What is Strategy

Think of strategy as your master plan to win a game.

In the business world, it’s a set of goal-directed actions a company takes to outperform its rivals and achieve superior performance.

• Sam Walton (Walmart): offered lower prices.
• Steve Jobs (Apple): “put a ding in the universe.”
• Mark Zuckerberg (Facebook): made the world open and connected.
• Larry Page and Sergey Brin (Google): made information accessible.

Essentially, it’s about making smart choices about what to do and what not to do to gain a competitive edge.

Strategy = Gaining and Sustaining A Competitive Advantage

Competitive Advantage: Superior performance relative to other competitors in the same industry or the industry average

Sustainable Competitive Advantage: Outperforming competitors or the industry average over a prolonged period of time

Competitive Disadvantage: Underperformance relative to other competitors in the same industry or the industry average

Competitive Parity: Performance of two or more firms at the same level

Key Elements of a Good Strategy

Crafting a winning strategy involves three critical steps:

1. Diagnosing the competitive challenge: First, you need to understand the playing field. Who are your competitors? What are their strengths and weaknesses? What are the industry trends and customer needs?
2. Deriving a guiding policy to address the challenge: Once you understand the challenges, it’s time to chart your course. What’s your unique approach to overcome the obstacles and achieve your goals? How will you compete differently from your rivals?
3. Implementing a set of coherent actions: Now, it’s time to put your plan into action. This requires a series of coordinated steps that support your guiding policy and move you towards your objectives.

What Strategy is NOT

Let’s clear up some common misconceptions about strategy.

• Grandiose statements: Strategy is not just about setting ambitious goals or making bold claims. It’s about backing them up with concrete actions.
• Failure to face a competitive challenge: Strategy requires actively addressing the challenges posed by competitors and the external environment. Ignoring them is a recipe for failure.
• Operational effectiveness: While important, operational efficiency alone is not strategy. Strategy involves making deliberate choices about how to compete differently from rivals.

A company that claims to be the “best in the world” without any concrete actions to support that claim is not demonstrating strategy.

The Importance of Strategy

Why is strategy so important?

Because it’s the key to achieving and sustaining a competitive advantage. A competitive advantage is what sets you apart from the competition and allows you to outperform them in the marketplace.

By making informed choices about how to compete, companies can position themselves for success in the marketplace.

In the next lesson, we’ll dive deeper into the strategic management process and the tools and frameworks used to analyze the competitive landscape.