What is Strategy — Rebecca Agent Business Consultant

noun
1. a plan of action designed to achieve a long-term or overall aim.
  "time to develop a coherent economic strategy"
  Similar: master plan, grand design, game plan, plan of action, plan, policy, proposed action, scheme, blueprint, programme, procedure, approach, schedule, tactics, set of tactics"
2. the art of planning and directing overall military operations and movements in a war or battle.
  "he was a genius when it came to military strategy"
  Similar: the art of war, military science, military tactics, generalship

What this is

Strategy is a powerful tool for organisations to achieve their goals. It draws upon various theories such as military theory, management theory, game theory, complexity theory, and systems theory to provide insights into decision-making, competitive dynamics, complexity, and interconnectedness. By incorporating principles from these theories, organisations can develop adaptive, effective and sustainable strategies for businesses of the future.

Military theory traces its origins back to the term "strategy," which comes from the Greek word “stratēgia” meaning "art of troop leader; office of general, command, generalship" (Liddell & Scott, 1940). The concept of strategy emerged in the 6th century C.E. and encompassed various skills such as military tactics, siegecraft, and logistics. Notable military philosophies include The Art of War by Sun Tzu (500 B.C), an influential ancient Chinese military treatise comprising 13 chapters on warfare strategy and tactics. This text has had a significant impact not only on East Asian warfare but has also influenced military theories worldwide. Its principles have found applications beyond the military realm, spanning espionage, culture, politics, business, and sports in the modern world.
Before the 1960s, the concepts of "strategy" and "competition" were rarely discussed in prominent management literature. However, during this decade, modern business strategy began to emerge as a field of study and practice. Alfred Chandler, one of the early academic researchers in business strategy, published a significant paper in 1962 titled "Strategy and Structure." In this paper, he defined strategy as the determination of an enterprise's long-term goals and the actions and resource allocation required to achieve those goals.
In 1980, Michael Porter, an American academic from Harvard Business School, renowned for his theories on economics and business strategy, provided his definition of strategy. He described it as a broad formula outlining how a business will compete, what its goals should be, and the policies necessary to attain those goals (Porter, Competitive Strategy, 1980)
Expanding on his definition in 1996, Porter emphasised the idea of trade-offs in strategy. He asserted that strategy involves making choices and trade-offs, as focusing on one aspect often requires sacrificing another. This deliberate limitation shapes a company's offerings and is a crucial component in establishing its strategic position, which involves performing different activities from competitors or performing similar activities in unique ways. Porter emphasised that strategic positions should have a long-term horizon of a decade or more, rather than being limited to a single planning cycle (Porter, 1996)
In 1998, Henry Mintzberg, a Canadian academic from McGill University, presented an alternative view of strategy. He defined strategy as a pattern observed in a series of decisions, challenging the notion of strategy solely as planned action. Mintzberg outlined five definitions of strategy:
1. Strategy as a plan: A directed course of action designed to achieve specific goals, similar to the concept of strategic planning.
2. Strategy as a pattern: A consistent pattern of past behaviour that reveals a strategy evolving over time, irrespective of initial intentions. If the realised pattern deviates from the intended strategy, it is referred to as emergent.
3. Strategy as a position: Locating brands, products, or companies within the market based on the perception of consumers or other stakeholders. This type of strategy is primarily influenced by external factors.
4. Strategy as a ploy: A specific manoeuvre intended to outsmart or outmanoeuvre competitors.
5. Strategy as a perspective: Executing strategy based on a "theory of the business" or the organisation's mindset and ideological perspective
These various definitions highlight the multifaceted nature of strategy, encompassing planned actions, observed patterns, market positioning, competitive tactics, and organisational perspectives.
Game theory is an interdisciplinary field that studies strategic decision-making, incorporating various disciplines such as mathematics, psychology, and philosophy. Its origins can be traced back to the influential book "Theory of Games and Economic Behaviour" by John von Neumann and Oskar Morgenstern, published in 1944.
The significance of game theory in modern analysis and decision-making is evident from the fact that since 1970, as many as 12 prominent economists and scientists have been awarded the Nobel Prize in Economic Sciences for their contributions to the field.
In game theory, a strategy refers to a predetermined plan of action that guides a player's decisions when faced with multiple possible strategies from other players. It outlines the actions to be taken in response to each potential strategy employed by other players.
In a business context, when using game theory to develop a strategy, “analysts look at dozens of permutations of actions and reactions, choosing those they feel are consistent and mutually balanced, as well as most likely to occur. Then they make assumptions about these or other factors. The result is a solution, with one particular set of assumptions, derived from all the interests of all the players.” (Lindstädt & Müller, 2009)
Complexity theory explores the idea that complex systems, such as ecosystems, markets, or organiSations, exhibit hidden order in their behaviour and evolution, unlike predictable "machine-like" systems. It has been applied in strategic management and organisational studies to understand how organisations adapt to uncertain environments.
Organisations can be seen as complex adaptive systems (CAS), characterised by dynamic networks of interactions that adapt and self-organise in response to change. Complexity theory originates from Chaos Theory, which introduced the concept of the Butterfly Effect. Coined by Edward Norton Lorenz, it suggests that small changes or events can have significant consequences in a deeply interconnected world.
It's important to differentiate between complex and complicated systems in problem-solving. Complex systems involve dynamic interactions among elements, where relationships and interactions are more crucial than individual elements themselves. Examples include traffic, cities, and software start-ups. On the other hand, complicated systems have clear cause-and-effect relationships, predictable interactions, and can be solved through rules and processes with specialised assessment. Examples of complicated systems are watches, car engines, skyscraper construction, and software coding.
Building upon the understanding of complexity theory explored above, systems theory provides a conceptual framework that emphasises the interrelationships, interconnectedness, and dynamic behaviour of complex systems. Instead of isolating individual systems, it focuses on how these systems interact and the emergent properties and organisational principles that arise from these interactions.
Systems thinking, which draws upon systems theory, offers a way to navigate the complexity of the world by considering the whole system and its relationships, rather than breaking it down into isolated parts. It has proven to be a valuable approach in understanding and influencing complex contexts, facilitating systems change, and contributing to the field of system sciences.
While systems theory shares some similarities with complexity theory, the key distinction lies in their respective focuses. Complexity theory explores the evolutionary emergence of structure and form within complex systems, examining how these systems evolve and adapt. On the other hand, systems theory delves into the interconnectedness, dynamic behaviour, emergent properties, and organisational principles of systems, encompassing both internal and external influences.
In the realm of strategy development, systems thinking plays a crucial role. It enables the identification and analysis of relationships between various components and subsystems within an organisation or market. By understanding how changes in one part of the system can impact other parts, systems thinking helps identify strategic leverage points for effective interventions. This holistic perspective allows for a comprehensive understanding of the system's dynamics and informs strategic decision-making.

