This page is a work in progress, part of a multi-year effort to capture and share learnings, frameworks, tools, and processes to run organizations. See Running Organizations for more.

What Is Strategy?

Strategy is a set of choices an organization commits to over the next 2-3 years to embody a mission, a vision, and a set of core values. Every strategy has tactics/activities planned against it, usually in one-year (or longer) increments, and also includes corresponding Annual or Quarterly Goals.

"Strategy is an integrated set of choices that uniquely positions the firm in its industry so as to create sustainable advantage and superior value relative to the competition." (Source: Playing to Win)

Strategy Is Using Limited Resources to Win

The strategy sets the direction for the organization’s growth. Strategy is also about survival. The fewer resources an organization has, the more unified and focused the strategy needs to be. The more resources an organization has, the looser and less coordinated a strategy needs to be.

"The organization needs to decide what it's going to do and what it's not going to do because it has limited resources. The scarcer the resources, the more clearly defined the strategy needs to be...the only reason companies need a strategy is that they have very limited resources." - Jay R. Galbraith (Source: Designing Organizations)

Strategy Is About Trade-Offs

The heart of strategy is making trade-offs. If a strategy doesn't involve making trade-offs and passing up opportunities, it's no strategy at all. A strategy that tries to accomplish everything is straddling. Straddelers don't grow.

"Strategy is scarcity's child and to have a strategy, rather than vague aspirations, is to choose one path and eschew others." - Richard Rumelt (Source: Good Strategy, Bad Strategy)

"Peanut butter syndrome" is a visual metaphor that I see everywhere in organizational strategy. It's explained in Scaling Up Excellence: "A few speeches and workshops and wiping hands clean is the 'peanut butter syndrome' - a thin layer of investment spread across the whole company."

Business case studies often laud organizations for the strategic choices they made, but little coverage is given to the trade-offs they made along the way. Every successful strategy includes missed opportunities. Being clear about what opportunities you'll forgo is key to developing a real strategy.

Questions About Tradeoffs

A good litmus test for any kind of strategic choice is covered in the book The Road Less Stupid. If you can't articulate the many downsides of your strategic direction, you likely don't have a strategy at all:

What is the upside? We are usually experts at this one.

What is the downside? What could go wrong? We rarely can do this one by ourselves because we are irrationally emotional and optimistic about the thing we are deciding about.

Can I live with the downside? Only the pros bother to think about this one, which is why their track record of dumb tax is so much smaller than the track record of the rest of us mortals. (Source: The Road Less Stupid)

Strategy Links Vision, Mission & Purpose to Action

A great mission and vision is a strategy half-completed. Without a clear mission, strategy is entirely up for debate. Without a clear vision, strategy is a set of endless possibilities, anchored by nothing more than vague worldly aspirations.

"Strategy concerns the evolution of the basic mission, whereas operational goals reflect the short-run tactical survival issues that the organization identifies. Thus, when a company gets into basic strategy discussions, it is usually trying to assess in a more fundamental way the relationship between mission and operational goals." - Edgar H. Schein (Source: Organizational Culture and Leadership)

Strategy Makes Vision Feasible

Strategy makes your vision not just clearer but feasible in the minds of everyone in the organization.

"Feasibility also means that a vision is grounded in a clear and rational understanding of the organization, its market environment and competitive trends...Strategy provides both a logic and a first level of detail to show how a vision can be accomplished." - John P. Kotter (Source: Leading Change)

Purpose, mission, and vision can take you a long way, but strategy helps you win in a competitive business environment in which other organizations are trying to accomplish some of the same things.

"As a collective enterprise, a business organization needs to act cohesively. It may have a very clear vision or sense of purpose, and for some types of organization that can suffice to provide the cohesion needed. However, it is unlikely to suffice for a business. A business is a collective enterprise that has to prosper in a competitive environment." - Stephen Bungay (Source: The Art of Action)

Strategy Is Committing to Difference

Different Wins

Having a strategy is not about being "the best" in a market. The "best" is always subjective. A great strategy is a commitment to being different from the competition. That means offering unique value that can’t be matched by competitors.

"Growth" Is Not Strategy

"Hyper-growth," and "growth hacking" is not a strategy. Inorganic attempts to grow either fail to produce lasting results (i.e. "increase ad spend") or compromise a strategic position (i.e. "add more of our competitors' features") by trying to be all-things-to-all-people.

