What is strategy anyway?
If you look up strategy in the English dictionary it is defined as ‘a plan of action designed to achieve a long-term or overall aim’ but for me, this doesn’t capture the real essence behind strategy. It suggests that having a ‘plan of action’ means that it is strategic.
So, what about strategic? Perhaps the following definition provides clarity on what strategy is?
Strategic ‘relating to the identification of long-term or overall aims and interests and the means of achieving them’. Closer, but again what does it mean to be strategic, it’s not about defining business goals, it’s not about making a plan of action, it’s something more…
The word strategic here is important, because this changes a plan of action to one that carefully considers the environment in which it functions and makes explicit and calculated choices about what it will do (and importantly what it will not do) to achieve a long-term or overall aim.
Business strategy is a relatively new discipline introduced in the 1960s. Before this time strategy was developed by military leaders and existed on the battlefield, not by businesses people. The action of developing a ‘means to an end’ (the end being the achievement of a favourable business outcome) which we now call strategy, was simply categorised as ‘management’. Since the birth of strategy, the number of tools, frameworks and methodologies that business owners and leaders can choose from has increased significantly, and this can create both opportunity and confusion.
Lafley & Martin in their book ‘Playing to Win’ provide great clarity on what strategy means in the context of organisation level competitive strategy citing “strategy is an integrated set of choices that uniquely position the firm in its industry so as to create sustainable advantage and superior value relative to the competition.”
Choices: a range of possibilities from which one or more may be chosen.
Integrated: various parts are linked or coordinated.
These key words highlight the need to make choices from a selection of possible options, whilst also ensuring that the options integrate, complement and reinforce one another.
Their statement ‘integrated set of choices’ brings strategy to life and when put into strategic contexts, clarifies what strategy is – an integrated set of choices, made from a selection of possible options and designed to achieve a long-term or overall aim.
Strategy in context - Levels of business strategy
This series of blogs will dive deeper into business or organisation level strategy but before we do, lets clarify three key levels of strategy to ensure clarity around terms.
Within business management there are three key levels of strategy, these are:
Organisation or business strategy, or if owned by a parent company may be called a strategic business unit strategy
Functional or departmental
It is important to note that the levels of strategy are directly linked to the structure and complexity of a business and not every business requires all levels. There will of course be nuances and exceptions, however the intention of this overview is to provide clarity surrounding the purpose of each level before digging deeper into organisation/business strategy.
To ensure that the essence of strategy is applied, as you read about each level of strategy, retain the following sentence - an integrated set of choices, made from a selection of possible options and designed to achieve a long-term or overall aim.
1. Corporate strategy
This level of strategy takes a portfolio view when making strategic decisions, and seeks to maximise value across the organisation’s businesses.
Portfolio definition – ‘a range of investments held by a person or organisation’.
Two key examples where a corporate strategy may be required:
A parent organisation that owns multiple large businesses. For example, within the automotive industry VW is a parent organisation owning VW, Seat, Skoda, Audi, Bugatti, Bentley, Scania, etc.
A business owner with multiple related businesses
Corporate strategy is different to business or organisation strategy as it focuses on managing resources (people & capital), organisational design and strategic trade-offs (management of risks versus generating returns) across multiple businesses within a portfolio.
Corporate strategy addresses a number of fundamental questions and makes explicit choices and decisions around the following:
In which businesses shall we compete? How do they all fit together within the portfolio? How could the portfolio be expanded through mergers or acquisitions to benefit the organisation as a whole?
How can the corporate structure add value to the various businesses? For example, optimisation of resources (people & capital), sharing of intellectual property and processes, procurement advantages through economies of scale, etc.
How can diversification of our business or entering new industries help us to compete? For example, a business in the food industry producing breakfast cereals may also choose to enter the packaging industry to have more control over their supply chain and reduce packaging costs resulting in increased profit margins.
For many small businesses this level of strategy is not applicable, however it helps to provide context and build understanding.
