What is Strategy?

Summary

The video explores the essence of strategy, differentiating it from tactics, goals, and objectives. It emphasizes that true strategy answers four key questions: where to compete, what unique value to offer, which resources and capabilities to use, and how to sustain that value. Using IKEA as an example, it highlights the importance of clear boundaries in strategy. The video also touches on different strategic perspectives, such as Henry Mintzberg's views on intended, emergent, and realized strategies, and the significance of timing in execution.

Takeaways

• 📝 Strategy is not merely tactics, goals, objectives, or descriptions; it encompasses more comprehensive plans and actions.
• 📈 Many companies misuse the term 'strategy' to describe smaller, less significant components of their business operations.
• 🏛️ The term 'strategy' originates from the Greek word 'Strategos', meaning the art of the general, emphasizing high-level planning and orchestration.
• 📖 The 'Art of War' by Sun Tzu is a foundational text on strategy, highlighting the importance of winning and strategic coordination.
• 🏆 Strategy involves providing clear and concise answers to four key questions: Where do we compete? What unique value do we bring? What resources and capabilities do we utilize? How do we sustain our ability to provide that unique value?
• 🛠️ Resources and capabilities can be tangible (like a diamond mine) or intangible (like a reputation), and they are crucial in delivering value.
• 🔄 A well-defined strategy not only explains what a company does but also what it does not do, setting clear boundaries.
• 🌍 IKEA's strategy involves selling inexpensive, stylish furniture globally, using efficient design and mass production techniques, which are difficult for competitors to imitate.
• ⏳ Timing and staging are critical components of a successful strategy; even a great plan can fail with poor timing.
• 🔄 Strategies can emerge from actual practices and may differ from the original plans, emphasizing the dynamic nature of strategic development.

Q & A

What common mistake do companies make when discussing their strategies?

Companies often mistake tactics, goals, objectives, and descriptions for strategies. These elements are mere strategic threads, not comprehensive strategies.

What is the origin of the word 'strategy'?

The word 'strategy' originates from the Greek word 'Strategos,' meaning the art of the general. It was initially associated with the art of war and the role of a general.

What is the primary goal in the context of the art of war, as mentioned in the transcript?

In the art of war, the primary goal is to win. Losing is considered very bad, and the general's role is to orchestrate and coordinate efforts to achieve victory.

What are the four key questions that a clear strategy should answer?

The four key questions are: 1) Where do we compete? 2) What unique value do we bring to win in those markets? 3) What resources and capabilities do we utilize to deliver that value? 4) How do we sustain our ability to provide that unique value?

How does IKEA exemplify a clearly defined strategy?

IKEA sells inexpensive contemporary Scandinavian-style furniture to young white-collar customers globally. It achieves this through scale, excellent design capabilities for inexpensive design, and efficient shipping methods using flat boxes.

Why is IKEA's strategy difficult for competitors to imitate?

IKEA's strategy involves complex interdependence, including designing their own furniture, manufacturing at high volumes, and shipping in flat boxes. Competitors would need to change their entire design, manufacturing, and shipping processes to imitate IKEA.

What does a really good strategy provide besides articulating why a company wins with customers?

A really good strategy also provides clear boundaries, indicating what the company does not do, helping to maintain focus and avoid overextension.

What additional perspectives on strategy are mentioned as important but not covered in detail?

The additional perspectives include Henry Mintzberg's differentiation between intended, emergent, and realized strategies, and the importance of staging or timing in executing a strategy successfully.

How does Henry Mintzberg view the relationship between intended and realized strategies?

Henry Mintzberg believes that sometimes the real strategy emerges as it is executed and may not align with the original plan. Thus, strategy can be more about what is actually done rather than what was intended.

What should one focus on when analyzing or developing strategies, according to the transcript?

One should focus on having compelling answers to the four key questions: Where do we compete? What unique value do we bring to the table in those markets? What resources and capabilities do we utilize to deliver that value? How do we sustain our ability to provide that unique value?

Outlines

00:00

📚 Understanding Strategy Beyond Buzzwords

This paragraph delves into the fundamental concept of strategy, distinguishing it from tactics, goals, and objectives. It critiques the misuse of the term 'strategy' in business discussions, highlighting that many aspects labeled as strategic are merely components of a broader strategy. The origin of the word 'strategy' is traced back to the Greek 'Strategos', emphasizing its roots in military strategy and the role of a general in orchestrating victory. The paragraph outlines the critical role of a general in war, drawing parallels to the challenges faced by modern executives in formulating and executing business strategies. It introduces four key questions that define a clear strategy: where to compete, the unique value proposition, the resources and capabilities utilized, and how to sustain the unique value over time. The goal is to provide a framework for understanding and formulating effective business strategies.

