What is Strategy?

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What is Strategy?

The word ‘Strategy’ is one of the most overused words around and still misunderstood by many who use the word. It is not same as any of words we have heard like – Mission, Vision, Values, Planning etc. The basic elements of a Strategy Statement are:

1.       Objective of the firm: What is the end outcome that the company wishes to achieve?

2.       The Scope (Domain area) firm would like to operate in. What are the boundaries beyond which the company will not operate in?

3.       Advantage: A value proposition that explains why a targeted customer should buy your product or service over all alternatives available in the market?

Strategy – is the creation of a unique and valuable position, involving a different set of activities.

A firm is required to create tradeoffs when defining strategy on where it will compete versus where it will not. This is fundamental to building a firm’s sustainable strategy. It cannot be multiple things. For example, a firm cannot offer customizations on the Product or Service it produces/delivers as well as think about producing the same product or service on scale to achieve cost efficiencies. It has to be one out of the two.

1.       A firm has to be clear on what it will do and what it will not do

2.       A good Strategy is time bound and measurable

3.       A good Strategy can get fine tuned owing to market and industry landscape, but cannot drastically change itself

Companies need to be careful and diligent when they expand their offerings and capabilities. Their Strategy can get diluted when they start entering market segments or server customers which are not part of their strategy. They should do careful evaluation to not end up competing in market based on price or commoditized offerings. Their differentiation needs to be a key competitive advantage.

Leaders may not know how to define a Strategy Statement

It is a known fact that leaders in an Organization may not know about the elements that make a Strategy statement like explained above. Once this is known, this can help the executive leadership to create a clear Strategy definition. This also helps to make the implementation of Strategy simpler as it can be easily communicated to everyone in the Organization.

Strategy as a source of Competitive Advantage

Activity System and Fit

A firm performs a set of activities to manufacture and deliver the product or services to its customers. These activities form a system with each other. These activities achieve the greatest strategic alignment when there is consistency between the activities, they are re-inforcing themselves and there is optimization of effort. This is called as fit between a firm’s set of activities.

A clear strategy helps a firm to ensure all its activities have a fit with each other, there is clarity on what each Department, employees are expected to perform and where do the boundaries lie.

Creating a good strategy requires careful evaluation of industry landscape, segmenting the customers and identifying unique ways to create values in the segments the firm wishes to serve its products or services.

1.       Competitive advantage does not come from Operational Effectiveness as that can be imitated/developed by other firms

2.       A clear strategy with its set of unique/valuable activities forming a fit together creates a non-imitable competitive advantage