What is not strategy - Part 4

In the previous three articles, Mr. Bhattacharya wrote about common errors in understanding strategy. He discussed how objectives are confused with strategy, that actions are seen as substitutes for it, the myths of scaling up effort and operational efficiencies. Aiming to kill competition - a manifestation of arrogance, and the annual operating plan - a subterfuge for strategic thinking, are other common mistakes. He concludes here with a picture of what strategy is.

8. What strategy is

The origin of strategy is undoubtedly military. Strategia in Greek means generalship, or art of the general. The Concise Oxford Dictionary defines strategy as ‘the art of planning and directing military activity in a war or battle'. A military strategy is victorious when the enemy is vanquished. Its application in competitive sports is similar.

Use of strategy in business is a relatively modern phenomenon, not much older than a hundred years. Its first significant application was at the turn of the century when Henry Ford Sr. successfully established the Ford Motor Company as the largest automobile company in the world using the strategy of cost leadership. To achieve lower costs he vigorously integrated backwards. At one time he owned or controlled a railroad and 16 coalmines. He built a sawmill to use wood from 700,000 acres of forest Ford Motor owned. He acquired a fleet of Great Lakes freighters to bring iron ore from Lake Superior mines. He even bought a glass plant. His strategies pursued a single objective: make the automobile affordable so that every American could own one.

Long-term Goal

Henry Ford's vision is symbolic of the first characteristic of strategy. It must serve a purpose. The Concise Oxford dictionary says strategy is also a plan designed to achieve a particular long-term aim. It could be to increase market share, reputation, profits, revenue, or achieve a larger cause. Admittedly, some of these objectives may be accomplished at the cost of competitors. But a plan designed to hurt another player directly is not a valid strategy because its consequences are neither likely nor necessarily beneficial.

We hear the terms corporate strategy, business strategy, growth strategy and functional strategy. They are game plans in different domains of business. Corporate strategy deals with questions like what businesses we should be in. And how we shall manage them. Competitive or business strategy asks how we should be competitive in whichever business we are in. Growth strategies enable a firm to increase its revenue or market share. Functional strategies are the plans of production, finance, human resources, marketing and other departments. They derive from and should be consistent with the firm's corporate, business and growth strategies. They must integrate across the corporation in order to make distant goals attainable.

Leverages Capabilities, Resources

To realise its ambitions a firm deploys resources - cash, manpower, technology, production facilities and others. Strategy determines the manner in which they are used. A strategy is effective when it leverages the firm's unique strengths. Conversely, strategies that ignore strengths while chasing opportunistic goals fail.

Does it imply firms should chase opportunities that fit existing resources? No. Entrepreneurial firms often successfully enter markets they do not appear to have previous experience in. They are able to do so because they acquire or develop relevant skills that are crucial for success. A connection between the firm's past and new skills or resources that are necessary enables them to embed capabilities faster or better.

In the 1960s Igor Ansoff postulated the product mission matrix to explain how the firm's mission - a link with the past and present - is a means to manage risk of diversification and other growth strategies. Nokia began research in semiconductor technology in the 1960s while engaged in manufacture of power and telephone cables. In the 1970s they began developing digital switches when electro-mechanical analog switching was the norm for voice telephony. In the early 1980s they introduced their first cellular systems. At that time they were a large manufacturer of televisions and a leading IT company in the Nordic countries. It was only in 1992 that they decided to divest non-core businesses and focus on telecommunications. We can see how the connectedness with the past laid the foundations of Nokia's stellar success in cellular telephony. It helped the company acquire new skills, integrate and leverage them effectively.

Product of Synthesis

Why did Nokia see a promising future in telecommunication? What gave Narayanan Vaghul and K.V. Kamath the confidence to transform the ICICI Bank that had been a government and industry sponsored development financial institution offering only project finance, into India's second largest bank? Leaders of both companies possessed insight of their markets and foresight of how changes would create opportunities. Did they analyse data, crunch numbers? They probably did. But numbers are about the past. Their decisions were about the future. Besides analysis, they used their knowledge and beliefs about how the world will change. They trusted their feelings. They crafted their strategies by a process Henry Mintzberg called synthesis. It is a manner of integrating data, knowledge of markets, technology, processes, and insight of how changes may shape the future. Strategy formulation is intuitive and creative. Some people are blessed with it. Others, indeed everyone, can learn by training and practice.

Adaptive, Dynamic

Perhaps the most important aspect of strategy is that it deals with the future. Tomorrow is certain; what it will bring is not. It is possible to anticipate it, but prediction is impossible. The operative environment of strategy changes all the time. People change, competitors react. They are influenced by social changes. Governments regulate. People adopt or reject new technologies. Their needs, wants and desires alter not only as they age but also as a result of what they learn and experience.

What is valid today may no longer work tomorrow. A dynamic environment and actions of other players imbue risk. That is why strategies, no matter how brilliant in thought and execution, can and do fail. To be successful; strategy must mutate to remain relevant in this dynamic world.

Mind Game

Strategy is not a list of things to do. It is an abstract solution. It is the product of knowledge, perceptions, assumptions and paradigms. It is not created from a precise and detailed long term goal though a broad long-term objective it must serve. It cannot be rigid if it has to battle the vagaries of an uncertain future and ever-changing world. It must adapt. It is not a guarantee of success. Though its absence is sure to lead to disaster.

It is a mind game that is not easy to describe. The best I have found is actually quite simple. Somebody said, strategy is like a lightly filled in painting.  END. 

Mr. V.N. Bhattacharya is a management consultant on strategy. He helps companies grow profitably, in a sustained manner. E mail feedback at marketinggyan@businessgyan.com

Issue BG62 May06