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Lesson 01: Overview of Strategy
What is Strategy?
This lesson provides us with a basic foundation from which to launch the remainder of the course. It encompasses an overview of strategy, sustainable competitive advantage, the strategic planning process, and strategic managers and leaders. It also lays the foundation for the strategic analysis process.
In a nutshell, strategy is the set of actions that a company's management team undertakes to positively position the company with respect to rivals. Strategies are specifically tailored to a company's position in a given point in time. Changes in corporate resources, personnel, the competition, and in the larger socio-economic environment all can impact strategy. Consider the strategic adjustments that might be necessary for companies as a result of a production facility fire, the sudden resignation of the CEO, a surprise launch of an amazing new product by competitors, or the passing of a law that significantly raises environmental standards. All these events have the potential to impact a company's strategy. In general, companies are better off assuming their strategies will require at least minor alterations over time to remain fresh and viable.
There are three reasons why strategy is so important.
- Setting the right strategy can lead to improved firm performance. If strategy is the set of actions to positively position a company, then sustainable competitive advantage is the reward for a job well done. Competitive advantage is when customers prefer your company's products or services over your rivals. Sustainable means that this preference is long-lasting, typically over a period of years.
- Organizations face continually changing situations.
- Today’s organizations are complex and work needs to be organized and managed effectively.
Let’s hear from Michael Porter of Harvard Business School to learn more on the topic of strategy.
MICHAEL PORTER: If we're going to have a good strategy, we've got to think clearly about what strategy is. And we've got to separate strategy from the other goals and objectives and issues that managers often think about. On this slide are really the big three mistakes in terms of defining strategy.
Mistake number one. My strategy is to internationalize. I hear that kind of thing all the time. My strategy is to consolidate my industry. My strategy is to ramp up my R&D budget. My strategy is to outsource more of my production. Is that a strategy? No. Those are steps that your organization may want to take. They may be good steps. They may be appropriate steps. They aren't a strategy.
The strategy is what unique position will we be able to achieve? What's our advantage going to be at the end of the day as we take these steps cumulatively over time? That's the strategy part. The strategy part is about how are we going to be unique? How we going to have an advantage? How are we going to sustain that advantage over time? The steps we take are not the strategy. But you'd be surprised how many companies get themselves fixated on a particular action that they want their organization to take, and that becomes the strategy. And of course, it then often drives the company literally off the cliff, because they don't understand why they're doing it and when they should stop doing it.