Strategy: A catchall term or the Art of the general?

Strategy has become a catchall term. Business magazines and youtube channels now feature content devoted to strategy, typically discussing how organisations are dealing with issues like customer service, branding, or e-commerce. In turn, managers talk about their customer acquisition strategy, or their branding strategy or whatever kind of strategy is on their minds at a particular moment. Managers then relay these strategic ideas or thoughts, internally to their organisations believing that these will help solve real strategic issues or will help solve challenges.

“When we call everything strategy, and end up with a collection of strategies, they create confusion and undermine their own credibility”- Hambrick and Fredrickson.

So, what entails strategy, and what does it not mean?

A strategy is made up of an integrated set of choices. For example, GE’s mission of being number1 or number2 in all its markets drives its strategy, but is not strategy itself. Nor would any revenue goal or earning target be part of a strategy. Addressing the above are important, but it doesn’t make up strategy itself. Checking off the important things in an organised manner also does not become strategy. Essentially, strategy design is not a simple, linear process. Infact, great strategies are iterative, loop processes. The key is not to just follow a sequential process, but to rather re/organise elements of the strategy itself in an iterative fashion.

If a business must have a strategy, then the strategy itself must have subsequent parts.

Hambrick and Fredrickson’s Strategy Diamond framework is an easy to understand process of how different elements of a strategy fit together.

This pronged framework has been the cornerstone of strategy formation

The diamond framework looks at five elements:

1. Arenas (areas of the play, where will we be active?)
2. Differentiators (how will we win?)
3. Vehicles (channels, how will we get there?)
4. Staging (speed and sequencing)
5. Combined together by the need for Economic Logic

Let’s start with the first one.

Arenas: This is by far the most fundamental choice that executives need to make. Essentially, it answers questions of Where, or in what arenas, will the business focus? Where will we be active, with emphasis and priority? Which product categories will we play in? In which market segments will we play with these product categories- defined by geographic and demographic boundaries, and at which value-creation stages will we play?

Here, the challenge is to be as specific as possible. This blueprint will affect how you problem-solve across the function of priority. Important to note is that while you may define some market segments as centrally important, and others are deemed secondary, your emphasis on either will follow the overarching definition you started with. Your strategy might consist of a portfolio approach, but can reasonably be centred on one product category, while others might be necessary for building MOATs or for defensive purposes like restricting entry barriers or improving the portfolio suite, but your primary arena must always demand more importance.

Vehicles: Once you have your eyes set on the Arena, you might want to think about ‘how to get there’. Vehicles or drivers or channels of your strategy should be deliberately mulled over. Are you going to get that PMF (product market fit) by paid media channels or do you want to take an organic, slow but credible brand discovery route? Do you want to use NPD (New Product Development) route as a tactic or would you consider strengthening existing product portfolio for better sales outcome?

What this means is that choice of vehicles greatly depends on the choice of Arena, and selection of the right vehicles should not be an afterthought. If you use vehicles on an adhoc basis, ignoring the coherence that your strategy requires, it will most likely fail.

Differentiators: In a competitive world, winning is an outcome of differentiation. This requires conscious choices to be made about which weapons to use, which skills to honed, which competitive advantages to use in the fight for users, revenues, and market share. For eg, Gillette develops superior razor blades, which the company further differentiates through path breaking advertisements and brand image. Goldman Sachs, the investment bank, provides unmatched service by forging close customer-relationships as compared to their competition. Sometimes having the best combination of differentiators can be a stronger advantage than having one or two standout differentiators assuming that developing each incremental strength will require time and resources to master.

Take Honda as an example. There are many cars better priced than Honda, better designed than honda and that provide better utlity than Honda, but many buyers (including myself) believe that Honda provides the best value-price for a car.

Staging: After the critical choices of arenas, vehicles, and differentiators, let’s talk about Staging- this might rightly be called the substance of a strategy. In a nutshell, it is about the speed and sequence of your moves in the game.

Despite speed and cadence being valuable, it is worthwhile to note that you must not substitute accuracy for urgency. While the pursuit of early wins feels empowering, it may be far wiser to fully tackle a part of the strategy that is relatively controllable before attempting more challenging moves.

Economic logic: At the heart of your strategy, there must be a clear idea of how profits will be generated. It is only necessary to start from a place of consumer truth, and it is only fair to believe that unless there’s a compelling reason for your product or service to sell successfully, customers and competitors won’t let easy success come to you. While it may seem optimistic to generate a long list of reasons why customers will love your brand, and how they will find you online and line up to pay high prices for your product, along with a long list of reasons why you will have a cost advantage over your competitors, please know that this is just wishful thinking. You will need to take account of harsh realities, view your solution from the consumer’s lens and revise your economic logics. From the many reasons why things won’t work, most important to note are 1) If your solution does not change the status-quo of your consumer, the shift to your product will never happen 2) Incremental change in status quo will likely go unnoticed.

So, the economic logic including financial forecast and sales predictions must be based on tests, and iterating your strategy basis results should be the most sensible approach.

Hope you liked reading about the elements of Strategy. Please comment below to share your views on something that stood out for you, or if you’d want to read more on the topic of Strategy.