05:02

🛠️ IKEA's Strategy: A Case Study in Clarity and Execution

This paragraph presents IKEA as a case study to illustrate a well-defined strategy. IKEA's strategy is characterized by selling affordable, contemporary Scandinavian-style furniture to a global audience, primarily young white-collar customers. The company's strategic choices, such as market selection and store placement, enable it to offer competitive prices. IKEA's unique value proposition is further explained through its design capabilities and mass production techniques, which allow for cost-effective manufacturing and shipping in flat boxes. This approach significantly reduces shipping costs and enables IKEA to maintain a competitive edge. The paragraph also highlights IKEA's strategic boundaries, such as not competing in the high-end furniture market or providing extensive customer service or customization. The interdependence of IKEA's strategy components makes it difficult for competitors to replicate, emphasizing the importance of a cohesive strategy. The discussion concludes by reinforcing the importance of answering the four key strategic questions to articulate a clear and effective strategy.

Keywords

💡Strategy

Strategy refers to a high-level plan to achieve one or more goals under conditions of uncertainty. In the context of the video, strategy is defined as a comprehensive plan answering four key questions: where to compete, the unique value brought, the resources and capabilities used, and how to sustain that value. Examples include IKEA's strategic decisions on market selection, value proposition, and operational tactics.

💡Tactics

Tactics are the specific actions or steps taken to accomplish the strategy. The video distinguishes tactics from strategy, noting that many companies mistakenly refer to tactics as strategies. For instance, stating 'our strategy is to be the low-cost provider' is actually a tactical approach rather than a complete strategy.

💡Unique Value

Unique value is what differentiates a company's offerings from those of its competitors, compelling customers to choose them. The video emphasizes that a key part of strategy is understanding and articulating this unique value, such as IKEA's inexpensive yet stylish furniture and its unique showroom experience.

💡Resources and Capabilities

Resources and capabilities refer to the assets (tangible and intangible) and skills that a company utilizes to deliver its unique value. The video mentions examples like exceptional human capital or superior technology, which IKEA uses in its design capabilities and global supply chain management.

💡Sustainability

Sustainability in the strategic context refers to the ability to maintain competitive advantage over time. This involves barriers to imitation that prevent competitors from replicating a company's success. The video discusses IKEA’s sustainable practices, such as its global scale and flat-pack shipping model, which are difficult for competitors to imitate.

💡Competitive Arenas

Competitive arenas are the specific markets or industries where a company chooses to compete. The video highlights the importance of selecting the right arenas, illustrated by IKEA’s focus on young, white-collar customers in the global market for inexpensive contemporary furniture.

💡Emergent Strategy

Emergent strategy is the concept that a company's actual strategy evolves over time through actions and decisions, rather than being a fixed plan. The video mentions Henry Mintzberg’s idea that real strategy often emerges from what an organization actually does rather than what it intends to do.

💡Orchestration

Orchestration in strategy involves coordinating various elements and actions to achieve the overall goal. The video uses the analogy of a general in war to explain that a strategist must manage multiple units and tactics in a cohesive manner, much like how an executive coordinates different business activities.

💡Henry Mintzberg

Henry Mintzberg is a renowned business strategist known for his theories on organizational management and strategy. The video references his ideas about the differences between intended, emergent, and realized strategies, emphasizing that strategy can often be understood better through actual practices rather than formal plans.

💡The Art of War

The Art of War is an ancient Chinese military treatise attributed to Sun Tzu, focusing on strategy and tactics in warfare. The video mentions this work to highlight the origins of strategic thinking, drawing parallels between military and business strategies, particularly the importance of high-level planning and execution.

Highlights

Strategy has become a buzzword, often misused to describe tactics, goals, objectives, and descriptions.

A true strategy answers four key questions: where do we compete, what unique value do we bring, what resources and capabilities do we utilize, and how do we sustain our ability to provide that unique value.

The word 'strategy' originates from the Greek word 'Strategos,' meaning the art of the general, specifically related to the art of war.

Strategy involves high-level orchestration and vision, akin to the role of a general in war.

Effective strategy requires understanding competitive arenas, markets, and unique value propositions.

Resources and capabilities, such as human capital, technology, and network connections, are essential for delivering unique value.

Sustaining unique value involves creating barriers to imitation and understanding factors that prevent competitors from replicating your value.

IKEA's strategy example: inexpensive Scandinavian furniture, fun and low-pressure showrooms, and flat-box shipping for cost efficiency.

IKEA's complex interdependent strategy is difficult for competitors to imitate due to their unique design, manufacturing, and shipping processes.

A good strategy also provides clear boundaries on what the company does not do.

The distinction between intended, emergent, and realized strategies, as emphasized by Henry Mintzberg.

Strategy can often be more about what you actually do rather than what you plan to do.

Timing and staging are crucial for successful strategy execution.

To articulate a clear strategy, have compelling answers to the four key questions: where, what, how, and sustain.

Understanding and answering the four key questions is essential for strategic analysis and strategy development.

