Strategy

Which is the "right" strategy?

Why are there such a confusing plethora of strategic planning concepts and approaches?

We all know strategy from our managerial experience, books and articles read, courses attended and degrees obtained.

Yet there are so many differences on opinion with regard to strategy terminology, concepts and approaches, and confusion as to which is the "right" strategic approach to use.  

Strategy buzz words come and go, and what is the strategy flavour of the month now, is replaced by something different next year.

It is important to understand that strategy concepts are essentially shaped by thought leaders based on scientific research, or on empirical observation. 

In the academic field, professors and students at universities are influenced by which strategy text books are proscribed, which in turn are are based on one or more of these strategic schools of thought.

Managerial strategy thinking and practice are not only influenced by the academic schooling of management, their interpretation of what they have learnt, and their practical experience.

Business strategy is profoundly affected by management consulting firms that package the strategy concepts of thought leaders and their own research, to deliver new strategic products and services.

So what is the right approach to strategy?

We believe that a company has a solid strategic foundation if two conditions apply.

Firstly, a company must separate its strategy into corporate, business unit and functional strategies.

Secondly, it must know where it is now, where it want to go to, and how it will get there. 

It is a question of fleshing out each of the above using various strategic tools and methodologies.

To understand more about strategy, read the sections on our approach to strategy, and the history of development of strategy below.

Our approach to strategy

Our approach to strategy is based on three pillars:

Knowing where you are and what you are and what you are facing.

Knowing where you are going to.

Knowing how to get there.

Knowing where you are and what you are facing

Understanding where you are now involves an internal audit of strengths and weaknesses in leadership, the skills, competencies and resources of the organisation, and systems and processes used in the value chain.

Understanding what you are facing in the market-place involves an assessment of the competitive environment to identify threats and opportunities. 

This normally takes the shape of an analysis of market size and growth rate, changes in industry drivers of a political, economic, social, technological, legal and environmental nature, and the competitive forces of competition, buying power of suppliers and customers and threats of substitution and new entry.

Knowing where you are going to

The envisaged future is stated in terms of the company's vision and mission.  But that alone is not sufficient. 

Knowing where you are going to (continued)

The vision and mission must be underpinned by segmentation and targeting of market segments based on market attractiveness and competitive strength. 

What is the gap between what is required for the future and current resources and skills?  Can the company realistically increase its competitive position, or should it tone down on its expectations? 

Additionally, the vision and mission should be underpinned by an explicit competitive advantage and customer value proposition.  Without effective positioning there is no long term future, and without a customer value proposition, customer's satisfaction with products and services cannot be ascertained.

Knowing how to get there

The pitfall of many companies' strategic planning is that do not know how to implement strategy once formulated.

Strategy must be translated into operational terms.  The Balanced Scorecard is the best way to translate strategy into objectives, measures, initiatives and targets, and to provide a mechanism for strategy implementation.

History of the development of strategy

Business strategy started in the 60's with SWOT analysis (Harvard University).  The assessment of strengths, weaknesses, opportunities, threats and resultant issues today still form the basis of strategic planning.

During the 60's and 70's the portfolio strategy approaches appeared (McKinsey, Boston Consulting Group, and General Electric).  In came the cash cows, dogs, stars and question marks.  While the strategy literature is filled with theories trying to quantify models and proving why these portfolio strategies are don't work, these intuitive tools are still valuable today as reference points.

During the 80's Michael Porter of Harvard University introduced the notion of achieving competitive advantage through positioning, which today is still the only strategy theory proved in micro-economics. 

While it is difficult to quantify the effect of Porter's five competitive forces (intensity of rivalry of competitors, bargaining power of suppliers and buyers, and threats of substitution and entry of new competitors), the positioning strategies of lowest delivered cost or differentiation, employed in niche markets or industry-wide are widely applied by business strategists.

During the early 90's Hamel and Prahalad of the University of Michigan introduced the resource-based approach - reshaping markets through strategic intent and reliance on core competencies.

Today, theorists still argue about the merits of the positioning and resource approaches.  While we are Porter supporters, we do find the resource based approached useful when dealing with new markets.

In the late 90's Kim and Mauborgne of INSEAD University introduced value innovation, again fuelling the strategy debate with a new approach contrary to Porter's positioning approach.

Treacy & Wiersema made this concept practical by introducing the customer value proposition.  A company cannot be all things to all customers.  It is sufficient to excel at one set of customer value attributes, and to maintain at least benchmark standards on the others when selecting a customer value proposition of either operational excellence, customer intimacy, or product / service excellence.

To our minds, the biggest impact on strategy of late is Kaplan and Norton's Balanced Scorecard which was introduced in the late 90's and further developed since then.  For the first time, objectives that must be achieved to execute strategy is balanced over four perspectives - financial, customer, internal processes, and learning and growth.  It determines how customer satisfaction supports sales, determines how internal process improvement yield increased customer satisfaction, and how human capital, organisational capital and organisational capital support all of the aforegoing in the longer term.

In their later developments, Kaplan and Norton introduced competitive strategy into its Balanced Scorecard.  A key component of the Customer Perspective now consists of actual customer satisfaction with the customer value proposition.

Of further significance is that the Balanced Scorecard makes strategy implementation friendly by virtue of vision, mission and customer value proposition being translated into strategic objectives, measures and targets.


 

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