Why this is important

The significance of strategy lies in its ability to provide direction, make decisions, and align actions in complex environments. Modern organisations are increasingly embracing holistic and dynamic perspectives, as opposed to traditional reductionist approaches. By incorporating principles from these diverse theories, such as military theory, management theory, game theory, complexity theory, systems theory and more, organisations can develop strategies that are adaptive, resilient, and effective.

How we do it : the methodologies and models

To develop a strategy, organisations typically follow two major processes: development and implementation. Development involves analysing the environment, making a diagnosis, and formulating guiding policies. It incorporates concepts such as business models, competitive advantage, value chain, and mission statements. Frameworks and tools like the Balanced Scorecard, Blue Ocean Strategy, OKRs, Hoshin Planning, and Scenario Planning support the strategy development process.

Implementation involves setting goals, allocating resources, and communicating guiding principles. It requires analysing the environment, engaging in strategic planning and thinking, and translating strategies into action plans. It also involves foreseeing future consequences and adapting to changes in the dynamic environment.

By following these processes and utilising methodologies, concepts, and tools, organisations can effectively develop and execute their strategies. This approach aligns their actions with their strategic plan, helping them achieve their desired goals.

Overall, the incorporation of diverse theories and methodologies enables organisations to navigate complexity, make informed decisions, and adapt to the ever-changing business landscape.

*Credit: 'Tools of a System Thinker' by* *Disrupt Design*

Key concepts in strategy development:

A business model refers to the framework that outlines how a company creates, delivers, and captures value. It encompasses the organisation's key activities, resources, partners, customer segments, revenue streams, and cost structure. The business model provides a blueprint for how the company operates and generates profits. It outlines the value proposition, target market, distribution channels, and the overall strategy for sustainable growth.
Competitive advantage refers to the unique qualities or capabilities that allow a company to outperform its competitors in the market. It is the distinctive edge that enables a company to offer superior value to customers, generate higher profits, and maintain a strong market position. Competitive advantage can be achieved through factors such as cost leadership, product differentiation, technological innovation, brand reputation, customer service, or effective supply chain management.
The value chain represents the sequence of activities that a company performs to deliver a product or service to the customers. It encompasses all the primary and support activities involved in the production, marketing, and delivery process. The value chain concept helps in identifying the specific activities where a company can create value, optimize efficiency, and gain a competitive advantage. By analysing the value chain, organisations can identify opportunities for cost reduction, process improvement, and enhanced customer satisfaction.
A mission statement is a concise declaration of an organisation's purpose and reason for existence. It outlines the company's fundamental goals, values, and the primary market it serves. A mission statement provides guidance and direction to the organisation and helps align employees and stakeholders with a shared vision. It reflects the organisation's identity, aspirations, and commitment to its customers, employees, and society. A well-crafted mission statement can serve as a source of inspiration and guide strategic decision-making within the organisation

