What Is Strategy?

Today we’re going to come back to what strategy is and is not. Its important to know because people can get confused and this doesn’t help especially in the communication to those impacted by change. Here’s an interesting article in the Harvard Business Review called “Many Strategies Fail Because They’re Not Actually Strategies”.

Michael Porter, the celebrated professor of economics and business strategy at Harvard states that strategy is:

“defining a company’s position, making trade-offs, and forging a fit among activities. Strategy is about sustaining a unique competitive position, which serves to produce above average profits over time”

Strategy is not operational effectiveness

Strategy is not the same as operational effectiveness and in his ground breaking article “What is strategy?” , Michael Porter shows examples of how Japan lead the way in Total Quality Management and Continuous Improvement. In my own experience there is much focus on methods such as Agile, Lean and Kanban as ways of improving productivity and which impact cost and speed of delivery. But these in themselves are not strategies. Strategy does involve developing uniqueness and being aware of what’s critical for success with your chosen demographic(s). It’s about focusing on developing that uniqueness in a way that differentiates you from the competition. It offers your demographic a viable choice.

In order to truly have a strategy one must understand the overall market place and which particular demographics are over or under served. It involves then understanding the competition and then differentiating one’s self from the competition in a way that is difficult to copy. Coca Cola is a great example of a company that is difficult to copy. Their uniqueness is based on the taste of the product. See the wikipedia article “The Coca-Cola Company’s formula for Coca-Cola syrup, which bottlers combine with carbonated water to create the company’s flagship cola soft drink, is a closely guarded trade secret.”

Pharmaceutical companies develop new products and they remain unique for the life time of a patent which is typically 20 years. Once the patent has elapsed the active ingredient is copied and made generic such as Ibuprofen or Paracetamol. Profits tumble once the patent has elapsed and the uniqueness is lost. Astra Zeneca are a prime example of a company that were once hugely successful but lost there way when their pipeline of viable products reduced, and the big sellers became generic such as Symbicort.

When a company identifies how it wants to differentiate itself it needs to understand which capabilities underpin this uniqueness. The grouping of these capabilities is where the effort needs to be continually focused in order to retain competitive advantage. Business leaders need to be prepared to make trade off’s in order to maintain uniqueness. For instance, being the best in class may come a cost which erodes competitive advantage

Feel free to complete our free business model assessment if you want an insight into how you’re managing your business strategy

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