Strategy is the overall plan of a firm deploying its resources to establish a favorable position and compete successfully against its rivals. Strategy describes a framework for charting a course of action . It explicates an approach for the company that builds on its strengths and is a good fit with the firm’s external environment. It is basically intended to help firms achieve competitive advantage. Competitive advantage allows a firm to gain an edge over rivals when competing. Competitive advantage comes from the firm’s unique ability to perform activities more distinctively and more effectively than rivals. A firm’s distinctive competence or unique ability here implies, those special capabilities, skills, technologies or resources that enable a firm to distinguish itself from its rivals and create competitive advantage (such as superior quality , design skills, low cost manufacturing , superior distribution etc) The term terrain is highly relevant in explaining the concept of strategy more clearly. From a business sense, terrain refers to markets, segments and products used to win over customers. The essence of strategy is to match strengths and distinctive competence with terrain in such a way that one’s own business enjoys a competitive advantage over rivals competing in the same terrain. The basic premise of strategy as things stand now, is that an adversary can defeat a rival – even a larger more powerful one – if it can maneuver a battle or engagement onto a terrain favorable to its own capabilities . The term capability refers the ability or capacity of a bundle of resources deployed by a firm to perform an activity (Pitts and Lie).
Elements of strategy
Any coherent strategy (as the above expert opinions reveal) should have four important elements.
A strategy invariably indicates the long term goals towards which all efforts are directed. For example long term goals might be to dominate the market, to be the technology leader or to be the premium quality firm. Such enduring goals help employees give their best in a unified manner and enable the firm to specify its competitive positions very clearly to its rivals. A recent advertisement from Maruti Suzuki for example claims, we don’t just sell more cars than No. 2 We sell more cars than the entire competition put together. Maruti’s commitment to being number one (sales, distribution network lowest cost producer highest resale value, one stop solution provider etc) or two in the markets it serves sends clear signals to its rivals in more than one way.
Scope: A strategy defines the scope of the firm that is, the kind of products the firm will offer, the markets (geographies, technologies, processes) it will pursue and the broad areas of activity it will undertake. It will, at the same time throw light on the activities the firm will not undertake.
Competitive Advantage: A strategy also contains a clear statement of what competitive advantages the firm will pursue and sustain. Competitive advantage arises when a firm is able to perform an activity that is distinct or different from that of its rivals. Firms build competitive advantage when they take steps that help them gain an edge over their rivals in attracting buyers. These steps vary, for example making the highest quality products offering the best customer service, producing at the lowest cost of focusing resources on a specific segment or niche of the industry.
Logic: This is the most important element of strategy. For example, a firm’s strategy is to dominate the market for inexpensive detergents by being the low cost mass market producer. Here the goal is to dominate the detergent market. The scope is to produce low cost detergent powder for the Indian mass market. The competitive advantage is the firms’ low cost. Yet this example does not explain why this strategy will work. Why the firm will get ahead of others by limiting its scope and by being the low cost producer in the detergent industry. The why is the logic of the strategy? To see how logic is the core of a strategy, consider the following expanded version of a strategy: our strategy is to dominate the Indian market for inexpensive detergent powder by being the low cost producer selling through mass market channels. Our low price will generate volumes. This in turn will make us a high volume, low cost producer. Economies of scale would help us improve out bottom line even with low price.