There is a widespread acceptance that strategy is a fundamental discipline of management that most organizations need a strategy. Most boards insist on being involved in making stagy. The principle of strategy is finally getting its place.
Two decades ago, some people thought that strategy was a fad, that strategic planning was a waste of time. The acceptance of the importance (of strategy) is universal. Now the constraint is really about understanding how to think about and develop a strategy. But there is a lot of confusion about strategy actually is, and how to define it – a lot of confusion between strategy and operational effectiveness. That is one of the most important distinctions in all of management. You have to distinguish between pursuing practices that are good or every company and pursuing a position that is unique to your particular organization. There is also much confusion about the differences between a strategy and a vision, or a strategy and a mission statement. While everyone thinks strategy is important then, there is much room for improvement in actual practice
A common example would be a company that confuses outsourcing with strategy. They outsource many services to India, and call this a strategy. But outsourcing is actually about being operationally effective for reducing costs. Strategy is about creating a unique position in terms of overall cost or differentiation. The trouble with outsourcing is that the more you outsource, the harder it is to have a unique strategy, because everyone else can outsource too. Misunderstanding strategy, companies pursue steps in this case outsourcing that actually makes it harder to achieve strategic uniqueness.
Similarly, a merger is not a strategy. A merger is a step that may move you towards a unique position, to have a strategy. Managers confuse doing deals with having a strategy. Strategy is about competitive advantage, about how a company serves customers differently from competitors. A merger may contribute to a strategy, but a deal in itself is not a strategy. A strategy has to do with a company’s fundamental positioning in the market place. Companies fail because resources are not put to good use. It is better for consumers that companies have strategies. The more companies have strategies, more consumers have unique choices. If everyone made the same car with the same features, customers would be worse off. So having a strategy is socially beneficial.
Generally it is expected all companies to compete on price, and look for the vendor who gives them the cheapest product. This is not good for customers, who should really want a product that delivers them the best overall value. And society wants choice and to encourage innovation – innovation not necessarily in technology but in the way a company competes.
Many managers have a zero-sum view of competition. They think there is only one ideal way to compete, and the challenge is to be the first to get there. There are many different ways to compete, many different ways to deliver value to consumers, and many different customer needs. Strategy is fundamentally about deciding what you are going to be as an organization while also adopting best practices.
There are some specific forces whose framework is meant to be independent of time. At any point in history, the same forces are at work. These forces are innate to competition itself. Every industry is different, of course with different economic characteristics, different customer characteristics. But the forces are common. They provide a tool for looking at the dynamics of any industry. Economies of scale don’t matter in some industries, but they do matter in most industries. Although they may matter less in some Internet companies, look at Amazon or eBay where economies of scales are extremely important to success.