What is Strategy?

My first teaching assignment at SMU (Singapore Management University) was teaching the core strategy course in the DBA (Doctor of Business Administration) program. This was an interesting assignment. Despite a thirty-year teaching career, I had previously never taught a strategy course.

Of course, over the years, there had been many comments by students of my marketing courses that it was hard to decipher the difference between strategy and marketing as taught by me. Perhaps teaching a formal strategy course was revenge for having held the job at Tata of being responsible for group strategy after a career as a marketing professor.

The fundamental question in the core course is: what is strategy? Of course, the easy and somewhat glib answer is that strategy is about making choices. The outcome of these choices is that organizational resources are deployed in the future in a pre-defined manner, in contrast to some other pattern, opportunistically, or randomly.

Strategy of choice leads to many insights including that making stark choices is inherently hard for most people. A priori, reasonable people can, and often do, disagree about the appropriate strategy. Building and obtaining consensus among decision makers about the choices is a crucial and integral process of strategy making. And, as new information comes in, any strategy must be flexible to stay relevant.

On the other hand, post hoc, second guessing any strategy is easy. It is not results that reveal the soundness of any given strategy. Rather, given the information available at the time of strategy making, could those formulating the strategy have done a better job is the appropriate evaluation. In my experience, this concept that is most challenging for people to intellectually grasp. Managers are fundamentally hard wired to judge success of people and strategies by results only.

‘What is strategy?’ has been addressed by many academics before me, and therefore, nothing in this post is new. My hope is to just reiterate the fundamentals for my readers using the course as an excuse. I had assigned, among others, four articles that I saw crucial for the students of strategy to reflect upon.

Strategy as Position 

The first article was by Michael Porter appropriately called “What is Strategy?” It is a classic from 1996. In Porter’s view, strategy is selecting a position in the industry and then ensuring that all organizational activities are aligned to reinforcing that position. For Porter, the two basic positions available are to be a differentiated player in the industry or a low-cost provider. This fundamental choice then drives the appropriate activities for the firm to engage in to achieve what he calls “fit”.

Generally, there are only one or two successful low-cost players in the industry at any given time as the winner of this race is the firm with the lowest cost structure. However, there are many differentiated positions in any industry, and more potential ones depending on one’s imagination. To succeed, each differentiated firm serves a different segment with a unique value proposition. Yet, Porter’s article leaves unanswered the question of how does one develop a viable differentiated position?

This leads to the second assigned reading, “Value Innovation” by Kim and Mauborgne from 1997. It is another blockbuster Harvard Business Review article. The article urges firms to compare its value proposition with that of its competitors, and ask the following four basic questions:

1. What attributes does the industry offer to the consumers that can be eliminated?

2. What attributes does the industry offer to the consumers that can be significantly reduced below industry standards?

3. What attributes does the industry offer to the consumers that can be significantly increased above industry standards?

4. What new attributes can be offered to the consumers for the first time in the industry?


By repeatedly asking these four questions, while keeping consumer needs and competitive offerings in sight, one can develop new differentiated positions or deepen existing ones within the industry.

Once a differentiated value proposition is developed for a valued customer segment (as any value proposition will not be attractive to all customers), the appropriate value network can be put in place. Therefore, strategy requires many choices: on valued customer segment to serve (Who?), the attributes and level of attributes to offer in the value proposition (What?), and furthermore, which configuration of activities will comprise the firm’s value network (How?). This is what I summarized as the 3Vs model in my book Marketing as Strategy.

Since, unlike individual consumers, business customers are more rational, in my book, Value Merchants, we developed and presented a methodology for converting and expressing the difference in value offered compared to next best alternative for the customer (competitor) in monetary terms.

The view of “strategy as position” is powerful at the individual business unit level when the firm is competing in a single industry. However, it does not help define strategy for a diversified firm that is competing in several different industries. Perhaps, the firm may occupy what may be low cost positions in some categories, and rather varied differentiated positions in others. How does one describe the firm’s strategy beyond a collection of various business unit level positions? Welcome to my world at the Tata group with almost 100 companies in the portfolio!

Strategy as Plan 

In contrast to strategy as a selected position, the third article by Collis and Rukstad argues viewing strategy as a plan. Unlike the previous two articles, it does not offer a new perspective but is a useful summary of what is followed in many firms. Any firm should specify the following building blocks in a strategic plan:

Mission: Why we exist?

Vision: Where are we going? A dream with a deadline – a measurable goal or goals to be achieved within a defined timeframe

Values: What we believe in with respect to how we behave?

Strategy: How we are going to get there? The choices to achieve our vision, while staying consistent with our mission and values.

Provocatively, Collis and Rukstad challenged that one should be able to summarize the firm’s strategy in hundred words. Imagine, instead of the usual fifty slide PowerPoint deck!

Strategy as Pattern 

The last article was by Mintzberg where he articulated the different perspectives on strategy, including strategy as position and strategy as plan. But, more interestingly, he argued that since we cannot know the strategy that was formulated by others in hindsight, or of a competitor, we observe a pattern of actions, whether intended or not, and then impute a strategy. The distinction is between “intended strategy” that was planned but as some actions in the strategy were not implemented, while other actions not planned were executed, one observes a “realized strategy” that differs, often substantially, from the intended strategy.

Having shared the Collis and Rukstad article with Cyrus Mistry, Chairman of Tata group, early in my tenure, he asked for the 100 word Tata strategy. Having inherited no formal strategy presentations or documents for a 140-year old group, how does one do that? After some reflection, the best I could do was describe the observed pattern of the past in ninety-nine words. But it was my description of the emergent strategy, others may describe it differently.

We pioneer industries new to India, sometimes with a global partner, aspiring to achieve domestic leadership positions.


We only enter and maintain presence in industries where opportunities are:

1. Significant – Minimum xx dollar market cap opportunity

2. Differentiated – Ability to offer unique value proposition to market

3. Profitable – Path to profitable business model exists

4. Competitive – Tata connection brings distinctive advantage

5. Socially Responsible – Allows operations consistent with our values



Once in position of strength, we list the firm to free resources, and/or, if domestically dominant, we secure a global presence via an acquisition. Otherwise, for laggard businesses, we exit via sale or shutdown.



REFERENCES

Anderson, J.C., N.Kumar, & J.A. Narus (2007), Value Merchants: Demonstrating and Documenting Superior Value in Business Markets, Harvard Business School Press.

Collis D. & M. Rukstad (2008), “Can you say what your strategy is?” Harvard Business Review.

Kim, C.W & R. Mauborgne (1997), “Value Innovation: The strategic logic of high growth,” Harvard Business Review, January-February.

Kumar, N. (2004), Marketing as Strategy: Understanding the CEO’s Agenda for Driving Growth and Innovation, Harvard Business School Press.

Mintzberg, H (1987), “The Strategy Concept 1: Five Ps of Strategy,” California Management Review , Fall.

Porter, M (1996), “What is Strategy?” Harvard Business Review, November-December.