Business Strategy is the chosen decision to guide a company towards its goal (usually greater profitability and success).
There are two types of business strategy, as mentioned in my book, The GOSPEL of Strategy:
Winning Strategy, i.e., a strategy that provides the impetus for a company's success; and
Losing Strategy, i.e., a strategy that leads to a company going out of business.
Read more about Winning Strategy vs. Losing Strategy here.
Therefore, understanding what constitutes a "Winning strategy" is crucial if a business wants to succeed. Conversely, simply labeling every plan and decision "strategic" is the sure way to fail.
The most important characteristics of a Winning Strategy are its simplicity and ease of communication, understanding, and implementation. As a result, all stakeholders — from the CEO and shareholders to the executives and frontline employees — would be clear about the company's strategy.
Read more about why strategy must be simple here. Or read about how focusing on a simple strategy can make you a winner, or change history, while forgoing simplicity can make you a loser.
Benefits of Business Strategy
A Winning Strategy is useful (and important) because it provides clarity:
Clarity about the goal that the company wants to achieve.
Clarity about the company's available options.
Clarity about how the company is going to achieve the goal.
Clarity about the company's strengths, i.e., areas where it can be successful.
Clarity about the company's weaknesses, i.e., areas where it is vulnerable or failing.
Clarity about how the company is making money (i.e., the company's business model).
Clarity about where the company should concentrate its resources (e.g., people, effort, and money).
Clarity about who the target customers are and what products/services they want/need (or will want/will need). Also, about which customers to focus on and to exit.
Clarity about who the competitors are and what are their strengths and weaknesses when compared to the company's.
Clarity about the actions, systems, and culture that the company will take/build/adopt.
Clarity about which latest technologies and trends to look out for.
Clarity about which products /services (either existing or new) to offer to the customers. Also, about which products/services to stop.
Clarity about what capabilities/skills the company needs to add/strengthen.
Clarity about the company's future direction, its sense of purpose and meaning, and the progress made by the company.
The process of developing and implementing a strategy should give you these clarities. Beware if your strategy doesn't give you these: It is likely to be a "Losing Strategy."
Use the following checklist to help determine if you have a Losing or Winning Strategy.
Careful: These ain't a Strategy
In The GOSPEL of Strategy, I laid out many things that are actually not a strategy but are often mistaken as a strategy. For the sake of a refresher, here are a few things most often mistaken as a strategy (they are related to Strategy but not a strategy):
Vision/Mission statement, e.g., Luxury British chocolatier Hotel Chocolat's mission was "to make people happy." This statement may be good and inspiring. But it doesn't provide any clarity on what the company is going to do or how it will achieve its vision/mission. As you can see, a vision/mission statement is not a strategy.
Goal statement, e.g., a former client of mine had a bold statement "We are going to reach $2B in revenues and become the number one brand in the industry." Nice aspiration, but a goal isn't a strategy because it doesn't explain how the company will achieve its ambition.
Budget, Business Plan, or Balanced Scorecards. These are detailed plans that you make in order to implement a strategy. However, they aren't a strategy because they don't give you the big-picture direction. If you build plans without a clear strategy, you risk misdirection (i.e., your plans won't bring you toward your goal) or misalignment (your plans are conflicting). No matter how hard you track the progress with a balanced scorecard, if you are heading in the wrong direction, you won't achieve your goal.
Data and Analysis. While they are essential in formulating a strategy, they aren't a strategy. Data and analysis can tell you what has happened, why they happen, and what will happen. Sometimes they even give you a prescription on what you should do. But they can't decide the best course to achieve your goal, given the myriad challenges, uncertainties, and considerations. Ultimately, creating an effective strategy requires creativity and non-linear thinking (beyond pure analysis and data).
As we mentioned before, a strategy should make clear the followings:
Which customers to target and to ignore.
Which products/services to offer and to abandon.
Which activities to take and avoid.
Which options to pursue and let go of.
Which skills to develop and to kill.
Lack of clarity leads many companies into trouble, especially when the environment changes. For example, read about how complexity kills Made.com.
Seven Most Important Tenets of Strategy
The first and most important tenet of strategy is that your strategy needs to be as clear, simple, and compelling as possible. In my blog, I often write about the benefits and importance of strategy being simple.
The second most important tenet of strategy is that your strategy should create a unique competitive position for your company. In other words, your company's offering must be unique. To do so, your strategy needs to focus on who your customers are, what value proposition you can offer, how attractive is this value proposition, and how you can deliver this value proposition better (and cheaper) than everyone else.
If you want to learn more, read about how to create a sharp and simple strategy here.
The third important tenet about strategy is that your strategy must consider the availability of resources. Money, knowledge, skills, time, people, technology, and assets are limited. Therefore, your strategy must be realistic about using the available resources and using them to the most significant benefit. Don't make a strategy that cannot be supported by your available resources. Similarly, don't make a strategy that doesn't put the resources to good use (i.e., low return on investment). This is why I always believe that strategy must be based on strengths, not whims.
The fourth important tenet about strategy is that your strategy must be based on the actual internal and external conditions your business faces. Examples of external conditions include consumer trends, competitor movements, regularity developments, demographic change, economic growth, and political stability. Examples of internal conditions include organizational skills, internal culture, employee engagement, way of working, and company's processes/procedures. Ideally, your strategy should ensure fit between the internal and external conditions to achieve the most optimum effect.
The fifth tenet of strategy is that your strategy must gain the employee's emotional commitment. Because any strategy, no matter how brilliant, will fail unless people understand it (this is why it must be simple) and are emotionally committed to its success. There are a few things you can do to gain people's commitment to your strategy:
Explain why the strategy is important to the company and the individual employee.
Ensure people's KPIs are related to the strategy delivery.
Track the KPIs performance regularly and discuss the performance with each individual employee.
Provide incentives for each individual employee that is related to the strategy and within their control.
Adjust people's job descriptions, way of working, and systems to be consistent with the strategy.
Empower the employees to deliver the strategy by giving them the freedom to respond and adjust without waiting for permission or instructions. (this is why I wrote about translating your strategy into a set of simple rules can be powerful).
The sixth tenet of strategy is that a strategy requires only one chef but many ingredients. In other words, the CEO must decide a company's strategy. Of course, you can't have too many people deciding on the strategy because too many chefs spoil the soup. Having said this, the CEO still needs to get inputs/strategic ideas from various people inside and outside the company. After all, good strategic ideas can come from anybody, anytime, anywhere. So, be open to strategic ideas wherever they originate.
The seventh tenet of strategy is that you must be committed to the strategy, unless the strategy is no longer relevant. If you aren't committed to your strategy and keep changing it, your strategy won't have time to deliver the intended results. Therefore, give your strategy some time to work. Since you won't see instant results, you must be patient and stick to your despite the short-term pain. However, on the rare occasion when the internal and external conditions have changed significantly, your strategy becomes no longer relevant. In these cases, your strategy must adjust to the altered conditions.
Read more about what could happen if a leader isn't committed to the strategy.
Continue to explore Winning Strategy here.
If you are interested in my book, check it here.
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