"The essence of strategy is deciding what not to do." - Michael Porter
"If you don’t know where you’re going, any road will get you there." - Lewis Caroll, Alice In Wonderland
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Strategy is a term used to describe what we consider success to be, and how we plan to succeed, considering the circumstances.
A strategy is a collection of emergent or deliberate decisions on where we are headed, what we are optimizing for and how we will evaluate success.
Is is the framework we use to identify priorities, navigate challenges, make decisions and decide what not to do.
Without a strategy, the answer to the question "How will we succed?" Is unclear, fluid or differs dependlng on who you ask.
The motivations for having a strategy are:
In everyday speech, the term approach is sometimes used in place of the term strategy, i.e. "We have no specific approach to this", or "What's your approach here?".
Allthough the terms approach and strategy can sometimes be used interchangebly, the term approach is more encompassing, as it can refer to a broader set of methods, tactics, frameworks, processes, and systems that are used to achieve a particular goal or address a specific situation.
Approach is a flexible term that can encompass various elements that contribute to a strategic effort.
In essence, while "strategy" typically refers to the overarching plan or direction to achieve goals, "approach" can encompass the specific methodologies and techniques employed within that plan. So, an approach can be thought of as a collection of strategies, tactics, processes, and methods that are brought together to guide how something is approached or handled.
A corporate strategy defines how a company will compete in the market.
According to Michael Porter
Read more: What is strategy? and What Is Strategy, Again?
The terms "strategy" and "tactics" refer to different levels of planning and execution in any process or endeavor. They are often used interchangeably but have distinct meanings:
Strategy:
Tactics:
In summary, while strategy and tactics are related, they operate at different levels of planning and execution. Strategy is the high-level plan aimed at achieving a long-term objective, whereas tactics are the specific actions taken to support and execute that plan.
Let's use the game of chess as an example to better make the distinction:
Strategy in Chess:
Tactics in Chess:
So, in this context, the strategy is the overall plan (controlling the center, focusing on pawn structure), while the tactics are the specific moves or sequences (like the fork) that help the player execute this plan and respond to immediate opportunities or threats.
Strategic and operational are two different levels of planning and decision-making within an organization. Here's a breakdown of the difference between strategic and operational:
In summary, strategic planning focuses on long-term goals, sets the overall direction, and involves high-level decision-making, while operational planning deals with short-term execution, task management, and involves lower-level decision-making to ensure efficient operations.
Both strategic and operational planning are important for the success of an organization, and they work together to achieve the desired outcomes.
The relationship between strategy and organizational development is closely intertwined. Strategy provides the overarching framework for an organization's direction, goals, and competitive advantage, while organizational development focuses on enhancing the capabilities and effectiveness of the organization to execute its strategy. Here's how these two concepts relate to each other:
Alignment: Organizational development efforts are aimed at aligning the organization's structure, systems, processes, and culture with the strategic objectives. Strategy sets the direction, and organizational development ensures that the internal elements of the organization support and enable the successful implementation of the strategy.
Change Management: Strategy often requires changes in how the organization operates, whether it involves entering new markets, adopting new technologies, or restructuring business units. Organizational development plays a critical role in managing these changes effectively, ensuring smooth transitions, minimizing resistance, and maximizing employee engagement.
Talent Development: Strategy frequently demands specific skills, competencies, and expertise to achieve its goals. Organizational development initiatives focus on developing and nurturing the talent within the organization, identifying skill gaps, implementing training programs, and creating a learning culture to support the strategic requirements.
Performance Management: Strategy sets performance expectations and goals for the organization. Organizational development establishes performance management systems that align individual and team performance with the strategic objectives, including processes for goal setting, performance appraisal, feedback, and rewards.
Continuous Improvement: Both strategy and organizational development recognize the need for continuous improvement. Strategy evolves as the external environment changes, and organizational development ensures that the organization adapts, learns, and improves its processes and capabilities to remain effective and competitive.
In summary, strategy provides the direction and purpose for the organization, while organizational development facilitates the necessary changes, enhances capabilities, aligns systems, and develops talent to support the successful execution of the strategy.
They are interdependent and mutually reinforcing, with strategy shaping organizational development efforts and organizational development enabling effective strategy implementation.
Strategy can exist at different levels within an organization. These are the commonly recognized levels of organizational strategy:
Corporate Strategy: This level of strategy focuses on the overall direction and scope of the entire organization. It involves decisions related to the organization's mission, vision, goals, and the allocation of resources across different business units or product lines. Corporate strategy considers factors such as market positioning, diversification, mergers and acquisitions, and strategic partnerships.
