Company Strategy – Who Determines It?

Do You Know Your Company Strategy?

The Harvard Business Review in April asked, Can You Say What Your Strategy Is? The authors, David J. Collis and Michael G. Rukstad, suggested:

Most executives cannot articulate the objective, scope, and advantage of their business in a simple statement. If they can’t, neither can anyone else. If they can summarize their company’s strategy in 35 words or less, would their colleagues put it the same way?

It is our experience that very few executives can honestly answer these simple questions in the affirmative. And the companies that those executives work for are often the most successful in their industry.

If your company has no strategy, who should determine what it is? Some might say this is a no-brainer question. Clearly the leader, the CEO, is the one who must set strategy.

Strategy resources for the CEO

If the CEO accepts it is her/his responsibility, where can they turn to for help? Google suggests one such resource, the CEO Refresher, with its tagline, brain food for business!

There you will find 41 articles offering different perspectives on the best way of determining company strategy. Bear in mind that they define company strategy as follows:

Competitive Strategy is the ‘relentless pursuit of victory’ and topics include strategic thinking, competitiveness, innovation, execution, critical thinking, positioning, and the art of warfare.

Clearly company strategy is akin to the process whereby a general may best direct his troops to win the war. Given that generals have not always had great successes, just think of the Charge of the Light Brigade, you might question whether this is enough.

Strategy Consultants

Perhaps to get a wider perspective, one might think of bringing in a consultant. The most respected strategy consultant is Michael E. Porter. One of his most widely read papers is How Competitive Forces Shape Strategy. A few quotes will serve to outline his position:

Awareness of these competitive forces can help a company stake out a position in its industry that is less vulnerable to attack

The essence of strategy formulation is coping with competition.

Competition is not manifested only in the other players. Rather, competition in an industry is rooted in its underlying economics, and competitive forces exist that go well beyond the established combatants in a particular industry. Customers, suppliers, potential entrants, and substitute products are all competitors that may be more or less prominent or active depending on the industry.

So it would appear that strategy still concerns itself with conflict, but the leader must be aware that this conflict is taking place in a very complex world.

Other gurus have suggested this warlike approach is too limited a view. INSEAD professors W. Chan Kim and Rene Mauborgne have proposed that strategy is concerned more with exploration. They favor a Blue Ocean Strategy in a very popular business book:

Blue Ocean Strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant. Instead of dividing up existing–and often shrinking–demand and benchmarking competitors, blue ocean strategy is about growing demand and breaking away from the competition.

Using as examples Cirque du Soleil, Starbucks, Southwest Airlines, CNN, FedEx, and Bloomberg, Kim and Mauborgne illustrate the value of redefining problems in new and different ways; ways not typical in traditional and entrenched marketing and management strategy. Here is how they distinguish between blue and red oceans:

Red oceans represent all the industries in existence today. This is the known market space. Blue oceans denote all the industries not in existence today. This is the unknown market space. Blue oceans are defined by untapped market space, demand creation, and the opportunity for highly profitable growth. Although some blue oceans are created well beyond existing industry boundaries, most are created from within red oceans by expanding existing industry boundaries. … In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.

Even this Blue Ocean Strategy assumes that the leader chooses a direction after surveying the marketplace. The leader is in control. The troops need marching orders. Clearly the leader should determine strategy.

An alternative approach to company strategy

What determines a good company strategy? Clearly it should be the basis for strong and sustainable company growth. That only arises when the company’s products and services are seen by prospective purchasers as superior to competitive offerings. This suggests that the best person to confirm that a strategy is successful may be that prospect who is reviewing possible suppliers. Provided there are enough prospects in the market niche, then there is potential for success. A strategy must therefore be chosen so that the prospect feels that their needs will be best met by the company. With this approach it is the prospect who determines the strategy.

This is of course a re-statement of the call to be customer-centric rather than product-driven. In rational discussion, it would seem to be unarguable that this is a better way to go. Yet in practice it so often is not the way that company strategies are determined. Perhaps it’s a hangover from the view that strategy should really be determined by The Art of War. That may appeal to a leader’s instincts, and it’s often said it’s lonely at the top. However that instinctive approach may not result in the best company strategy.

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Michael Porter on Strategy