WHAT IS STRATEGY?

Raghavan Parthasarthy, Ph.D.

The term strategy is bewildering to many. It is not uncommon to see some top managers too feel this way. Part of the confusion surrounding the term is due to its occasional misuse. Some use strategy and goals interchangeably; others use it synonymously with tactics. Yet others use the term loosely in day-to-day conversations: “What is your strategy for scheduling your day?” Such careless use of the term obviously creates confusion and misunderstanding about the true meaning of strategy.  However, a more convincing reason seems to be the absence of a clear and widely accepted definition of the term. Strategy is variously defined as a plan, a ploy, or a means to an end – each making sense in one context or another.

A good understanding of the term is essential to formulate and execute sound strategies. Strategy has its roots in military science where it refers to a clever scheme of troop arrangement and maneuvers a general devises to defeat an enemy in battle. By assessing the terrain and the relative strength of the enemy, the general positions his forces in a formation that is different from the enemy’s and that gives him a battlefield advantage. Choice of suitable coordination mechanisms that effectively link troop maneuvers across distinct military units strengthens this advantage. Collectively, this whole scheme, comprising the unique troop formation, and the inter-unit moves and counter moves, represents the general’s strategy to defeat the enemy.

The following points emerge from the above description.  Strategy is a clever, well-thought out scheme to defeat (or outperform) a rival competing for the same goal.  It involves tasks and processes that are significantly different from those employed by the rival to reach the goal. In other words, strategy is not imitating the rival and striving to do better; rather, it is employing entirely different methods to reach the goal.  The more unique these methods are,  the more is the advantage that accrues in competition, and the greater is the likelihood of ultimate success.   

Some real company examples may make these points clear. Consider Southwest Airlines which began service in 1971. In an industry where carriers competed for customers and revenues by steadily expanding their network of connections to distant locations,  Southwest decided to offer direct, short-distance flights.  It meticulously avoided competing with the established carriers by positioning itself as an alternative to road travel by bus or car.  While the networks emphasized in-flight comfort and charged full-fares, Southwest offered no frills but speedy travel and low fares. Direct, point-to-point flights (as opposed to the networks’ hub system) and service from secondary airports only, allowed Southwest to significantly lower operational costs and succeed.

Similar accounts from other firms should help further. Like Southwest, Walmart planned to be different when it entered the retail industry in 1962.  While it aspired to be a discount retailer like Kmart and Sears, it initially distanced itself from them by choosing to serve a different market segment – the rural Midwest – the other two had neglected.  By opening several small stores in proximity, a central warehouse to stockpile inventory, and an efficient truck distribution system, Walmart captured the Midwest, eventually conquering the entire discount retail industry.  In short, Walmart’s strategy was to effectively employ the Sears-Kmart model in an overlooked market niche, and later exploit that strength to pursue industry-wide ambitions.

The important point that emerges from these accounts is that strategy must set a firm apart from its rivals, be it in product design, customers served, or how the product is taken to the market. To be a winner, strategy should offer significant value to the customer, lower price, differentiated product, convenient delivery, or after-sales service. The following are some more examples of strategy.

Like Walmart, Amazon offers price value to the customer but it also offers convenience through its Internet platform and delivery systems. In the auto industry, both BMW and Mercedes focus on product design and prestige, but BMW has positioned itself in the young professionals market whereas Mercedes appeals to a more mature segment.  Revlon and Avon make low-end beauty and personal care products – the former markets its products through drug stores and supermarkets, and the latter personalizes selling through independent sales reps.

References:

Michael Porter.  What is Strategy? Harvard Business Review, November-December 1999.   

Raghavan Parthasarthy. Fundamentals of Strategic Management, Houghton Mifflin Publishing, 2007.