Key frameworks and tools in strategy development:

Measures and manages organisational performance across multiple dimensions, aligning strategic objectives with key performance indicators (KPIs) and monitoring progress.
The Balanced Scorecard is a framework developed by Robert Kaplan and David Norton that helps organisations measure and manage performance beyond financial metrics. It incorporates a balanced set of key performance indicators (KPIs) across four perspectives: financial, customer, internal processes, and learning and growth. The framework enables organisations to align their strategic objectives with performance measures and targets, facilitating better decision-making and ensuring that various aspects of the organisation's performance are considered in a balanced manner.
Focuses on creating uncontested market space and differentiation through innovative business ideas, allowing for unique value creation and market positioning.
Blue Ocean Strategy, introduced by W. Chan Kim and Renée Mauborgne, is a strategic approach that focuses on creating uncontested market space and making competition irrelevant. The framework encourages organisations to identify and explore new market opportunities by pursuing innovation and differentiation. Rather than competing in existing markets (red oceans) where competition is fierce, organisations aim to create new markets (blue oceans) by offering unique value propositions that attract untapped customer segments. Blue Ocean Strategy involves value innovation, which combines differentiation and low cost to create a leap in value for both customers and the organisation.
Sets and tracks objectives and corresponding key results, promoting alignment, transparency, and focus to drive performance.
OKRs, or Objectives and Key Results, is a goal-setting framework that helps organisations define and track their objectives and outcomes. It involves setting ambitious and measurable objectives and then identifying specific key results that indicate progress towards those objectives. OKRs are typically set at various levels within an organisation, from the overall strategic objectives to departmental and individual objectives. The framework promotes alignment, focus, and transparency, enabling organisations to prioritise initiatives, track performance, and drive results.
Ensures alignment between long-term goals and day-to-day operations, cascading strategic objectives throughout the organisation and implementing action plans.
Hoshin Planning, also known as Policy Deployment, is a strategic planning process that originated in Japan. It aims to align the organisation's strategic goals with its day-to-day operations. Hoshin Planning involves a systematic approach to goal setting, communication, and implementation. It starts with defining the organisation's long-term vision and then cascades down to annual objectives and action plans at different levels of the organisation. The process emphasises cross-functional collaboration, data-driven decision-making, and regular reviews to ensure progress and adaptation.
Develops and analyses multiple plausible future scenarios, enabling organisations to explore options, assess risks, and make informed decisions in a dynamic environment.
Scenario Planning is a strategic tool that involves envisioning and analysing different possible future scenarios to anticipate and prepare for potential changes and uncertainties. It helps organisations explore alternative futures, identify key drivers and uncertainties, and understand the potential implications for their strategy. By considering a range of scenarios, organisations can develop robust strategies that are adaptable and resilient, ensuring they are well-prepared for different potential outcomes.

Key steps in strategy implementation:

Clearly define desired outcomes and establish key objectives and priorities that align with the organisation's mission and vision.
Mobilise the necessary resources, such as finances, manpower, and technology, to support strategy implementation.
Develop guiding principles that outline decision-making processes and resource allocation throughout the organisation. Effectively communicate these principles to ensure understanding and buy-in from stakeholders.
Analyse the environment, assess the current situation, and make a diagnosis of strengths, weaknesses, opportunities, and threats. Develop guiding policies and strategies that align with desired goals.
Engage in strategic planning activities to identify and evaluate strategic options. Employ strategic thinking to consider different perspectives, explore scenarios, and anticipate future consequences.
Translate formulated strategies into action plans. Define specific steps, tasks, and timelines required to achieve established goals while ensuring alignment with guiding policies and principles.
Develop the ability to anticipate potential outcomes of present initiatives. Gain extensive knowledge about the environment, market trends, and competitors, considering them as an interactive and dynamic system. Apply imagination and logical thinking to choose suitable alternatives.

Researched and written by Rebecca Agent with editorial support from Grammarly (English AUS) and ChatGPT

This post is also on Medium

WORKS CITED

Liddell, H. G., & Scott, R. (1940). A Greek-English Lexicon. Retrieved from Perseus Digital Library: https://www.perseus.tufts.edu/hopper/text?doc=Perseus%3Atext%3A1999.04.0057%3Aentry%3Dstrathgi%2Fa

Lindstädt, H., & Müller, J. (2009, December 2). Making game theory work for managers. Retrieved from McKinsey: https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/making-game-theory-work-for-managers

Porter, M. E. (1980). Competitive Strategy. New York: Free Press.

Porter, M. E. (1996, Nov - Dec). What is Strategy. Retrieved from Harvard Business Review (Magazine): https://hbr.org/1996/11/what-is-strategy