Strategy, according to the definition in Wikipedia is a plan of action designed to achieve a particular goal. Merriam-Webster has five definitions of “strategy” of which three use the word “strategem” as part of the explanation !
My definition of strategy is three simple words. Future Competitive Advantage.
It is what an individual or a firm needs to do to ensure they have an advantage versus their competition in the future.
This definition breaks down strategy development into three simple steps.
1. Future: Paint future landscape or scenarios deciding on time horizon and key variables.
a) Time: The first decision is how much in the future should we plan for? My recommendation is no less than three years (next year or two are usually already decided in most businesses) and no more than five years out (the world is changing too fast to project any further).
b) Key variables : These often include people (demographic changes, expectations of consumers etc.), technology ( for instance cloud based computing, the rise of big data), macro economic shifts (indebted government, the rise of Asia), and customer/client changes ( new needs, new customers, new metrics)
2. Competition: Who will be your competitors in the future ? It is here that most firms make mistakes because they fixate on current competitor or current customer/consumer needs. In a world of digital leakage competitors come from anywhere. For instance, the iPhone not only devastated Nokia but also impacted Nintendo hand held games, Garmin (with Google maps on an iPhone does one need separate navigation), Nikon (the new iPhones have 8 megapixels) and even Apple’s own iPod whose sales declined as the new phones had a built in music player.
In addition to digital leakage, a key variable are the new needs of existing customers or those of customers that may be in adjoining categories or to small for you to bother about today. Often these “fringe” players will change your industry. Remember Google began by focussing on small businesses that either did not advertise or used yellow pages and direct mail ! This idea of being disrupted by new competitors or new needs is pointed out in the seminal work by Christensen called the Innovators Dilemma.
3. Advantage: After a company has a picture of potential future customers, and possible competitors, comes the hardest step. What does a firm have to do to ensure an advantage in such a landscape?
The difficulty arises here because a firm must decide which customer needs it will deliver and which competitors it plans to battle with. The power of a strategy is what a firm decides to focus on (and therefore what deliverables and capabilities it will give up to a partner or exit from ). This focus is key for strategy because
a) core competency is critical for both speed, scale and expertise advantage
b) no single company can do it all as client needs and competitors fragment
c) collaboration is key in a networked and fast moving age but collaborating cannot happen between firms that are a melange of mediocrity spread across lots of skills, but rather linkages between well honed world class firms.
From Strategy to Implementation
Strategy by itself is pretty useless. It is an idea, an outline, an approach, but only the beginning. TS Eliot, the poet, wrote between the “idea and the reality falls the shadow”.
For a strategy to really deliver future competitive advantage it will have to be implemented . The two biggest challenges for firms as they seek to deliver on a strategy are to a) address their organizational design (usually successful companies have processes and products optimized for existing clients and businesses) and talent ( critical to attract new types, training existing players in new skills and build out new incentives ) .
Strategy has a better chance of becoming reality if we keep in mind that the future does not fit in the containers or the mindsets of the past. ’‘