If this is your definition of Strategy, you might be getting it wrong!

Hello reader,

Thanks for tuning in! Hope your coffee is brewing, because we’re kicking off an interesting discussion today. We’ve all been in meetings where we’ve been told about “strategic” steps and decisions. I’m sure some you’ve understood and some you still can’t wrap your head around. While not all “strategic” decisions are “strategic”, understanding this concept can really make you an active participant and contributor towards discussions and decisions that shape the future.

As we venture together into the interestingly misunderstood world of strategy, my ask is for you to keep your ideas and mind open. Every sentence, every rule of strategy should force you to think of an example from real life, your life. Think about how certain rules were applied to key decisions in your life and organization. Ask yourself, were these the best rules to apply? Was there something missing? Maybe a new perspective? How can you bring that?

What is not strategy?

Were you ever in a meeting that asked you to focus on a near term benefit, not considering the long-term impacts/implications of these near-term actions? For instance, offering short term discounts to customers. These decisions might certainly be useful, but they’re very likely not strategic. They might be Tactical decisions. Strategic decisions comprise of well-timed and structured series of tactical decisions.

Or, were you ever asked to look at what your competitors are doing and then replicate their actions/plans faster/more effectively? For instance, offering customers options to avail discounts through coupons, online code, referrals etc. when your competitors are only sharing store vouchers. These again might lead to limited benefits but they’re not strategic decisions either. These might be ideas to improve operational effectiveness. Operational effectiveness will allow short term benefits because they are easily imitable by competition and hence do not provide sustained advantage. Strategic decisions lead to operational effectiveness, but they’re not operational effectiveness alone.

Now that we’ve talked about some common terms that are often misunderstood as strategy, let’s talk about what it really means. ?

What is strategy?

Michael E. Porter is a name that you should remember when we talk about strategy because in my opinion, he’s given us the most appropriate and relevant definition of strategy. In his paper called “What is strategy?”, Porter helps readers understand strategy and the various aspects that help organizations make a successful strategy. According to Porter, Strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company. It means performing different activities from rivals, or performing similar activities in different ways.

Strategic positioning is based on some key elements:

a. Creation of a unique and valuable position, involving a different set of activities:

1. Serving few needs of many customers or variety-based positioning which is based on the choice of products or service varieties rather than customer segments (e.g., Nvidia only focuses on GPU and hasn’t expanded since they invented it in 1999)
2. Serving broad needs of few customers or need-based positioning which targets a segment of customers. This is a more conventional approach of thinking about strategic positioning (e.g., Luxury fashion brands such as Gucci, Givenchy etc. vs more economic fashion brands such as Westside) ?
3. Serving broad needs of many customers in a narrow market or access-based positioning targets a segment of customers who are accessible in different ways. ?This approach is less common and less well understood. (e.g., Carmike cinemas offer services only in towns with less than 200,000 population. With a lean cost structure and personalised marketing, Carmike is able to generate profits in such small communities)

b. Strategy requires you to make trade-offs in competing – to choose what not to do

c.?Strategy involves creating “fit” among a company’s activities. Fit can allow a simple consistency across different activities in terms of a shared goals/overall strategy (Differentiation, Cost leadership etc.); a set of activities which reinforce each other or create an optimization of effort.

Put it simply, when strategies are utilized, organizations create a unique and complex framework of activities and actions that enforce each other to ensure value generation, like an ecosystem. The probability that competitors can match any of these activities is often <1. The probabilities then quickly compound to make matching the entire system highly unlikely, offering organizations an inimitable framework.

A meticulous combination of these elements offers an organization competitive advantage over its peers in the industry. A firm is said to have competitive advantage when it is able to deliver superior performance on a parameter of its choice, based on a thorough industry analysis, compared to its competitors.

Example

Let’s pick the Southwest vs Continental lite example to explain this better. Southwest airlines is a great example of successful strategy creation, implementation and execution. It focused its entire operations to offer short-haul, low-cost, point-to-point service between midsize cities and secondary airports in large cities. They offered frequent departures and low fares which attracted price sensitive customers who would otherwise travel by buses/cars, and convenience-oriented travelers who would choose full-service airlines on other routes. In doing so, Southwest made some trade-offs to save cost and time, by not serving meals or offering assigned seats or interline baggage checking and not offering premium services. But their focus on price and convenience sensitive customers has allowed Southwest a lot of success.

When Continental saw how well Southwest was doing, it decided to imitate the Southwest model while maintaining its position as a full-service airline. They dubbed the new services as “Continental Lite”. While doing so, they tried to avoid trade-offs and invest in all services leading to delayed flights, congested baggage transfers, cancellations. They also ended up struggling with other aspects like travel agent commissions, which are more beneficial with full services but not Continental lite, and frequent-flier benefits, which the organization couldn’t afford with low price fliers. The airlines made alterations to keep the business intact but ended up with angry travel agents and customers. Eventually, it had to ground the Continental lite idea with hundreds of millions of dollars lost and the CEO losing his job.?

This case study offers a great example to highlight the importance of strategy and emphasizes on how every aspect of strategic positioning is important while making decisions.

I think this is a good start to our journey of understanding strategy. I’ll leave you today with a few questions to consider every time you hear the word “strategy” to understand if its really strategy:

• Is it oriented for long term application and implication?
• Does it focus on big picture?
• Does it offer a significant cross-functional implication?
• Does it involve significant commitment of resources?
• Is it not easily reversible?
• Does it clearly define a conscious choice of what to do and what not to do?

If the answer to most/all of these questions is a resounding “Yes”, you have yourself a good example of strategic choices to learn from. I’ll also mention here that what I’ve shared above only offers a summary of what this comprehensive paper offers. If you’re truly interested in strategy, I would recommend you to read the entire paper.

I hope you’re already thinking about examples from your life where “strategic” decisions were made. Next time we dwell deeper into what makes a successful strategy.?