United Kingdom: What Is The True Meaning Of Strategy?

Last Updated: 16 January 2012
Article by Terry Irwin

No self-respecting business today would be without a strategy. But what is a strategy? The modern manager is often confused by the many different uses – and abuses – of the words "strategy" and "strategic". The true meaning is the one that is right for you.

When strategy means "expensive"

Probably the commonest sense in which the word "strategy" is used today is as a synonym for "expensive". You can always be sure that this meaning is intended when the term strategy is used in a context that involves advice.

Here are some examples of strategy meaning costly: "We are strategy consultants." "Can we help you with your strategy?" "I advise Company X on its strategy."

These can be interpreted respectively as: "Our fees are very high", "We hope to send you a large bill", and "Company X pays me a lot of money".

Another useful term is "strategy weekend", which means a lot of people eating good food and drinking fine wine at a country house hotel.

"Strategy means expensive" is also the key to understanding phrases such as "strategic investment" and "strategic acquisition". "This is a strategic investment" should be translated as "We are going to lose a lot of money on this project". "This is a strategic acquisition" means "We are paying more for this company than it is worth".

When strategy means "important"

The word "strategy" is also often used to mean "important". You can recognise this in the phrase "I'm in strategy", which means "I have a large office, a large salary, and the ear of the chief executive". "An interesting proposal, but does it have strategic significance?" can be translated as "I am not going to waste my time with things like this".

And when the accountants, the human resources department and the public relations people explain how they need to be involved in the company's strategic planning, what they are saying is that they don't receive enough attention.

This interpretation of the word strategy has crept into everyday usage. When I picked up a leaflet that described English language gospel ministry as a truly strategic enterprise, I think what they meant was that they were engaged in an important activity.

When strategy is "What the CEO does"

Strategy meaning important is closely related, but not identical, to another meaning of strategy. In this, strategy is what the chief executive does.

Thus, "Mr A deals with the strategic issues while Ms B is concerned with operations" means "Mr A has a much larger salary and many more share options than Ms B".

Importance is, of course, a relative concept, specific to the environment of the company. What is important is, by definition, what the important people do. Running the business is not necessarily important.

Deals or no deals?

Another meaning of strategy is about acquisitions and disposals. This interpretation is virtually universal in the City. "We don't understand Company X's strategy" means "We haven't heard about any deals involving Company X".

"Company X has no strategy" means it hasn't bought or sold any other companies recently. This concept is reflected in the common financial market term "corporate activity", which covers financial restructuring and acquisitions.

The opposite of "corporate activity" is "corporate inactivity", which describes the rest of a company's operations – making things and encouraging customers to buy them.

The real strategic issues

So what is strategy, really? The strategic issues facing a company fall into two groups. Corporate strategy is about answering the question "What markets are we (or should we be) in?"

Business strategy, or competitive strategy, is about how the company is placed relative to its competitors (see the Ansoff matrix).

So, the subject of corporate strategy is the matching of the capabilities of the company to the external environment that it faces.

What are your distinctive capabilities?

The first stage in considering strategy is to determine what these capabilities are. Companies can add value only if they can do something in a market that others cannot easily replicate.

The successful corporation is generally built around things it is uniquely able to do – no more than one or two. Sometimes these distinctive capabilities are based on innovation, sometimes on reputation. Sometimes they are based on the structure of a company's relationships, its architecture. When you have analysed your distinctive capabilities, you can identify those markets in which they add value and those in which they do not.

Business positioning

The analysis of distinctive capabilities tends to frame your analysis of business unit strategy as well. Should you be positioned up or down market of your principal competitors? That is another question whose answer depends on your distinctive capabilities. How should you respond to their initiatives on pricing, in marketing, or in product innovation?

Answers will be based partly on what exactly differentiates you from them and partly on the increasingly extensive toolbox for understanding the interactions between small groups of competitors.

The real issue of corporate strategy

There is perhaps more vacuity about strategy than about any other topic in business today.

But there is a real issue, and a real subject of strategy for the corporation. And because strategy is based on distinctive capabilities, there are no generic strategies. There really are many interpretations of strategy. Strategy is what is right for you.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Terry Irwin
 
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