2. Organisation or business strategy, or if owned by a parent company may be called a strategic business unit strategy (SBU)
This level of strategy focuses on creating a sense of direction for the business, defines its competitive strategy and prescribes a set of business level objectives, measures, targets and for completeness the initiatives that contribute to achievement the specified targets.
NOTE: Objectives, measures, targets and initiatives will be covered in an upcoming blog. Connect with BPO via LinkedIn to stay up to date with new articles.
I refer again to the definition provided by Lafley & Martin in their book ‘Playing to Win’ - “strategy is an integrated set of choices that uniquely position the firm in its industry so as to create sustainable advantage and superior value relative to the competition.”
Two key examples of business level strategy:
Organisation or business strategy - This is the overarching strategy for a business and is applicable to all businesses whether they are sole proprietary, micro, small, medium or large.
Strategic business unit (SBU) strategy – This strategy relates to businesses that may be functioning under a parent company (corporate) or as a standalone profit centre within a business.
Regardless of whether this is an organisation, business or strategic business unit strategy they all seek to addresses a number of fundamental questions and make explicit choices surrounding the following:
What is the long-term vision, mission and objectives of the organisation? What are the core values?
In which markets will the business compete and how it will win? What actions will the business take to address strategic issues, mitigate risks and achieve competitive advantage?
What capabilities must be in place and nurtured to sustain competitive advantage?
What are the key measures associated with each strategic objective? What are the multi-year targets? What initiatives will contribute to achieving business targets?
In order to answer the above questions without assumption and to validate strategic decisions, it is necessary to gain key inputs from other functional areas, with a significant emphasis on sales and marketing functions. For example, market data is vital for identifying and assessing market segment attractiveness and sales function provide deep consumer understanding.
This level of strategy is a vital component for any business to create organisation wide direction, alignment and shared understanding, and allows functional or departmental strategies to be developed and resources secured.
3. Functional or departmental strategy
This level of strategy utilises the clarity and direction provided by the business strategy, and details from a departmental perspective how the business strategy will be supported and implemented. These strategies are more detailed in line with the functional area of expertise and include a specific set of objectives, measures/KPIs, targets and initiatives.
The flow of information from the business level strategy to the functions allows middle management to develop functional strategies ready to cascade to their respective teams, plan resource and budget accordingly and give strategy legs, or as Gino Wickman would call it ‘traction’.
To quote Gino “vision without traction is merely a hallucination” a very true statement indeed.
Examples of functional or departmental strategies include:
Each functional area may develop further strategies which sit within their functional strategy. For example, the marketing strategy may feature a brand strategy to position the brand appropriately within the market(s) and the HR strategy may feature an employee engagement strategy to optimise productivity and improve employee retention.
Imagine the business strategy is a helicopter 20m above the ground. The height of the helicopter represents the detail contained within the strategy – it’s high level. The helicopter pilot briefs the occupants of their mission, ensuring that they are all aligned and their responsibility to one another is clear.
The rope is dropped and five people slide down towards the ground. These individuals represent the business functions that contribute to the achievement of the business objectives. The direction of travel represents the increase of detail relating to ‘how’ each function contributes to the objectives and the activities required, moving the detail from high level to low level.
As you can see from the three levels of strategy outlined above each have a specific purpose within the organisation. Corporate strategy generally relates to an organisation (often large in size) with multiple businesses functioning within, whereas business and functional strategies are pertinent to all businesses at varying levels of detail.
As a micro or small business owner with 5-50 employees, it is possible for your business and functional level strategies to be combined removing complexity and simplifying the strategic process.
Next time you want to be strategic, remember to define the long-term aim, create options and make explicit integrated choices that complement and reinforce one another.
If you would like to understand more about business strategy, or chat about any of the terms used within this blog get in touch.
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About the author.
Hi, I'm Heather Beckett - the founder of BPO. I have a background in strategy, programme, project and change management and take a hands-on, sleeves rolled up approach. I help small and medium sized business owners to move away from the day-to-day and create capacity to think, plan and act more strategically.