What is strategy?

We review the concept of strategy, why it is important within the corporate sector and what factors have a clear impact on it.

by | Jun 25, 2020

We are very convinced that you have heard the term strategy hundreds of times, but when the time comes to define it correctly is when difficulties arise. The main problems are: either to confuse the strategy with the active part of the business, i.e., the operational part; or not having the concept well defined and, therefore, not being able to understand exactly what is part of it.

Let’s look for a visual example to help us better understand how strategy works within a company. Let’s imagine we have a boat.

– Our ship, to be productive and generate income at the end of the month, needs to go from a port A to a port B (it has a purpose).

– Our ship has the ability to move, has a sail or motor, has trained personnel and is in perfect condition to navigate as soon as we give the order (it has a good operational part).

– Our ship has very clear what kind of voyages it is dedicated to, it has defined very well with which loading technology it wants to work and it gets clients who ask it to transport goods or people (it has a marketing and sales plan).

aerial photography of tanker ship

However, how should this ship do it to reach its goal? What is the best time to start the journey? It is clear to us that it has plenty of capacity to navigate and is capable of getting orders but… what path should it take? Can you imagine a ship without a helm? Well, this is exactly what happens to many companies around us.

They have a goal (more or less well defined), they have a staff perfectly prepared to perform the tasks that are asked of them, they have all the material resources to achieve the goal, but the problem is that they do not know how they should do it to get where they want to go. They have no strategy.

The strategy tells us HOW to get from our current state to a future state that we have decided we want to reach.

brown wooden ship's wheel

Therefore, the strategy is in charge of marking all the actions that we must do to be able to achieve the objective that we have set ourselves at the beginning.

In addition, to do it correctly there are a series of parameters that must be taken into account.

The objective

In 1981, George T. Doran defined that the objectives, ideally, should be SMART. This word is an acronym that serves to introduce the concepts that describe a well-worked objective:

Specific

Measurable

Achievable

Realistic

Time-limited

This means that our objectives, (which are the ones that will set the strategy), must comply with the parameters that we have just mentioned. Many times companies are afraid to set objectives like these, since it avoids them later to pass accounts at an internal level.

For example, if we set a goal of doubling sales, but don’t limit it in time, we can always defend that we are on the right track, even if they grow at a rate that is insufficient for the expenses we are generating. If the goal is to increase sales by 10% in the next six months, it is very clear at what point we must evaluate if the work has been done correctly and look for points of improvement that can be applied to the strategy.

Let’s not talk about those companies anymore that their objective in social media is that their stock is doing well. What does “well” mean? What indicators will tell us if we are doing the job well? If the objective is not specific, we will not be able to find indicators that measure the achievement.

You would be surprised to know the large number of companies that invest significant amounts of money in digital strategies and websites without knowing for what purpose. Moreover, this is one of the main problems of small and medium enterprises. Remember what we said about a ship without a helm?

Therefore, a poorly defined objective will cause the difficulty of being able to make an efficient strategy for the company and will imply not evaluating it correctly, which could be very serious.

red and yellow hand tool

Internal factors

When we talk about internal factors, we mean all those aspects within our company that will help us make the best decisions. It is necessary to evaluate which are the most important strengths and weaknesses to define the strategy. Let’s remember that we want to define the HOW to reach our objective. Will we do it correctly without analyzing, for example, our weaknesses?

Making an evaluation of this nature (like that of the external factors that we will see later) can be very subjective. That is, the results will depend largely on the person who makes it. To try to be as objective as possible, we need to find methods that can help us reduce the error, such as creating a multidisciplinary team with different profiles within the company or having professionals dedicated to perform this task on a regular basis and knowing how to develop it correctly.

A well-known methodology of how to make a good analysis of internal factors of the company is the SWOT analysis. Another option is Porter’s five forces analysis.

External factors

In the same way that we have just mentioned the need to know the strengths and weaknesses of our company, it is also vital to know what threats or opportunities our environment can provide.

If we follow the example of the ship, we will need to be informed at all times of the weather throughout our journey, right? Well, a company needs to be aware at all times of possible “storms” or “downwind” that may come.

Another example is the automobile sector, which is undergoing a great change with the entry of the electric vehicle and needs to go constantly, hand in hand with the regulatory frameworks of the territories, since it needs a whole infrastructure related to its product so that consumers can take them seriously. An example of analysis of external factors is the PESTEL analysis.

Methods for working strategy

At this point, we are clear about the concept of strategy and the main factors we need to analyze in order to define it correctly. With these factors clear, we must know that there are different methods to find our optimal strategy.

As we have commented before, our strategy will always depend on an objective and will try to achieve it in the most efficient way.

The vision may seem redundant, but this should be the work cycle that a company should execute. Once the objective is defined, it outlines the strategy, which will indicate the action plan that will generate the results. These results do not directly validate the objective, but we must first observe if, according to the results, actions can be optimized. Then, we will have to analyze if the actions validate the strategy and, finally, if this has validated the initial objective that we had posed.

How can we help each other, then, in the creation of our strategy once we have the objective very clear? With one of the following methods:

– Canvas Method

Blue Ocean Method

Porter’s Diamond Method

Does this mean that these are the only methods to find a good strategy? Absolutely not, they are methods that have been widely contrasted and that in a consulting firm we have successfully put into practice for different clients.

It does not escape us that these models we just mentioned are always present when we talk about the creation of a business model. But, precisely because of this, they are good for formulating strategies, since they draw very well the internal and external factors that the company must face.

It should be noted that some methods are more visual than others are and, therefore, depending on how the process of creating the strategy is, perhaps they are more or less optimal than others.

Clear ideas

– Strategy is always given by an objective.

– The strategy tells us how to complete the objective, that is, it defines the plan of actions to be executed.

– It is necessary to have a complete vision (internal and external factors) of the company to be able to be sure that we design an effective strategy.

– There are methods that can help us create strategies.

– We can create strategies for the whole company or for specific departments.