Here’s Why Strategy Is So Misunderstood
Strategy has to be one of the most misused words in business. The word is tossed around boardrooms and customer meetings with reckless abandon. You’ve likely heard this: “Our strategy is to become the biggest and the best.” Deciding to become a global corporation, to diversify or to increase sales by a certain number of dollars per annum is not strategy. Such aspirations are goals or objectives.
Articulating how to become the biggest and the best is the strategy. That strategy can be good or bad. The “steel” in strategy is its capacity to set the stage for an organization to achieve ironclad competitive advantage. Strategy is also a “steal” because good strategies cost no more to develop than bad ones.
Walmart is an interesting example in strategy. For many years, they envied the online business of Amazon.com. While Amazon was expanding product lines and customer count, Walmart was content at opening new outlets and increasing same store sales. Now Walmart is making a concerted effort into digital commerce.
This is an objective. The means to that end is a growing web presence, an array of mobile apps and an infrastructure designed and operated by the best managers, coders and engineers the digital world has to offer. These folks can be found in the Bay Area, where Walmart has set up a large and growing outpost.
The added steel in Walmart’s strategy against Amazon is this: Through mobile, Walmart is going beyond bringing the store to the web; it is bringing the web to the store. Who better to leverage their massive customer base and transform retailing?
Tactics, often mistaken for strategy, are the last piece of the puzzle that includes goals/objectives and strategies. Tactics are the ever-important short term decisions and activities that win battles and contribute to winning the war. In traditional manufacturing companies, sales departments know tactics better than most other functions because sales people work with tactics every day.
Big retail chains are dead without a firm understanding of daily, weekly and monthly tactics. They have to decide when they will promote, what brands they will feature and how they will achieve one-upmanship on aggressive competitors.
Promoting Coca-Cola as a loss leader or trying to make a small or large profit margin on the brand is a business tactic. If the retailer’s unique position in the market is lowest prices for brand name items, then all pricing tactics must support that image. In this case, because of Coca-Cola’s massive consumer appeal, a healthy retail margin that inflates the price of Coke would not be a wise decision. Selling Coke at a price above competition destroys the retailer’s strategic positioning.
Imagine the ramifications if Walmart, known for lowest prices every day, made that move. On the other hand, a “low cost” retailer doesn’t have to lose money on Coca-Cola. Their options are to either squeeze the Coca-Cola Company into lowering its cost for a period of time, or choosing another brand such as Pepsi with similar consumer appeal. That’s tactical decision-making.
People worry that strategy slows a company down and limits growth opportunities. The opposite is true. Just look at the success of Apple. Big. Fast. Focused. Innovative. This company managed to harness the resources of 72,000 employees to introduce and successfully market a slew of breakthroughs. Tim Cook and Steve Jobs before him were adamant in saying “no” to thousands of projects so that they could focus on the few that were truly meaningful to Apple.
Howard Schultz grew Starbucks at an outrageous pace. All it took was three decades for Starbucks to catapult from 50 stores in the Pacific Northwest to 21,000 stores in 62 countries, $13 billion in sales and $1.38 billion in profit.
Schultz’s vision for Starbucks was a social community with a defined culture that people would aspire to connect with (over a cup of distinctive, dark-roasted coffee). Seemingly, the personality of the brand impacted every decision about the experience and the ambiance — the furniture, the artwork, the exotic names of the bean origins, even the music.
With so much written about the success of great companies led by outstanding strategic visionaries, one has to wonder why strategy is so misunderstood by so many of today’s leaders.