What is Strategy?
I recently re-read Michael Porter’s excellent article from HBR by this title. His insights remain as relevant today as when they were penned 18 years ago. He explains strategy in a way that supports how I like to challenge customers to think about it. In this article, Porter eloquently address how a company can stake out competitive differentiation and align all it’s processes to deliver that differentiation.
Porter makes a clear distinction between
- Operational effectiveness: performing similar activities better than rivals, and
- Strategic positioning: performing different activities from a rivals’ or performing similar activities in different ways.
To me, strategy is about differentiating between these to allow focus on strategic positioning. As Porter states, operational effectiveness can be quickly copied through benchmarking and sharing of best practices. This encourages the opposite of differentiation and leads to hyper competition. Through strategic positioning however, an enterprise can stake out differences that, when implemented, are difficult for rivals to copy.
Strategy then must:
- Identify and make explicit what will be different
- Document and communicate those differences in a way that aligns the performance of all enterprise activities
- Ensure progress toward implementing, sustaining and improving the strategy, and to ensure it is delivering results
Let’s look at each of these in a little more detail.
What will be different
The strategy must answer the question not just from the way things are done today, but more importantly, from the way rivals do things or from what has become industry standards. It involves trade-offs that include:
- What will you stop doing or not do
- What will you give less emphasis to
- What will you give more emphasis to
- What will you start doing
These questions must be in the context of who are your target customers and what do they most value. What markets and channels will you target? Will you service focused needs of a large group, or the broader needs of a narrow group? What are the unique needs of these customers? Can you define new positions that woo customers from established competitors or draw new customers into the market? What relative price will they pay? The right answers about customers makes the tradeoff’s easier to identify and allows for greater differentiation and more leveraged complementary activities.
Document, Communicate, Implement
Employees need guidance about how to deepen a strategic position to overcome their tendency to want to broaden or compromise it or emulate rivals. By painting a sharp contrast between Southwest Airlines and Continental Lite, Porter goes to great length to describe how fit among an enterprise’s activities is required to realize strategy. Everyone should understand the company’s uniqueness and the needs of the target group of customers so that they can contribute to strengthening the fit among activities.
To accomplish this, strategy and leadership are inextricably linked. Sharing the strategy through forthright, consistent, continuous communication is critical. One customer I worked with put in place a company wide certification program as an initiative to get out the message. In addition, initiatives and policies must be sponsored at the executive level so that the different way of operating is given the support needed to overcome resistance and get engrained in the enterprise.
Perhaps better explained in the Balanced Score Card, I’ve found embedding the strategy requires making it measurable and assigning accountability. Ensuring progress starts with setting the key objectives of the strategy. This answers the question of what are the long-term results to achieve. These can be stated qualitatively to start, but must be backed up with measures that track progress toward success with nearer-term goals for each. This allows the strategy to be periodically tracked, reviewed and adapted as the enterprise moves forward.
In addition, initiatives and policies that align around the uniqueness need to be defined. These should close gaps between current and needed performance and capabilities. Milestones that start to deliver on the promise of these initiatives should be defined and owned by sponsors who have the allocated resources needed to deliver results.
Objectives, measures, goals and initiatives once set at an enterprise level, must cascade across and down the organization to mutually support each other. Leaders can create forcing mechanisms that make everyone responsible for working toward the strategy by setting team and individual milestones and goals that are tied to compensation, bonuses, and other incentives.
If you have not read What is Strategy? lately, I encourage you to pick it up again and see how Porter’s insights apply to your own enterprise strategy. Let us know how it works for you.