Corporate strategy, business strategy, strategic planning, strategic marketing, vision, and mission – quick, can you tell the difference between them. OK, perhaps it’s an unfair question but it seems that many writers and consultants use these words so freely and without adequate explanation that most managers probably feel somewhat foolish for not knowing. In reality, many of these concepts are overlapping.
The word strategy comes from the Greek word ‘strategos’ and refers to the art of the general. In modern business, strategy is about considering the longer term future of the firm in terms of what customers you would like to serve and in what markets(and hence those you do not) and how you would like your firm to look, say in 5 years time. Much of strategy is about being effective, making the right choices and doing the right things. Strategy thinking and concepts have gone through a number of progressions in the last 40 years from what could be called highly programmatic and prescriptive schools of thought to views that see strategy as more organic, intuitive, and iterative. The western view of strategy and strategic planning as a yearly activity that in the past (at least in large corporations) was dominated by strategic planning departments (which have all but disappeared) and decisions made being basically fixed, has been infused with eastern concepts primarily stemming from Japanese management that see strategy as an evolving concept based on the unfolding of events. This view of strategy as being both hard and soft is a view that I believe holds most relevance in dynamic environments.
Strategy in Dynamic Environments
In traditional organizations and theory, strategy has been considered the domain of top management and that their job is to strategize and once developed, sell the strategy and get buy in from the rest of the organizational members. There are problems with this type of approach. Firstly, top management are themselves immersed in the day to day management of the organisation and hence have limited capacity to scan and interpret the market. Secondly, an increasing number of industries are driven by knowledge workers, these highly intelligent and independent workers do not take well to what they perceive as an undue top down influence and control. David Maister (ex Harvard Professor), an expert in working with knowledge intensive firms, suggests that organisations take a bottom up approach to strategy meaning that people at all levels have a major say in the strategy process. Senior managers should act as facilitators to ensure that strategy is being taken seriously.
Strategic Planning, Marketing, and Competitive Advantage
Strategy is part of strategic planning and involves the commitment of firm resources that are not easily reversible and affect the long term future of the firm. This distinguishes something which is strategic to that which is merely tactical (i.e. lowering prices). The traditional view of strategic planning is that a company finds a fit between itself and the environment. In essence, the firm would analyze both its macro and micro environment and based on its objectives and capabilities, develop a strategy and plan to create this fit. The problem with this line of thinking is that strategic planning is often thought of as a one shot affair whereby a firm can take a 2 day retreat, and with follow up, create a strategic plan that remains in place and untouched for a significant length of time. However, we know that competitive advantage erodes over time and what was once a successful strategy may no longer be appropriate. Another issue revolves around the involvement of marketing in the strategic planning process.
Take this example:
A mid sized IT firm based in Singapore generates the vast majority of its revenue from domestic sources. Recently, several of its clients have been expanding their business into China and have asked the firm to provide support locally to its international operations. The firm has done this on an ad hoc basis for a while but as competitive intensity has increased in its domestic market the firm is considering internationalization along with its clients as a viable growth strategy.
The kind of questions that the firm should ask are:
- Who are appropriate partners in China and how can they help us to provide the needed service to our customers?
- Shall we set up an office or develop a network based on independent partners?
- What services will the customer need and could we leverage these into business with other firms in the region?
- What capabilities will we need to develop to sustain this strategy?
There are all good ‘strategic planning’ questions, aren’t they? In my view, they are but they are also essentially marketing questions as they refer to the value created for the customer. Perhaps in some companies the divide between strategic planning and marketing is acceptable (although I can’t really fathom how) but as firms become more knowledge driven it is simply not viable. The professionals live and breathe a plan everyday in their interaction with customers and other stakeholders. In this respect, marketing and strategic planning questions are essentially the same questions as value created for the customer is at the heart of all strategic management and marketing.
At the heart of strategic management and planning is the creation of a competitive advantage. A competitive advantage is basically a set of superior assets and capabilities that allows your firm to provide customer value that your competitors cannot easily match. For example, the Big 4 have networks of offices on a global basis that allows them to provide seamless services to their clients when and where they need it. Coupled with their ability to enforce high levels of consistency and quality control through myriad independent partners provides them a sustainable advantage which is hard to match. These firms have not stood still however, they are continually re-evaluating the value they provide to clients through new services and continued global reach. The idea is that an advantage does not stay an advantage forever as competitors develop new ways of doing business or play catch up with incumbent firms. The concept of sustainable competitive advantage is depicted in the figure below:
Competitive Advantage Cycle
(Source: George S Day (1997) Maintaining the Competitive Edge: Creating and Sustaining Advantages in Dynamic Competitive Environments. In Day, G.S., Reibstein, D.J., and Gunther, R (eds) Wharton on Dynamic Competitive Advantage. Wiley)
A sustainable competitive advantage (SCA) is one that gives you a long term advantage over your competitors and cannot be easily copied. It is based upon the idiosyncratic bundles of resources of the firm (known as the Resource Based View of Strategic Management). These resources are the assets, capabilities, knowledge, and business processes of the firm that are combined in such a manner to create core competencies which are essential to continued operations of the firm. According to George Day, the creation and sustenance of advantages is an iterative process with on going demands for investment dollars and management energy and foresight. It is the intangible resources of the firm that are likely to be the most important and lead to the creation of core competences that are distinctive from competitors and hence the basis for SCA.
In terms of this resource based view of strategic management, firm leaders must consider what competences lead to a SCA and how they can be nurtured and managed for the future. Much knowledge is tacit and hence it is of great importance to codify valuable types of knowledge and imbed these within the processes and structure of the firm. Any organisation will want to consider how the firm learns and accumulates new skills which in turns needs consideration of how incoming work affects the resources of the firm and whether that work is strengthening or weakening the strategic position of the firm.
Conclusion
Strategy is not a one time search for competitive advantage or an annual exercise that is based on a two day retreat facilitated by an outside consultant, it is an ongoing process that realizes positions that are at best temporary and require on going adaptation and innovation. Many traditional strategic management concepts are not applicable to dynamic environments and this article has tried to highlight those that indeed do work in this context and are highly practical. Additionally, strategic management as discussed here is still highly relevant and does contribute to successful performance although defining firm performance is perhaps somewhat more difficult than it sounds. Leaders would do well to take a proactive approach in determining the future of their firm and not rely on external pressures that often force a firm to change when it is already too late.
Strategy & Competitiveness 