All people who have graduated an MBA (there are more than 200 000 every year in the world) or a business school have studied the theory of strategy and marketing.
One of the most famous author and professor at Harvard, Michael Porter formalized the theory of strategy.
What is strategy?
Basically there are two ways to be competitive: one is operational efficiency, which is how to beat competitors by being better than them in some areas. Developing products that are considered as better in all areas than those of competitors, outperforming them in manufacturing efficiency, in sales performance, in service quality and so on.
The other way to be competitive, and the 2 are not exclusive from each other is how to position yourself differently from competitors. And this is the art of strategy.
In short, strategy is the study and definition of how an organization decides to be different on the market place versus competitors as a whole and how this positioning will impact the whole organization.
Typically it is a set of elements that are coherent and shows how the organization can differentiate and avoid face-to-face confrontation.
As Michael Porter stated in an article of the Harvard Business Review, “The essence of strategy is choosing to perform activities differently than rivals do”
He adds: “Strategic positions can be based on customers’ needs, customers’ accessibility, or the variety of a company’s products or services.”
In their book “Playing to Win: How Strategy Really Works”, A.G Lafley CEO of Procter & Gamble and Roger Martin previously dean of the Rotman School of Management define strategy as being: “… an integrated set of choices that uniquely positions the firm in its industry, so as to create sustainable advantage and superior value relative to the competition.”
They propose the 5 steps approach to help defining a strategy:
First, an organization or a brand should set its winning aspiration or what is the victory that will best describe the purpose of the company. Second, it must define its battleground or where it intends to play, for example its geographical markets, customers or channels. Third, it should define how it intends to win or which unique value proposition it intends to bring. Fourth, it needs to identify the capabilities it will need to deliver on those values and last, which management systems, including KPI’s measurement will be required.
Recently, I was visiting a plant in Europe and at the entrance of the main office, the speech of the CEO of this international company was posted to employees and visitors that the sttrategy of the company was the implementation of lean management. Obviously, from a pure definition point of view, lean managemnt cannot be considered as a strategy as it is an execution tool or at best a mind set or an objective that in no way can differentiate the company from its competitors. Lean management will allow doing the same thing with less resources and as a result achieve a lower cost. But lean management is taught everywhere and of course if it is well implemented, will allow the company to have an temporary advantage over its competitor. When competitor will catch up, the temporary advantage will be gone.
Strategy’s objective is to offer a sustainable advantage.
In a video, interview the senior Vice President of Strategy& the famous strategy consulting firm part of PWC and formerly Booz, Allen and Hamilton, Ken Favaro explains how many executives confuse strategy and execution. I like to take it as I have worked as Senior Advisor at Booz, Allen some years ago and learned a lot during this period. His definition of strategy is very similar to the one described earlier and he also a 5 steps approach. He describes strategy as a set of decision around questions, which he calls the 5 strategic. They resembles the Lafley-Martin ones: First, define which business you are in, then how you add value, who the target customer should be, what the proposition is and last which capabilities you need to build to achieve the objectives. More interestingly, he defines the most frequently made mistake, which is to confuse strategy with execution and what he defines as the 5 tools. Those are the vision or how you see your place in the future, the mission or what you try to achieve, the purpose or why company exists the action plans and the goals or targets. If the tools are of course important to develop and formalize they cannot substitute to a well-defined strategy.
For example, a pharmaceutical company can define its purpose as “contribute to a world where life is easier” a vision as be in the top 3 global players, have a mission to “define breakthrough medical treatments” the plan can be to launch a new molecule every year and the goals to achieve a certain level of turnover. Those elements are important to define but are not precise enough to lead the company to a concrete goal.
Indeed, this does not define a strategy as it does not tells which markets the company needs to be fighting in and which value proposition the company will define to win: which category of treatments, which distribution channels, which regions, which value the company will add that will differentiate, which target customers or which capability the company will decide to concentrate on. As importantly, the company will not define which areas decide not to compete in or not to prioritize. As a result, this pharmaceutical company will be fighting head to head with its competitors that will more or less define similar vision and mission statements. The company will be fighting in the red sea where all competitors are present reducing the chance to grow or to really bring something relevant to the market. The employees’ efforts and ideas will be diluted in a vague declaration of intent that has no practical and concrete element of implementation. And customers will not differentiate your offer with one of any competitor. Results will solely depend on short-term performance.
Last but not least, by not having the strategic thought, companies take the big risk to ignore disruptions that reshape the market. In the case of pharmaceutical, having the strategic exercise forces the company to think of what real competitors are, what new entrants are planning, what alternative technologies or services might arise, what new channels of information or distribution customers have access too and what service can increase customers’ loyalty or advocacy. For example, Zyrtec, the American anti-allergic medication company launches permanently new products but also services. Zyrtec launched in 2013 an application that helps people define to which pollens they are allergic, based on their location and informs them in advance of the risk based on weather forecast and advise on which medication to take. Loyal customers having the application can get discount coupons. Zyrtec can be true to their parent company strategy Johnson and Johnson, which is to focus on #1 or #2 players in their category.
In the recent literature, some argue that strategy is not necessary as a company should be able to grasp all new markets opportunities and products innovation in order to remain relevant. In short, in a fast changing world, where disruption becomes the rule, sustainable advantage cannot exist and this makes any effort to build a strategy useless and doomed to failure.
This is true for players who think of strategy as a “frozen” set of decisions made in the secret of the headquarters boardroom. Then, by ignoring market changes and risks, new entrants and competition of alternative solutions, those players are simply taking the risk of being irrelevant. But by having a broader view of the business condition, listening to all stakeholders, testing quickly new solutions and innovations and reviewing regularly their strategy, companies will avoid the risk of missing the important change or opportunity in the market.
For example, by ignoring digital cameras, Kodak became irrelevant, by trying to do always better-printed encyclopedias, Britannica missed the Internet revolution and Virgin Megastore did not understand that most customers were not willing to purchase physical support for their music.
Those companies did not die of having a strategy but of not having a living and an open one.
Whichever the sector you are in, similar revolution might or even will occur!
New solution of mobility, education, medical care, banking will come.
Just providing a better car, a better university or a better bank branch will not be enough if breakthrough solution offering better and much cheaper service happen to be proposed.
By not having a strategy and just continue to improve existing solutions, organization face the risk of fighting on slim profit on the short term and become irrelevant on the long term.
This is where the third road of managing strategy comes and really helps as it provides a real strategy not designed by a small group of similar people but through the collaboration of people from different origins and backgrounds.
Through a regular and rigorous yearly process, the strategy is reviewed and constantly adapted and learns from experiences happening in operations and regions. The role of the leader is not to decide alone but to listen, observe, exchange, propose, guide and ensure the strength and the robustness of the strategy.
-Strategy is about making decisions on how to win and priorities of actions and what should not prioritized
-In a fast changing world, traditional way of doing strategy, centrally, inflexibly does not work anymore
-But in a fast changing world where business is confronted with breakthrough and disruption, strategy is more important than ever.
The third road of management is the best way to have a relevant yet strong strategy. Indeed, it has all stakeholders contributing to its definition and enriching it with their ideas and experiences under the leadership of a strong leader and reviewing regularly the progress and the changes in the environment. As a result, it sets the strategic guidepost for the necessary focus and aligned actions but keeps the necessary flexibility to grasp all opportunities with the buy-in of all.