Business Unit Strategy: Business unit strategy involves developing strategies for individual business units or divisions within the organization. It includes identifying competitive advantages, target markets, and value propositions specific to each unit. Business unit strategy aligns with and supports the overall corporate strategy.
Functional Strategy: Functional strategies are developed for specific functional areas or departments within the organization, such as marketing, finance, operations, human resources, and so on. These strategies define how each function will contribute to the achievement of business unit and corporate goals. They focus on leveraging resources and capabilities within the function to maximize efficiency and effectiveness.
Operational Strategy: Operational strategy pertains to the day-to-day operations and activities within an organization. It involves decisions related to production, supply chain management, logistics, quality control, and other operational aspects. Operational strategies are developed to optimize processes, improve productivity, reduce costs, and ensure smooth execution of activities.
Team Strategy: Team strategy is typically applicable at lower levels of the organization, such as project teams or cross-functional teams. It focuses on setting objectives, defining roles and responsibilities, allocating resources, and coordinating efforts to achieve specific outcomes within the team's scope.
Individual Strategy: Individual strategy refers to the strategies developed by individuals within the organization to accomplish their personal or professional goals. It involves setting objectives, identifying career paths, acquiring skills, and managing personal development.
Please note that these levels of strategy are not necessarily mutually exclusive, and they should be aligned and integrated to ensure coherence and synergy across the organization.
Strategy is a plan to create value.
A company's plan to create value is the company's strategy.
Value is the difference between willingness to pay and willingness to sell.
Strategic alignment refers to the process of ensuring that the activities, goals, and resources of an organization are coordinated and integrated in a way that supports the overall strategic objectives. It involves aligning various aspects of the organization, such as its mission, vision, values, goals, strategies, structure, processes, and resources, to work together in a cohesive manner.
The concept of strategic alignment recognizes that for an organization to be successful, there must be consistency and coherence between its different elements. It ensures that everyone in the organization understands and works towards a common purpose, and that all the efforts and initiatives are directed towards achieving the organization's strategic objectives.
Strategic alignment involves several key elements:
Clarity of vision and mission: The organization must have a clear and shared understanding of its long-term direction and purpose. This provides a framework for decision-making and goal-setting.
Cascading goals and objectives: The strategic objectives are broken down into specific goals and targets at different levels of the organization, ensuring that each department and individual has goals that contribute to the overall strategy.
Organizational structure and processes: The structure and processes of the organization should be designed in a way that supports the strategic objectives. This includes aligning reporting lines, roles, responsibilities, and decision-making processes.
Resource allocation: The allocation of resources, including financial, human, and technological resources, should be aligned with the strategic priorities. This ensures that resources are directed towards initiatives that support the overall strategy.
Performance measurement and feedback: Metrics and performance indicators are used to assess progress towards strategic objectives and provide feedback to the organization. This allows for adjustments and course corrections as needed.
Communication and engagement: Effective communication and engagement are crucial for strategic alignment. It ensures that everyone in the organization understands the strategy, their role in it, and the progress being made. Communication channels should be established to facilitate dialogue and feedback.
By achieving strategic alignment, organizations can enhance their overall effectiveness, agility, and competitiveness. It helps in reducing silos, increasing collaboration, and maximizing the impact of resources, ultimately leading to the achievement of organizational goals and sustained success.
Read more: Is Your Company as Strategically Aligned as You Think It Is?
The tasks of operationalizing strategy include establishing objectives, allocating resources, developing functional strategies and devising policies.
Annual objectives serve as guidelines for action, directing and channelling efforts and activities of organization members. Annual objectives are derived from long-term objectives. They must be consistent, measurable, and prioritized.
Resource allocation is a central management activity that allows for strategy execution. Strategists have the power to decide which divisions, departments, or SBUs are to receive how much money, which facilities, and which executives. The primary tool for making resource allocations is the budget process.
Functional strategies are derived from business strategy and provide directions to key functional areas within the business in terms of what must be done to implement strategy.
Policy refers to specific guidelines, methods, procedures, rules, forms, and administrative practices established to support and encourage work towards stated goals.
A great strategy operationalized well gives you an "unfair advantage".
Having no strategy can expose individuals, businesses, and organizations to various risks and challenges. Here are some of the key risks associated with not having a strategy:
Lack of Direction: Without a clear strategy, there is no guiding path or direction to follow. This can lead to confusion, indecision, and a lack of focus on what needs to be achieved.
