What is Strategy?

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In my line of business, I get to meet a lot of entrepreneurs. I like to ask, “What’s your strategy?” The responses are often similar. “We are building a B2B platform app. It would connect thousands of Ghanaian businesses to a ready market.” This answer isn’t a strategy at all. It tells me what the product would do. However, it doesn't tell me what strategy the business has adopted.

I was once speaking to an old friend who had just started a new business. The product was compelling and at first-sight looked very promising. As we spoke, he explained to me what his strategy was. "Keep working hard and be hopeful your ‘hustle’ pays off." As logical and inspiring as this sounds, it is not a strategy. Surely, hard work is necessary in building any successful business. So are hope and positive thinking. However, as Lynda Applegate once put it in a class I took, “Hope is not a strategy.” Being hardworking and optimistic is not quite enough to pass as a strategy.

A good strategist understands that resources are limited. Thus, the strategy must include a set of actions that maximize the impact of available resources.

What, then, is strategy? The English borrowed the term from the Greek word stratēgia. It means ‘art of the general and/or troop leader.’ A skilled army general does not go into battle relying solely on the skill of his men. The general creates a plan of how he and his men would win the battle before them. But not all plans are strategies. For a plan to qualify as a good strategy it must state the goals and required actions while considering the resources available. A good strategist understands that resources are limited. Thus, the strategy must include a set of actions that amplify the impact of available resources. This thinking holds true in business strategy also. Ask yourself, “Does my strategy have a clearly defined set of actions?” If it does, you are on the right path. Otherwise, I recommend you re-evaluate.

Strategy wouldn’t be hard work if that’s all it entailed. Indeed, strategy creation and execution are some of the ‘hardest’ tasks of management practice. Execution being the more wicked of the two. An action plan alone does not guarantee an effective strategy. Where strategy gets tricky in business is that the set of actions you engage in should set you apart from your competitors. That’s what makes a business strategy effective. At the core of business strategy is the concept of being different from rivals. Michael Porter, a world-renowned business strategist, defines strategy as ‘the creation of a unique and valuable position, involving a different set of activities’. Being different alone is not a good strategy if it doesn’t create value (for both your company and clients). Hence, an effective strategy makes you different in a way that enables you to create and capture greater value.

“How can I set myself apart from competitors in a way that would be profitable?” Strategy answers this question. It involves positioning yourself differently from the crowd. 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,” says Michael Porter. Strategic businesses identify activities they can perform exceptionally well, in comparison to or different from their competitors.

One of the biggest causes of downfalls in many businesses is a failure to choose a target market. The idea that you can create a business that would serve everyone is wrong. As a business, you want to position yourself in a segment of the market that you can be efficient at serving.

That being said, strategy should not be confused with operational effectiveness (OE). OE simply means performing similar activities better than competitors. These may include performing the same tasks better than competitors or having fewer defects in products. OE refers to all that a company does to make better use of the resources it has available. That is, using the same amount of resources to produce more than your competitors. OE is necessary but falls short in the long-run.

OE improves the existing value-creation process and allows a firm to capture more value. It improves; it does not create new value. And this inherent lack of value creation reduces OE’s sustainability as a means of staying ahead of the competition. Competitors can learn your principles and copy your OE processes in the long-run. They can purchase the same or similar technology to those that make you better. And lastly, they can simply recruit members of your team.  Unlike OE, the ultimate goal of business strategy is to create an advantage difficult to duplicate by rivals. We call this competitive advantage. While OE involves performing similar activities better, strategy deals with performing different activities from rivals or similar activities in a different way; A way that is difficult for competitors to copy.

Strategy is what separates superior businesses from average ones.

 
Richard BempongComment