Related Terms: Business Planning
"Strategy" is a somewhat over-used word to indicate a general plan or an approach to doing just about anything—so that one reads about strategies for winning in poker, finding the right woman or man, shaping a business, or preparing prize animals for an exhibition. The word came to be adopted from military usage after World War II. Etymologically the word comes from the Greek stratos, meaning army, and more narrowly from strategos, meaning a general. Thus it derives from "generalship" or, more precisely, a general's battle plan. It is normally coupled with the word "tactics," which comes from the Greek for "arranging things." The general formulated his plan and lesser officers then "arranged things" so that the plan would work out in detail. "Strategy" thus sounds both more martial and exalted than the ho-hum word "planning"—which, in addition, carries a faint reminder of socialist economics. Strategy has therefore, as it were, invaded business discourse and spread from broad concepts of corporate planning to such matters as marketing, advertising, human resources, accounts receivable collections and on to every specialty of business, suggesting that everyone is now a strategic thinker, not just the person at the top.
When the word is appropriately used, a strategy is a broad and general approach to an enterprise in which certain structural elements are determined in advance and courses of action have been selected from among others by preference in order to differentiate this enterprise from others in light of the environment as it is perceived to be and the anticipated action of opponents in particular.
A strategy is thus characterized by choices and decisions concerning future action at a level of generality which permits flexible implementation within the broad outline that the strategy presents. A strategy is more specific than a policy but more general than a plan yet has aspects of both.
A classical example of corporate strategy was that developed by Alfred P. Sloan for General Motors after he became its president in 1923. Sloan introduced annual styling changes, thus launching planned obsolescence as a motivator for replacing the car, and organized the different car lines based on pricing, with Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac each positioned in a unique price range and not competing with each other. The strategy worked very well for its time and consequently has led to widespread imitation. But it was a high-cost strategy in that it imposed significant, expensive redesign and reengineering annually—and is now followed only with token symbolic gestures. Another strategy, the basic platform on which multiple models can be built, has gradually taken over—and the competition now is between categories: sedans, SUVs, and pickups.
It is worth noting that strategies in business (as also in war) frequently evolve from circumstances; the significance of the circumstances is then consciously noted and formalized. Thus, for instance, 7-Eleven, credited with pioneering the convenience store, began in 1927 as an ice cream company that started selling bread, milk, and eggs at its ice docks to customers. It was called The Southland Corporation then and did not adopt its current name until 1946, choosing the name then because its stores were open from 7 a.m. to 11 p.m. These days, of course, 7-Eleven is open 24 hours a day and seven days a week—but has not chosen to rename itself to fits its new strategy of delivering convenience 24-Seven.
It is conventional management wisdom to say that businesses must have a strategy in order to succeed. It is closer to the truth to say that all businesses by definition have a strategy; it may be consciously realized or not, formally rendered or not. The manner in which a company is organized and run is the expression of its strategy. The difference between two companies is that in one the strategy may be well known by all and operating as a set of conscious guiding principles; in the other it may be unconscious or simply perceived as "the way we do things around here." Consciously formulated strategies are superior to "traditional" approaches only if the planning is insightful, well done, and adapted to the circumstances. The business owner with a good smell for the market, a good sense of his or her customers, and a history of good "seat of the pants" judgment will outperform another business no matter how formal the strategizing of its owners—if they do not have the touch. For these reasons "strategy" is not a cure-all for a business in trouble, large or small, but a technique of discovering solutions and setting a course.
Strategy formulation as a discipline—meaning as a special kind of business activity—is much more common in large corporations than in small business. In small business the same activity takes place but tends to be less formal, more adaptive, and more the product of one or two individuals in the company's leadership. In the big corporations strategy development flows in two directions. From the top will come a general sense of direction and emphasis: "We are a marketing company." "We are a technology company." "We are bottom-line oriented." Operating elements within the company then respond to this general message in annual plans in which each division or element responds with a plan of which the top few paragraphs are a strategic statement further elaborated into specific action initiatives in the body. This general approach arises from the very complexity of large organizations serving many diverse markets with dozens or hundreds of products or services—each of which requires different adaptations. In a company principally interested in short-term returns, for instance, individual strategies reliant on capital investments over longer periods will fare more poorly than highly leveraged approaches. In a technology company dominated by an engineering mindset, very exciting ("sexy") marketing concepts may be sidelined because they lack technical sophistication. In well-run large corporations, top management will make the effort to formulate different broad strategies for lower elements based on realities in the market and not permit vague, broad, but restrictive concepts to preempt appropriate responses. Such a stance, of course, requires high-level executives who actually understand a business rather than shining in some specialty like finance or marketing.
In a small business the formulation of strategy is typically closer to the market simply because the principals are engaged in the business itself at the point where, proverbially put, the rubber meets the road: where the business interfaces with the customer. Most small businesses owe their origin to the perception of what is, in actually, a strategic opportunity. The very idea of the business expresses the strategy: "I swear I've driven fifty miles this afternoon and I still can't find a decent art supply store anywhere." "What this town needs is a [fill in the blank]" has launched many a business. So have two unrelated objects that, for a brilliant moment, combine in the mind of an entrepreneur—and a new product is born.
In his book, My Years at General Motors, Sloan spoke about "the concept of the organization." Behind every small business there is a concept of the organization—a complex perception of needs and of responses to that need. That concept, in effect, is the strategy of the business. It is equivalent to the theme of a novel or of a non-fiction work: it is the organizing idea behind it which often escapes analysis—the entrepreneurial insight. It might be argued that, in its absence, strategies will tend to be pretty much the same and quite conventional. Robert Kennedy, writing in the Journal of Industrial Economics on "strategy fads" made this point by analyzing prime-time television programs—showing that, despite a great deal of strategizing, networks produce lackluster imitations. These findings are echoed in a broader context by Cass Sunstein of the University of Chicago in a paper tided Conformity and Dissent.
Analysis applied to strategy decomposes the concept into its visible inputs. These are the needs of the market, products that can meet the need, their differentiation from competing products, alternative means of production and of reaching the market, different messages to reach the consumer, the positioning of products to reach the best segments, pricing and incentives, and much more. There is little doubt that intense examination of the market is desirable—as is the consideration of alternative approaches. But what makes a winning strategy is that secret ingredient the entrepreneurial mind adds after everyone has left for home.
Colley, John L, Jacqueline L. Doyle, and Robert D. Hardie. Corporate Strategy. McGraw-Hill, 2002.
Grant, Robert M. Contemporary Strategy Analysis. Blackwell Publishing, 2002.
Kennedy, Robert E. "Strategy Fads and Competitive Convergence: An Empirical Test for Herd Behavior in Prime-Time Television Programming." Journal of Industrial Economics. March 2002.
Lake, Neville. The Strategic Planning Workbook. Second Edition. Kogan Page, 2006.
Mourdoukoutas, Panos. Business Strategy in a Semiglobal Economy. M.E. Sharpe, 2006.
Navarro, Peter. "Sustainable Strategies for a World of Economic Shocks." Financial Executive. April 2006.
Pettigrew Andrew M., Howard Thomas, and Richard Whittington eds. Handbook of Strategy and Management. Sage, 2002.
Schmetterer, Bob. Leap: A Revolution in Creative Business Strategy. John Wiley & Sons, 2003.
Sloan, Alfred P. My Years with General Motors. Currency, 1990.
Sunstein, Cass R. Conformity and Dissent. University of Chicago. 30 October 2002. Available from http://www.law.uchicago.edu/academics/publiclaw/resources/34.crs.conformity.pdf. Retrieved on 31 May 2006.