Wasted Resources: Without a strategy, resources such as time, money, and manpower can be allocated haphazardly or inefficiently. This can result in wasted efforts on activities that don't contribute to meaningful goals.
Missed Opportunities: A lack of strategy can cause an organization to miss out on opportunities for growth, innovation, and competitive advantage. Without a plan in place, it's difficult to identify and capitalize on emerging trends or changes in the market.
Reactive Decision Making: Without a strategy, decisions tend to be made in a reactionary manner rather than as part of a thoughtful, well-considered plan. This can lead to rushed decisions and short-term thinking that may not align with long-term goals.
Ineffective Resource Allocation: Without a strategy to prioritize goals and initiatives, resources may be spread too thin across different activities. This can lead to suboptimal outcomes and a lack of progress in any particular direction.
Increased Risk: A strategy helps to identify potential risks and challenges and provides a framework for mitigating them. Without a strategy, an organization might be ill-prepared to handle unexpected events or crises.
Lack of Accountability: A strategy establishes clear responsibilities and accountability for various tasks and goals. Without this clarity, it's easy for individuals to pass the buck, leading to a lack of ownership and responsibility.
Stagnation: Without a strategy for growth and innovation, organizations can become stagnant and fail to adapt to changing circumstances. This can result in becoming obsolete in a rapidly evolving market.
Loss of Competitive Advantage: A well-defined strategy can give an organization a competitive edge by differentiating it from others in the market. Without such a strategy, competitors may gain an advantage by offering more targeted or innovative solutions.
Decline in Morale: A lack of strategy can create confusion and uncertainty among employees, leading to low morale and a sense of aimlessness. People are more motivated when they understand how their efforts contribute to a larger purpose.
Difficulty in Measurement: Without clear goals and metrics defined by a strategy, it becomes challenging to measure progress and success. This can hinder the ability to track performance and make necessary adjustments.
In summary, having no strategy can lead to disarray, inefficiency, missed opportunities, and increased vulnerability to risks. A well-defined strategy helps set goals, allocate resources effectively, guide decision-making, and adapt to changing circumstances, ultimately leading to better outcomes and sustained success.
Time and again, research shows how difficult it is to generate and execute strategy. In the bestselling strategy textbook “Exploring Strategy.”, Johnson, Scholes and Whittington explore the seven main failings in strategy and change management:
The structure of a strategy can vary depending on the organization and the context in which it is developed. However, a comprehensive strategy typically includes several components that address key questions. Here are the common components and questions a strategy should address:
Executive Summary:
Introduction:
Vision and Mission:
Environmental Analysis:
Strategic Objectives:
Strategy Formulation:
Implementation Plan:
Resource Allocation:
Risk Management:
Monitoring and Evaluation:
Communication and Stakeholder Engagement:
Conclusion and Next Steps:
It's important to note that these components and questions are not exhaustive, and the specific structure of a strategy document may vary based on organizational preferences and requirements. The goal is to ensure that the strategy document provides a clear and comprehensive roadmap for achieving the organization's objectives and serves as a guiding framework for decision-making and implementation.
Validating a strategy means assessing its effectiveness, feasibility, and alignment with the desired goals or objectives. It involves evaluating the strategic approach, analyzing potential risks and opportunities, and determining whether the strategy is likely to achieve the desired outcomes.
The process of validating a strategy typically involves the following steps:
Defining the goals: Clearly articulate the intended objectives or outcomes that the strategy aims to achieve. These goals should be specific, measurable, attainable, relevant, and time-bound (SMART).
Evaluating assumptions: Identify and evaluate the underlying assumptions and hypotheses upon which the strategy is built. This involves critically examining the validity and reliability of the assumptions, considering potential risks and uncertainties.
Conducting analysis: Analyze relevant data, market trends, competitive landscape, and other factors that could impact the strategy's success. This analysis helps in understanding the internal and external factors that might affect the strategy's implementation and effectiveness.
Testing feasibility: Assess the practicality and feasibility of implementing the strategy. Consider the available resources, capabilities, and potential constraints that may affect the strategy's execution. Evaluate whether the organization has the necessary skills, technology, and infrastructure to support the strategy.
Risk assessment: Identify potential risks and challenges associated with the strategy. Evaluate the likelihood and potential impact of these risks, and develop mitigation plans to address them. Consider both internal and external risks, such as changes in market conditions, regulatory issues, or operational challenges.
