Strategy is arguably one of the most overused words in the English language. Most people that use it have no idea what the word means. Yet, being strategic is one of the highest-valued skills in business. Hundreds of professors have dedicated their lives to studying strategy, and consultants are paid fortunes to develop and implement it in actual companies.
How does someone become a good strategist? Is it intelligence? Is it thinking on your feet? Is it effective execution of ideas?
In this article we will explore the notion that strategy is learned rather than inherited – but strategic thinking is not just an ability that can be acquired in one sitting, it is a way of thinking that must be learned over time.
What strategy is NOT
Perhaps it would be helpful to define what strategy is not before defining what it is. Although it is often confused with various words, strategy is none of the following:
- Tactics
- Methods
- Ideas
- Plans
- Markets
- Product features
- Capital structures
Strategy often combines all of these to some extent, but strategy is a much deeper concept. By the end of this article, you should be able to tell the difference.
What is strategy?
Let’s look at the origin of “strategy”. The English word is derived from the Greek “strategos”, which means “military general” which then became the French word “stratégie,” meaning “art of the general”. From as early as 400 B.C., military leaders were writing about strategy as an art form, something that could be learned through study and practice.
Clearly, the origin of strategy, in both language and context, is warfare. Even chess, which is often a symbol of strategy, mirrors warfare in its rules and pieces’ design.
The goal of any game, whether it be a game of chess or a business deal, is to win. For each of these games, strategy is the way to win.
Now it is time to define strategy appropriately. According to Professor Michael Porter, strategy is “choosing a unique and valuable position rooted in systems of activities that are … difficult to match”.
For instance, McDonalds may have a recognized brand and tasty recipes, but its “valuable position” is geographic – it finds the best locations for its franchises based on expected traffic. Although competitors try to respond, McDonalds has already secured the best position on the street (literally).
Another example is Apple’s integration of hardware, software, and services in its ecosystem-driven approach to the smartphone market. This strategy provides Apple with a position that is almost impossible to replicate, creating a competitive advantage that engenders strong customer loyalty, reliable cross selling opportunities, and high switching costs for any customers who may consider leaving the ecosystem.
Strategy must acknowledge the environment in which a company competes (external factors). This includes the business landscape, market trends, regulatory changes, shifting customer preferences, and technological advancements.
Strategy must also recognize the internal factors of a company, which include organizational culture, workforce capabilities, financial resources, and operational efficiency.
Finally, strategy is about making choices about where to invest resources in the company, what changes need to happen, or what markets to enter based on the environmental constraints that the company faces.
Strategy tools
There are many frameworks that we can employ to help us understand a business’ internal and external environment so that we can make appropriate strategic choices.
The following are some of the most common frameworks used in the field of strategy.
- SWOT analysis: Assesses an organization’s Strengths, Weaknesses, Opportunities, and Threats
- PESTEL Analysis: Examines Political, Economic, Social, Technological, Environmental, and Legal factors impacting an organization’s strategy.
- Porter’s Five Forces: A model that provides a framework to analyze an industry’s competitive dynamics, including the bargaining power of suppliers and buyers, threat of new entrants, rivalry among existing competitors, and the threat of substitute products or services.
- Balanced Scorecard: Aligns strategic objectives with performance metrics across financial, customer, internal processes, and learning/growth perspectives.
- Blue Ocean Strategy: Encourages creating new market spaces by focusing on innovation rather than competing in existing markets.
- Value Chain Analysis: Identifies value-adding activities within an organization’s operations to optimize efficiency and create competitive advantage.
The above list of frameworks is far from exhaustive, so consider looking at other sources for more ideas.
One can also break down strategy depending on the scope of the organization involved:
- Corporate Strategy: Determines how the organization supports and adds value to its business units operating in multiple markets, focusing on creating synergy and maximizing collective value through strategies like building internal competences and nurturing a strong corporate brand.
- Business Unit Strategy: Concentrates on succeeding in individual markets, linked to corporate goals, involving competitive analysis, leveraging core competencies, and exploring new opportunities using tools like Porter’s Five Forces and SWOT Analysis.
- Team Strategy: Ensures collaboration to execute corporate and business unit strategies effectively, requiring aligned team-level strategies that support higher-level goals through techniques such as team charters, Management by Objectives, and implementation of best practices.
- Organization Design: Crucial for competitive advantage, considering structure and resource deployment, and aligned with overall strategies for optimal performance and goal attainment.
Strategies at all levels must align for successful execution, emphasizing collaboration, coordination, and mutual enhancement to achieve organizational success.
Conclusion
This article has aimed to enhance your understanding of strategy, both what it is and what it is not. A career in strategy, whether as a consultant, senior manager, or entrepreneur, requires one to understand the principles outlined in this article.
While there are many other tools and methods that can be used to understand strategy, the key is to recognize that there is no one-size-fits-all solution to any business problem.
In the end, we all want to win — in business, in life, in chess — but the few that do will be the ones that apply strategic frameworks and concepts, consider changing environmental circumstances, and adapt over time.
Wes Brooks is an incoming Summer Business Analyst at Cicero Group and an undergraduate studying economics, management, and strategy. He is a serial entrepreneur, works in venture capital, and enjoys singing a capella and piano improvisation.
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