Business Strategy

According to Michael Porter, "Almost no consensus exists about what corporate strategy is, much less about how a company should formulate it"[1]. This is due to a combination of factors that relate to strategy terms, concepts and principles - and their practical application.

This article is designed to provide executives with a better understanding of the nature and purpose of strategy and draws on Jack Welch's record at GE, as well as examples from other companies, to show how these strategy-related terms, concepts, and principles apply in practice.

The terms, concepts and principles of strategy

From my work as a strategy consultant, executive, and professor of strategy in graduate and executive programs, I have found that strategy can be best understood if it is viewed as an element of a troika that includes policy, strategy, and resources (the PSR Troika). I have also found that it helps to focus on two aspects of strategy: the causal relationship between strategy and the other elements of the PSR Troika; and the plurality of inputs, options, and outcomes that characterize strategy.

The elements of the PSR Troika

Policy is from the word for the Greek city-state, polis. In government, policy is the product of a legislature that delineates the goals, objectives and priorities of the state. In business, the term "policy" is used to define a company's principal goals and objectives and to prescribe the company's operational domain. Corporate policies define a company's reason for existing (to maximize shareholder wealth and/or fulfill one or more social or economic function), what the company does (design, develop, manufacture and/or market products and/or services), and where the company does it (by industry and/or geographical area). The responsibility for determining corporate policy rests with a company's legislative branch - its board of directors - under the leadership of the chairman of the board. Policy defines a company's raison d'кtre and sets the parameters within which it intends to achieve its purpose. Policy defines what is to be achieved.

Strategy is from the Greek strategos, which means general. In the Greek city-states, the military general was responsible for formulating a plan for bringing the legislature's policy decisions to fruition and for implementing that plan. In business, strategy is a design or plan for achieving a company's policy goals and objectives. Whereas, policy defines the company's goals and objectives and its operational domain, strategy decides how the company's goals and objectives will be achieved, what operational units will be used to achieve the company's goals and objectives, and how those operational units will be structured. Strategy also determines what resources will be needed to achieve the company's goals and objectives and how these resources will be acquired and used. Strategy is a design or plan that defines how policy is to be achieved.

This definition of strategy applies to corporate strategy and unit strategy. Unit strategies are plans for achieving the goals and objectives of an operating unit, an industry or geographical operating area, or a managerial or business function. Unit strategies include a company's marketing strategy, acquisition strategy, alliance or affiliation strategy, human resources recruitment and retention strategy, production strategy, and financial strategy. They also include a company's division strategies, subsidiary strategies, and country strategies. Corporate strategy, on the other hand, refers to strategy that is used to achieve corporate goals and objectives, that is, to achieve corporate policy.

Whereas policy is a legislative function, strategy is an executive function. The responsibility for formulating and implementing a corporation's strategies rests, therefore, with a company's senior management, under the leadership of the chief executive officer.

The third element of the PSR Troika is resources. Resources are the matйriel and methods that provide the components of corporate and unit strategies. Matйriel includes capital, physical plant, raw materials, and parts, and less tangible components such as distribution networks, technology, human resources, market data, market reputation, and the ability to borrow. Methods includes a range of management, manufacturing, and marketing functions and processes, such as motivational, negotiating, and alliance skills, and other intangible resources that are covered by the terms "benchmarking," "best practices," "outsourcing," "ISO 9000," "total quality management," "core competencies," and "competitive capabilities." A company's resources make the formulation of corporate and unit strategies possible and give effect to strategy implementation. Resources are the sine qua non of strategy: without resources, strategy can achieve nothing.

Because resources are a means for implementing strategy, they can be confused with tactics. Both resources and tactics are related to how strategy is achieved, but tactics (from the Greek taktikos, of order or arranging) refers to the detail of strategic designs and to the detailed actions that are needed to effect strategy implementation. Tactics are the detail-how of strategy, whereas resources are strategy's with-what.

The resources element of the PSR Troika provides the with-what for implementing strategy and, therefore, for achieving policy. It is strategy, however, that drives decisions relating to the acquisition, development, and deployment of a company's resources; and it is strategy that determines the priority that will be given to different resources, how the combination of resources will be configured, and how resources will be used.

Weighting the elements of the PSR Troika

A troika is a system made up of three elements. What distinguishes the troika from other triumvirates, however, is that in a troika, the three elements are equal in weight and standing, and all three elements act in unison. A graphic example of this is the Russian troika: the carriage, wagon, or sleigh that is drawn by a team of three horses abreast.

In the case of the PSR Troika, however, current usage by management theorists and corporate executives gives the three elements very unequal weight and standing. Policy is seen as an abstract and somewhat bookish concept that is more applicable to the public sector than to business, and resources are seen as necessary but boring. Strategy,