Measuring success criteria: Define key performance indicators (KPIs) and metrics to measure the strategy's progress and success. Establish clear benchmarks and targets that indicate whether the strategy is delivering the expected results. This step helps in monitoring the strategy's performance and making necessary adjustments if deviations occur.
Stakeholder engagement: Seek input and feedback from relevant stakeholders, including senior management, employees, customers, and partners. Engage in discussions and obtain buy-in from key stakeholders to ensure their support and alignment with the strategy.
Piloting and experimentation: In some cases, organizations may choose to pilot or test the strategy on a smaller scale before full-scale implementation. This allows for identifying potential challenges, refining the approach, and making necessary adjustments based on the results and feedback obtained.
By following these steps, organizations can assess the viability and effectiveness of their strategies, make informed decisions, and increase the likelihood of achieving their desired outcomes.
Evaluating a strategy refers to the process of assessing and analyzing the effectiveness, performance, and overall success of a strategic approach or plan. It involves reviewing various aspects of the strategy to determine its impact, identify areas of improvement, and make informed decisions for future actions.
When evaluating a strategy, organizations typically consider the following elements:
Goal attainment: Assess whether the strategy has achieved its intended goals and objectives. Evaluate the extent to which the desired outcomes have been realized and whether they align with the organization's broader mission and vision.
Performance measurement: Measure and analyze key performance indicators (KPIs) and metrics that were established to monitor the strategy's progress. Compare the actual results with the expected targets to gauge performance and identify any gaps or deviations.
Resource allocation: Evaluate how effectively resources such as financial, human, and technological assets were allocated and utilized to support the strategy. Determine whether the resources were sufficient, well-managed, and aligned with the strategic priorities.
Risk assessment: Identify and evaluate the risks and challenges encountered during the implementation of the strategy. Assess the effectiveness of risk mitigation strategies and determine whether the organization was adequately prepared to address unexpected obstacles or changes in the external environment.
Stakeholder satisfaction: Gather feedback and opinions from relevant stakeholders, including customers, employees, partners, and shareholders. Assess their satisfaction levels, concerns, and perceptions regarding the strategy's impact on their needs and expectations.
Environmental analysis: Consider the internal and external factors that might have influenced the strategy's performance. Analyze market trends, competitive dynamics, regulatory changes, technological advancements, and other relevant factors to understand their impact on the strategy's outcomes.
Lessons learned: Reflect on the experiences and lessons gained throughout the strategy implementation process. Identify successes, failures, and areas for improvement. Use these insights to enhance future strategic planning and decision-making processes.
Adaptability and flexibility: Assess the strategy's ability to adapt and respond to changing circumstances and evolving market conditions. Determine whether the strategy demonstrated the necessary flexibility to adjust course when needed and seize new opportunities.
Cost-effectiveness: Evaluate the cost-effectiveness of the strategy, considering both the financial investments and the returns generated. Assess whether the benefits outweigh the costs and whether alternative strategies could have achieved similar or better results with fewer resources.
By conducting a comprehensive evaluation of a strategy, organizations can gain valuable insights into its effectiveness, identify areas for improvement, and make data-driven decisions for future strategic initiatives. This evaluation process helps in enhancing organizational performance, refining strategic approaches, and maximizing the chances of success.
When evaluating whether a strategy is effective and qualifies as a great strategy, it's essential to consider multiple perspectives and dimensions. Here are some key perspectives to consider:
Alignment with Goals: Assess the extent to which the strategy aligns with the organization's overall goals and objectives. A great strategy should be closely linked to the mission, vision, and long-term aspirations of the organization.
External Fit: Evaluate how well the strategy responds to external factors such as market trends, customer needs, competitive landscape, regulatory environment, and technological advancements. The strategy should demonstrate a clear understanding of the external context and adaptability to changes.
Internal Fit: Consider the strategy's fit with the organization's internal capabilities, resources, and culture. Evaluate whether the strategy leverages the organization's strengths and addresses its weaknesses. It should be feasible and realistic given the organization's available resources and expertise.
Competitive Advantage: Assess whether the strategy provides a sustainable competitive advantage over rivals. It should create unique value propositions, differentiate the organization from competitors, and leverage core competencies or distinctive capabilities.
Innovation and Creativity: Consider the level of innovation and creativity embedded within the strategy. A great strategy should introduce novel approaches, disruptive ideas, or unconventional thinking that can generate breakthrough results and create new opportunities.