"The approach to growth that works is deepening a strategic position, rather than broadening and compromising it. Deepening a strategy means to make the company's activity more distinctive, strengthening fit, and communicating the strategy better to customers who should value it." - Michael Porter (Source: On Competiton)

"Low Cost" Is Probably Not Your Strategy

Low cost strategies are viable strategies, but generally, only one organization can be the "low cost provider," in a space. There are unlimited differentiation-based strategies, but only one low-cost strategy.

Similarly, trying to "out-Lean" organizations usually isn't the best strategy. Organizations should always look to cut costs in areas that don't lead to their excellence and differentiation, but basing a Strategy around superior operational efficiency is shallow.

Strategy Is Capabilities Fit

Strategy combines your vision and purpose together with a specific playing field, the capabilities you'll build or strengthen, and the necessary management systems to implement those four elements. Creating that "fit" is critical to executing strategy.

"Fit is critical. Fit is the whole system. Fit makes imitation difficult because a competitor would have to imitate the entire system, not just the "positioning" or a few activities." - Michael Porter (Source: On Competiton)

When you have Fit between your Capabilities, you have a Strategy that a competitor would be hard-pressed to copy. Though competitors can match many of your capabilities, your positioning, and even your vision and mission, they can't easily or cheaply copy the entire Fit you're seeking to create.

How Much Strategy Is Enough Strategy?

How Much Do You Know, Right Now?

How much about the future do you feel confident in? If your market and your competition are well-known and slow to change, you know significantly more than the average startup. The more you're confident in, the more strategic analysis you can do, the more strategic choices you can afford to make, and the more central planning you can use to confidently execute.

The More Variables, The Less Strategy

The less you know about the market, the competition, and the customer, the less that developing a strategy will be a good use of your resources. Startups, and any organization that is pre-product market fit, won't benefit from a lot of up-front strategy work.

Iterate As You Go

Strategy and operations work together in a feedback loop. As you operate, you naturally gain more knowledge about the customer, the market, and the competition. Those new inputs should help you evolve your strategy over time.

In well-understood markets, landscapes shift, including how customers buy, the capabilities of competitors, and the technology at play. Strategy can't be stagnant as the landscape shifts.

"There is no checklist, whereby you create and articulate aspirations, then move on to where-to-play and how-to-win choices, then consider capabilities. Rather, strategy is an iterative process in which all of the moving parts influence one another and must be taken into account together." (Source: Playing to Win)

Dialogue is an important tool in creating strategy. Strategy should be a team effort. If you're growing fast, each piece in your operating rhythm needs to be sped up, and you should revisit strategy more frequently.

Elements of Strategy

Five Elements

In this section, we'll dive into Where to Play, How to Win, and Capabilities.

Where You'll Play

Where to Play is about making choices around Product Types, Geographies, Customer Segments, and Distribution Channels.

A great tool for mapping your many possible choices is an Adjacency Map, which I'll cover in the next section.

How You'll Win

Two Ways: Differentiation or Low Costs

There are two general ways to win in a market - through differentiation or through low costs (internal cost structure or low pricing). Most organizations will need to win through differentiation.

Keys to Differentiation

The key to differentiation is not analyzing yourself against competitors and seeing what competitors aren't doing, but by focusing on the dimensions that customers care about, first.

To be able to differentiate effectively, organizations need:

• A strong understanding of customers
• Brand-building capability
• Commitment to innovation

Core Capabilities

The "How" Behind Your Products

A capability is a combination of the "people, processes, technologies, and organization that allows you to deliver your intended outcome" (Source: Strategy That Works).

Capabilities are not products or services, they're the "how" behind your products and services. The "intended outcome" is your vision & mission.

3-6 Differentiating Capabilities

To win, you need 3-6 core differentiating capabilities that fit together coherently. "Core" means they're critical to delivering on your vision and mission. You may have many capabilities, but defining the Core Capabilities is key to generating strategy.

Core Capability Examples

Developing Strategy

Market Analysis Tools To Consider

There are a number of strategy frameworks and analysis tools you can use to build a strategy. Strategy is an act of creation and these tools are for analysis, but they can be helpful inputs to thinking about strategy.

I've left off strategy classics like the Ansoff Growth Matrix, Porter's Five Forces, the BCG Matrix, and PESTLE/PEST/STEER/STEEP/STEEPLE, as I haven't found any of them to be particularly helpful for small-to-medium sized organizations.

Analysis Tools

Making Good Strategy Decisions

Leveraging Strengths

Before solidifying your Core Capabilities and overall Strategy, let's explore the keys to good organizational strategy.

