The role of strategy in business
There’s a lot of confusion about what strategy is and what it isn’t, so how can you tell if you have an effective and sustainable strategy? I look into the definition of Corporate Strategy and collect a few best practices on how to work with it in the organization.
What is strategy?
Strategy is a word that gets mentioned a lot in business, but what exactly is a strategy? And how do you make it competitive? What principles should it be based on? Is it possible to make it sustainable in the long-run? These are basic questions, but in essence, they make up what management is all about.
There is not a definitive answer as to what strategy is, because everyone has their own opinion. In my opinion, strategy is how a company can work with achieving its goals. View it as a ship sailing towards a destination. You know your destination (your goals) and strategy is how we navigate to get there. It is how we use our resources in the most efficient way to establish a favorable position in the market. Excellent strategic decisions get you where you want to be.
Furthermore, strategy can happen in very different parts of the organization. As I am addressing here, Corporate Strategy works with how the business as a whole achieves its goals, but it can also happen on Business Unit or Team level. The purpose of Business Unit strategy is to compete and win in their own respective markets, while individual team strategy can make its contribution to the overall goals and objectives. In working with strategy in our own organization, make sure to consider which of these levels you are operating within.
Strategy is about being uniquely different
A lot of people seem to be confused about how we should work with strategy in practice. It comes down to our way of thinking. It is very natural for us to look towards the competitors in the marketplace and ask ourselves: How can we be the best in this industry?
However, as one of the founding fathers of strategy, Michael Porter, argues, there is no one “best” way, when it comes to business competition:
“Strategy is about making choices; it’s about deliberately choosing to be different”
So, it comes down to the needs you are trying to serve. Just think about it: A Mini Cooper might be the better option when sightseeing the narrow streets of Rome, while it is not serving the need of discovering a South American jungle.
Therefore, a main point in casting light on the term, is that we should change our mindset. Instead of thinking about how we can become "the best possible" company, we should think about how we can become "the most unique" company – a company that can offer the market something different. This is where you will create an advantage over your competitors.
Common determiners of great strategy
Most corporate strategies have several elements in common. Here are my recommendations.
Strategy is based on simple yet consistent long-term goals
Growing your business will require a set of long-term goals, which are normally made out of a number of short-term goals. Make sure to identify which parts of the business that need to have ambitious, long-term goals, whether it is revenue, customer service or employee engagement goals.
Strategy is defined through a deep analysis of the competitive environment
The company’s internal and external environment is more unpredictable than ever, which means that proper analysis – such as strategic positioning, competitor analysis or analytical reasoning - is a key foundation in every good strategy. A few tools to consider:
SWOT: An analysis that recognizes internal company strengths and weaknesses as well as opportunities and threats in the external environment.
Porter’s 5 Forces: A framework for analyzing industry profitability based on the factor of rivalry amongst competitors.
PESTEL: A tool that gives you a broad understanding of external factors in the company’s environment, such as sociocultural, technological, political, economical etc.
Strategy effectively considers and exploits the organization’s resources and capabilities
Resources (the productive assets owned by the company) and capabilities (what the company can do) are what makes some companies more successful than others. The VRIO-model is a useful tool that allows us to recognize the internal resources of the organization and understand, whether they generate a competitive advantage or not.
The people in charge of achieving these goals are very determined leaders with strong decision-making capabilities
Remember to consider human capital and invest broadly in leadership competencies. Having a single great leader will make you fragile, as they can leave the organization. It is the way you design the combination of leaders that give you the strategic leaver.
I hope these recommendations found you well, and that they can help you in your work with strategy. Let me know down in the comment section.