Risk Management: Evaluate how well the strategy identifies, assesses, and manages risks and uncertainties. A great strategy should have robust risk mitigation plans in place and demonstrate a proactive approach to managing potential threats.
Stakeholder Impact: Assess the strategy's impact on various stakeholders, including customers, employees, shareholders, partners, and the broader society. Consider whether the strategy creates value, addresses stakeholder needs, and promotes ethical and sustainable practices.
Execution and Implementation: Evaluate the feasibility and practicality of executing the strategy. Assess the organization's capabilities, resources, and readiness to implement the strategy effectively. A great strategy should have a clear implementation plan, accountability mechanisms, and measures to track progress.
Results and Performance: Analyze the outcomes and results generated by the strategy. Assess whether the strategy has achieved the desired goals, delivered financial and non-financial benefits, and contributed to the organization's long-term success.
Learning and Adaptation: Consider the strategy's ability to foster learning, adaptation, and continuous improvement. Evaluate whether the strategy encourages a culture of experimentation, feedback, and agility, allowing for adjustments based on feedback and changing circumstances.
By considering these perspectives, organizations can gain a holistic understanding of whether a strategy is truly great and has the potential to drive sustainable success. It helps in assessing the strategy from multiple angles and making informed judgments about its effectiveness and suitability.
Individuals can exhibit varying degrees of strategic and operational thinking. Strategic thinking and operational thinking are distinct mindsets that involve different approaches to problem-solving and decision-making. Both approaches have their merits and are valuable in different contexts.
Strategic thinking involves taking a broader, long-term view, considering multiple factors, and formulating plans to achieve specific goals. It emphasizes analysis, critical thinking, and proactive decision-making to navigate uncertainties and complexities. Strategic thinkers focus on setting the direction, identifying opportunities, and aligning actions with overarching objectives.
Operational thinking is more concerned with executing tasks, processes, and procedures efficiently. It tends to be more focused on immediate goals, day-to-day activities, and ensuring smooth operations. Operational thinkers excel at managing resources, optimizing workflows, and maintaining high levels of productivity.
Both mindsets have their value and contribute to organizational success. Strategic thinking provides the vision and direction, ensuring that efforts are aligned with long-term objectives. Operational thinking ensures the effective execution of strategies, translating plans into tangible actions and outcomes.
It's important to note that individuals can possess strengths in both strategic and operational thinking. Successful leaders often exhibit a balance of these mindsets, knowing when to zoom out and think strategically and when to dive into the operational details. Organizations benefit from individuals who can switch between these mindsets as needed and effectively integrate strategic and operational thinking.
So, while strategic and operational thinking are distinct approaches, they are not mutually exclusive. Both mindsets are valuable and can coexist within individuals and organizations, contributing to overall success and achieving desired outcomes.
Whenever we do cognitive work in relation to an organization (planning, problem solving, decision-making) the issues that we are grappling with are somewhere on a continuum from strategic, via tactical to operational.
You can think of this continuum as looking at the organization from a high level, birds eye view, to a low level, ants view.
Different zoom levels require different mindsets, skillsets, processes and tools.
Switching between zoom levels can also be mentally challenging and taxing. As a result, it makes sense to be aware of your zoom level in order to limit the amount of zoom switching, and bring forward the relevant mindset, skillsets, processes and tools to do your best work at each level.
Excerpt from the article The future of management is teal:
"Making purpose the cornerstone of an organization has profound consequences for leadership.
In today’s dominant management paradigm (Orange), leaders are supposed to define a winning strategy and then marshal the organization to execute it, like the human programmer of a machine who controls what it will do.
In the Teal paradigm, founders and leaders view the organization as a living entity, with its own energy, sense of direction, and calling to manifest something in the world. They don’t force a course of action; they try to listen to where the organization is naturally called to go.
None of the organizations I researched has a strategy document. Gone are the often dreaded strategy formulation exercises, and much of the machinery of midterm plans, yearly budgets, cascaded KPIs, and individual targets. Instead of trying to predict and control, they aim to sense and respond.
FAVI uses a metaphor to explain this. Other companies look five years ahead and make plans for the next year. They prefer to think like farmers: Look 20 years ahead, and plan only for the next day. A farmer must look far out when deciding which fruit trees to plant or which crops to grow. But it makes no sense to plan a precise date for the harvest. One cannot control the weather, the crops, the soil; they all have a life of their own. Sticking rigidly to plan, instead of sensing and adjusting to reality, leads to having the harvest go to waste, which too often happens in organizations."
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