What is Strategy?

An organization's 'strategy' is how it tries to reach its objectives.

This seemingly simple definition is made up of elements that have important implications for understanding what strategic management is all about. First, it requires that some 'objectives' exist and that people know what they are.

Then, the question of 'how' those objectives are pursued splits into two parts

• the position that the organization adopts relative to other organizations
• and the various initiatives, policies and decisions it adopts as it moves forward through time.

'Strategic management', then, consists of three related activities:

• Choosing objectives for the organization.
• Positioning the organization relative to others in its market or environment.
• Steering the organization over time through the policies and decisions that affect its performance.

Choosing objectives for the organization.

The first strategic activity is to define management objectives for the organization. Objectives may be financial, e.g. growth in cash-flow, or non-financial, such as reaching a target number of customers.

Unless an organization is in such difficulties that it seeks merely to survive, several aims may be pursued in parallel, e.g. growth in market share and profits. Some objectives may also be constraints on others, such as increasing profits whilst not harming service quality.

Non-financial aims are common in public service and voluntary cases, e.g. cutting rates of crime or reducing levels of hardship, but also arise in business cases. Airlines, for example, commonly have targets for passenger volumes, and telecoms firms have aims for numbers of subscribers. However, aims like these are often linked strongly to revenue or profit goals.

Objectives also change as we make progress towards them - if it is looking easier than expected to hit a goal, then a new, higher aim may be chosen.

Positioning the organization relative to others in its market or environment.

Management’s second strategic activity is to position the organization, to find their niche within their chosen market or environment.

In business cases, this involves deciding which customers to serve, what products and services to provide, and how this will be done. It is rarely best to try serving all possible customers in a market, so the strategic positioning involves targeting particular groups and their needs.

The choice of what to offer is not limited to the list of products and services, but includes the characteristics of those items - quality and performance, for example.

The question of how this will all be done covers a variety of issues, such as the hoped-for price level relative to competitors, marketing messages intended to differentiate products from alternatives, and what market channels to use - should we go through stores or distributors, or direct to the final customer?

Non-business organizations also make positioning choices. A charitable organization may decide to serve some groups of potential beneficiaries and not others, to focus on providing a particular set of services, and do so by employing its own staff or by funding others to undertake the work.

Steering performance of the organization over time

Having decided on strategic management objectives, and a position where the organization might be successful in pursuing those objectives, management then has the on-going challenge of developing effective policies and making good decisions to steer its strategy and performance. This is the third and final strategic activity management undertakes.

These policies and decisions may be both large and infrequent, for example trying to enter a new market, or continuous and apparently small, such as what rate to hire people. However these apparently small decisions can have substantial implications for performance outcomes long into the future.

Choices and decisions may be well-organized into a deliberate strategy, or may evolve as the organization reacts to events.

Strategy Dynamics can make a major contribution in identifying possible courses of action and the management decisions that may be necessary to achieve the desired outcome.