A model by Gerald Adolph and Kim David Greenwood shows three ways to grow, starting from the Core of your business, and moving outward to developing new capabilities. This is a great exercise to follow a Definition of The Core and an Adjacency Map.

If you start by leveraging your existing Capabilities rather than defaulting to building or acquiring new ones, you’ll have a higher probability of success.

A strategy that leverages an organization's existing Core Capabilities is often called an "Edge Strategy," or "Adjacency Strategy." Edge Strategies are covered at length in the book Edge Strategy: A New Mindset for Profitable Growth and Adjacencies are covered in the book Profit From The Core.

"The most successful sustained growth companies almost always follow the pattern of expanding in a regular and organized way into a series of adjacencies around one or two strong cores. The pattern resembles the growth rings of a tree, emanating out from the center, expanding and reinforcing the core." (Source: Profit From The Core)

An Adjacency of What?

Most organizations have multiple products or services and customer segments they're going after. Some have multiple geographies they're targeting. Understanding what the core of your business is is the first step in exploring adjacencies to grow from. The "Core" here, are the Capabilities you have that define the essence of your mission.

"We define the core business as that set of products, capabilities, customers, channels, and geographies that defines the essence of what the company is or aspires to be to achieve its growth mission - that is, to grow its revenue sustainably and profitably." (Source: Profit From The Core)

Adjacencies Are Less Risky

Edge/Adjacency strategies are less risky because they do not require that you build something entirely from scratch and step into a new space that you're unfamiliar with.

"The average 'adjacency move' has a success rate, we find, of 20 to 25 percent. Adjacency moves off a strong core have nearly twice the success rate. And such moves, if 'very close' to a well-defined core, can go even higher." (Source: Profit From The Core)

Finding Opportunity At The Edge

According to Alan Lewis & Dan McKone, there are three key Edges in any organization.

Upselling options, Product Bundling, Customization (and consulting), and Self-Service strategies (i.e. Unbundling) are other areas you can probe to find Capabilities that you didn't have before.

Choosing Capabilities & Tactics

This is a process for mapping Capabilities that I've adapted from Shannon Susko's The 3HAG Way:

Write Down Market Capabilities

Score Your Org and Your Competitors

Discuss Capabilities

Activity System Mind Map

The Activity System Map is a Michael Porter tool that maps your Core Capabilities and the key activities that support those Capabilities. This is a tool you can continue to update and refine over time to visualize your strategy, but for this exercise, creating an initial map is what we're going for. This will help make your strategy real and bring execution into the minds of your team members.

Communicating Strategy

The Strategy must be communicated to all levels of an organization. A long-form document that explains the strategy and specifically, the thinking and rationale that went into the key decisions, is helpful. The goal is to help people understand the strategy and see how it can be put into action.

There are lots of ways to communicate strategy, including Scaling Up's "7 Strata of Strategy," but I feel that the most critical component of communicating strategy is coverage of your 3-5 Differentiating Capabilities. A well-written Strategy Statement can do just that.

Writing a Strategy Statement

What's a Strategy Statement?

A Strategy Statement is a one or two-paragraph statement that reiterates the organization’s purpose, the market context, and how you'll compete in that market.

Components of a Good Statement

Here are the components of a good Strategy Statement from the book The Strategist:

Reasonably short and parsimonious

Specific

States what the company does and why it matters in a way that anyone can summarize without having to quote it literally

Avoids jargon like 'best of breed' 'best in class' or vague words like superior, expert, empowered

People easily recognize it’s you

Check Your Statement

Read your Strategy Statement aloud and make sure it meets these three criteria: (Source: Playing to Win)

Feasibility: Is this a realistic activity system to build? How much of it is currently in place, and how much would you have to create? For the capabilities you would need to build, is it affordable to do so? If unfeasible, reconsider where to play and how to win

Distinctive: Is it distinctive? Is it similar to or different from competitors' systems? Not all elements need to be unique or impossible to replicate - it's the combination of capabilities that must be inimitable.

Defensible: Can it be easily replicated or overcome? If not, good!

Strategy Statement Examples

Here are three examples from the book The Strategist:

Foundation

PurposeMissionVisionCore ValuesStrategy

Designing The Organization

Understanding CultureCultivating CultureOrganizational DesignOrganizational StructureOperating PrinciplesLeadership TeamsDesigning ManagementEffective Teams

Operating Effectively

Operating RhythmGoalsPlanningInternal CommunicationMeetingsMetricsBusiness ProcessResolving IssuesDeciding & Delegating