than wishful thinking.

“Thinking is very hard work. And management fashions are a wonderful substitute for thinking” — Peter Drucker

Another reason why strategy is hard is that it requires tough choices. Truly difficult choices can arise when you have several great opportunities but can only choose one as your focus and need to say no to the others. Or when you face the temptation of maintaining the status quo (which is easier for you personally) instead of making a tough call that will upset some people and be disruptive in the short term but you know is necessary for long term success.

One final reason why strategy is hard is because it requires disciplined and coherent action. It’s one thing to know what should be done, it’s another to get on and consistently do the many difficult things that need to happen for it to be implemented properly. This is hard enough for an individual to do at a personal level, but when you have an organization of hundreds or thousands of people, it’s even more difficult to do. This need to inform, coordinate and motivate so many people is why the best approaches to strategy emphasize the need to distill it down into a simple, easy-to-communicate message – be it the guiding policy in Rumelt’s kernel, the simple rules that Eisenhardt advocates, or the 5 questions in Lafley & Martin’s framework.

Share your thoughts on strategy…

What do you think?  Does the view on strategy above resonate with your experience, or do you have a different perspective?  Do you have any advice or tips for people on what strategy is and how to do it well? Please take a moment to share your thoughts in the comments below.