Key learnings from an article by Hambrick and Fredrickson – Are you sure you have a strategy?
There is strategic fragmentation approach deployed by many consultants and scholars when devising strategy for organizations. This approach entails focusing only on one aspect or few elements of the strategy in an isolated manner hence failing to provide the broader general perspective of the strategy. This strategy setting approach, according to the authors, misinforms executives and misleads managers especially when “everything is called strategy”. This further leads to confusion and undermines the credibility of executives.
“Business generals, whether they are CEOs of established firms, division presidents, or entrepreneurs, must have a strategy — a central, integrated, externally oriented concept of how the business will achieve its objectives.”
In the article, strategy is said to come from the greek word, “strategos” which means “the art of the general”. The authors use the analogy of an army general and a field commander. They equate generals to company CEOs and commanders to managers. Just like generals, CEOs are responsible for multiple aspects of the organization and tend to “think about the whole”. They have to devise a strategy that is comprehensive, integrated, “externally oriented”, and one that outlines “how the business will achieve its objectives”. It is worth noting that there are elements that are not part of a strategy however they either guide the strategy setting exercise, act as inputs to the strategy or support the strategy during execution. These include mission, vision, policies, systems and many other elements that are internal to the organization.
The five elements of a strategy
There are five major parts of a strategy that act as “domains of choice”. These provide a structure and fundamental questions that guide the strategy setting exercise. These elements are:
Arenas: Arenas describe specifically where the organization will be active and what areas in particular the organization will focus on. These include market segment, geographic areas, product categories and core technologies. In addition to that, it is important to indicate how much emphasis each aspect of the arena will have.
Vehicles: The vehicles’ part of the strategy is about deciding “how to get there”; the means to establishing and maintaining presence in the specified arenas. The choice of vehicle shouldn’t be regarded as implementation detail but instead should be strategic in nature and determined upfront.
Differentiators: This domain entails outlining how the organization will compete and “win in the marketplace”. It involves attracting customers by achieving irresistible marketplace advantage such as lowest price, highest quality and highest value.
Staging: Staging is prioritizing and sequencing the organization’s major moves to achieve success. Factors that drive staging choices include availability of resources such as funding and staffing, urgency, and the pursuit for the achievement of credibility and quick wins.
Economic logic: The fifth element, economic logic, clearly illustrates how the organization will generate profits that are “above the firm’s cost of capital”. This can be obtained by offering “difficult to match products” and superior customer service. In addition to that, economic gains can also be obtained through economies of scale, efficiencies through standardization and replication, and other methods that can reduce the operational costs of the firm.
Putting it all together
The authors emphasize that a strategy needs to equally consider and incorporate all five domains of choice as:
- All five elements of the strategy need to have consistencies and should “align with and support each other”.
- All of them are important elements and without one a strategy will have a major gap or critical omission.
- The designs of all other internal organization elements that reinforce the strategy such as policies depend on the careful specification of the five domains of choice.
- All the elements of the strategy include aspects of “preparation and investment” that generate certain capabilities for the organization.