What is strategy? Over many years, the answer to this has created many discussions and controversy. Like the changing seasons, this answer is continuously changing based from the innovations and growth of the business world. Strategy lacks a one set, definite answer but more or less a compilation of multiple characterizations. When it comes to strategy, the choices about what not to do are just as important as the choices on what to do.
Some managers may say strategy involves efficiently continuing improvements of operations, better than that of competitors. Even though this is necessary for a company to run successfully; this is not strategy, but rather operational effectiveness. A company may recognize gains from operational effectiveness but struggle to see overall sustainable profitability. This is because competition can easily imitate products, leaving a company with no option but to strategize.
Strategy involves the continuous assessment of reinforcing and extending the company’s unique position. These strategic positions include variety-based positioning, needs-based positioning, and access-based positioning. Variety-based positioning is based on the choice of product or service varieties rather than customer segments (Porter, 1996). Needs-based positioning is based on serving most or all needs of customers. Access-based positioning which is based on customer geography, customers who are accessible in different ways.
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Strategy also includes making clear trade-offs, deemed necessary for sustainable advantage. Many managers have become confused about the necessity of making choices where some believe making no choice at all is better than risking the blame for a bad choice. Sometimes a company’s activity is incompatible leaving management to make a choice at the expense of another activity.
Strategy is also strengthening the fit among its activities, where these activities in the value chain interact and reinforce one another. If a company can successfully achieve a value chain as strong as its strongest link, then such fit makes it complicated for competitors to imitate. Fit can be broken into three types of fit starting with first-order fit, which is the simple consistency between each activity and overall strategy. Next is the second-order fit, occurring when activities are reinforcing. Lastly is the third-order fit, which is the optimization of effort. This optimization of effort is the coordination and information exchange across activities in order to eliminate redundancy and minimize wasted effort.
Putting into simpler terms, strategy is strengthening and reinforcing the fit within a company’s activities (Porter,1996). The success of this strategy is a compilation of doing many activities well and integrating among them, keeping in mind clear trade-offs and the company’s position.
Reference
- Porter, Michael E. (1996). Harvard Business Review. What is Strategy?1-22.
