“Strategy is the creation of a unique and valuable position, involving a different set of activities (from competitors).”
– Michael E. Porter, Harvard Business School Professor and Master Strategist
“A pattern of activities that seek to achieve the objectives of the organization and adapt its scope, resources and operations to environmental changes in the long term.”
– Peter F. Drucker, Claremont Graduate School Author, Professor and Master Strategist
“Strategy is a mixture of policy and action designed to surmount a crucial challenge.”
– Richard P. Rumelt, UCLA Professor Emeritus and Master Strategist
“Strategy is not a lengthy action plan. It is the evolution of a central idea through continually changing circumstances.”
– Jack Welch, Former CEO of General Electric and Master Strategist
So, Who's Right?
Four master strategists, three of them professors. Are they all saying something different?
Is strategy something that, like Jack Welch said, “Is something that belongs in the classroom at an MBA program?” Research suggests that strategy originated indirectly from the Classic and Byzantine (330 A.D.) Greece. Although Greeks never used the term strategy, modern thinking indicates that “strategic” has its roots in the military, war, long-range aircraft and missiles, while “tactical” refers to shorter-range aircraft and missiles.
I turned my attention to strategy because this was my focus recently with a client competing in a mature industry with significant competition and little power over buyers and suppliers. A relatively new competitor emerged that has grown faster and more efficiently than my client in their primary market.
Meanwhile, there are many other competitors (or solutions) in their other markets. I say “solutions” because sometimes the solution is to do nothing at all – meaning the “inertia” of the prospect to buy anything is your primary competitor.
Over two days of strategic thinking and discussions offsite from the usual hubbub of the office and virtual meetings on video cameras, there was good debate over what was most important to discuss. Were the operational challenges holding the company back or the lack of market awareness of their customer and competition in the divergent markets they sell into?
Richard Rumelt's book Good Strategy Bad Strategy: The Difference and Why It Matters, was the backdrop (reading material all ten members of the leadership team read to prepare for these two days). The book's central tenet in the author's words are:
“A good strategy has an essential logical structure that I call the kernel. The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action. The guiding policy specifies the approach to dealing with the obstacles called out in the diagnosis. It is like a signpost, marking the direction forward but not defining the details of the trip. Coherent actions are feasible coordinated policies, resource commitments, and actions designed to carry out the guiding policy.”
Strategy starts with an outward-facing approach. There is an excellent example of the outward-facing approach in Rumelt's latest book, The Crux, where he outlines the “gnarly” challenges facing Netflix in developing its strategy due to the many and varied external opportunities and threats in its business environment.
Here are key questions we all need to ask periodically:
- What does the landscape (market) look like?
- Who are the foes (competitors)?
- What is the desired outcome (the goal)?
- …and NO, this is not a financial number or target but a purpose-driven objective.
- What are our capabilities (more specifically, our core competencies)?
- What does the market (our core customer) want? I mean really want.
Once the team is aligned around these elements, then the operational activities (tactics) can be stacked up to accomplish your objective by deploying your strategy.
If the team cannot align around these elements OR thinks the outward-facing approach is ignoring “the obstacles called out in the diagnosis,” then another approach is required. So, who's right? Rumelt, Porter, Drucker or Welch???
Drop me an email with your opinion on the subject for future discussion.
The Crux
In his latest book, The Crux, grandmaster strategist and author of Build a Strategy that Addresses Your Gnarliest Challenges, Richard Rumelt writes, “Two key elements in stock-market value creation for an existing company are strategy effectiveness and extension.”
Rumel goes on to explain, “Strategic effectiveness in a business is the combination of the unique value you are able to create and how strongly that position resists competitive erosion and imitation. Creating value means being able to provide products and services that buyers value more highly than it costs to make them. A good measure of value is the value gap – the difference between what a buyer is willing to pay and your cost of provision.
The measure of unique value is the amount by which your value gap exceeds those of your competitors. A company increases its unique value whenever it can either reduce its costs of provision or increase the value to buyers of its services or products. Strategic extension is the act of taking your unique value system and extending it to cover more buyers or similar products, or both.”
Watch this video for a visual explanation of the above concept:
What is Strategy? It's a Lot Simpler Than You Think To many people, strategy is a total mystery. But it's really not complicated, says Harvard Business School's Felix Oberholzer-Gee.
A Few Favorite Videos on Strategy
How to Improve Strategic Thinking with Author Simon Sinek (1:51)
Understanding the Job of a Milkshake with Harvard Business School Professor Clayton Christensen (4:56)
Jack Welch Interview: How Did You Come Up With the Strategy? (watch the entire video for more leadership lessons from Jack) (12:26)