Transcripts

since this is a strategy course it seems

only natural to start with a discussion

of what strategy is and what it isn't

first consider the following strategy

statements drawn from actual documents

and announcements from well-respected

companies

our strategy is to be the low-cost

provider we are pursuing a global

strategy

the company's strategy is to integrate a

set of regional acquisitions

strategy is to provide unrivaled

customer service

chick intent is to always be the first

mover

our strategy is to move from defense to

industrial applications

what do these strategy statements all

have in common well first of all none of

them are actually strategies they

represent tactics goals objectives and

descriptions but not strategies they are

mere strategic threads small components

of overall strategies

the problem is that in recent years

strategy has become something of a

buzzword

whenever we want to sound smart and

demonstrate our business acumen we just

make sure the word strategy shows up in

our ideas

the result is that we now refer to many

mundane and uninteresting aspects of the

business as being strategic when there

are really only small pieces of the

overall business strategy

so then what is the strategy

being clear about what a strategy is

will help us understand more clearly

what a strategy is not well the word

strategy originally comes from the Greek

word Strategos meaning the art of the

general

in other words the origin of strategy

comes from the art of war and

specifically the role of the general in

a war in fact there's a famous treatise

entitled the art of war that is said to

have been authored by its son sue a

legendary Chinese general around the 2nd

century BC strategists consider the art

of war to be one of the great

masterpieces on strategy

in the art of war the goal is to win

winning is good and losing is very very

bad

can you imagine the great Hannibal

saying something like our strategy is to

beat Rome No Hannibal's goal was to

defeat Rome his strategy was to bring

hidden strengths against the weaknesses

of his enemy at the point of attack to

achieve that goal such as crossing the

Alps when the enemies did not believe he

could the general is responsible for

multiple units that must work together

to win the battle and the war

the way the general adds value to the

battle is by providing high-level

orchestration and vision

that is he can see what the field

commanders cannot great generals think

about the whole and they work to

coordinate all the necessary pieces even

sacrificing some pieces when necessary

in order to ensure that the overall goal

is achieved

we sometimes think of businesses

modern-day war but the casualties are

more frequently investor pocketbooks

rather than human lives the challenge of

the executive is similar to the

challenge of the ancient general the

modern-day executive needs to develop a

set of complex tactics and activities

that lead to a victory so how do we know

what our strategy is or if we do not

have a strategy how do we formulate one

strategy provides clear and concise

answers to four key questions first

where do we compete

other words what competitive arenas or

markets will we be active in we define

markets as industries product markets

within those industries and geographic

markets second what unique value do we

bring to win in those markets in other

words why do our customers choose our

products and services when they could

have chosen the products and services of

any competitor out there

our unique value could be cost or

differentiation which includes image

customization styling reliability etc

third what resources and capabilities do

we utilize to deliver that value do we

have exceptional human capital superior

technology unrivaled network connections

or a unique reputation resources

generally refer to the things we have in

our toolbox these things can be tangible

such as a diamond mind or an oil field

or they can be intangible such as a

reputation capabilities generally refer

to the things that we can do or our

ability to use the things in our toolbox

fourth how do we sustain our ability to

provide that unique value are there

barriers to imitation are there factors

that keep our competitors from being

willing or able to replicate the value

we create for our customers this last

question focuses on understanding what

factors allow us to continue to win over

time

so one example of a clearly-defined

strategy comes from IKEA IKEA sells

relatively inexpensive contemporary

Scandinavian style furniture and home

furnishings to primarily young

white-collar customers all over the

world by being the first furniture

retailer to put stores in every major

country IKEA has greater scale than

local competitors the choice of markets

has helped IKEA offer their unique value

propositions of inexpensive fashionable

furniture IKEA sells this furniture in a

fun and low-pressure showroom where

order fulfillment is usually immediate

IKEA is able to sell inexpensive stylish

furniture because they've developed

excellent design capabilities for

inexpensive Scandinavian design but

perhaps even more important is the fact

that products are designed to be

manufactured by suppliers using mass

production techniques and then shipped

in flat boxes the flat boxes require

that final assembly is done by the final

customer but this dramatically drops

shipping costs because shipping costs

are so low

IKEA suppliers can manufacture furniture

and high volumes and ship it around the

globe

the complex interdependence of IKEA

strategy makes it difficult for

competitors to imitate because they

don't design their own furniture and

their suppliers don't manufacture

furniture and high volumes and ship from

flat boxes to imitate IKEA they would

have to completely change the way they

design manufacture and ship their

furniture note that we learn what IKEA

does but we also learned what IKEA does

not do IKEA does not compete in the

high-end furniture business IKEA does

not try to provide high levels of

service or customization to customers

IKEA designs most of its furniture but

does not try to manufacture its products

thus in addition to clearly articulating

why we win with customers a really good

strategy also provides a clear boundary

line signaling what we do not do it is

also important to note that what we've

discussed briefly over the last few

minutes is not in any way intended to be

comprehensive and there are many

important perspectives that are excluded

for example Henry Mintzberg

one of the most well respected business

strategists of our day would want to

emphasize the important differences

between an intended strategy an emergent

strategy and a realized strategy he

would want you to know that sometimes

strategy is really more about what you

actually do rather than what you intend

to do

that is your real strategy emerges as

you do it and may not line up with your

plans other strategists would not want

me to leave out the importance of

staging or timing you may have a great

plan but if you execute the plan with

poor timing it may fall flat to be

successful you also need to have a well

orchestrated set of time steps in order

to win in the marketplace in conclusion

since we cannot adequately cover every

experts opinion in just a few minutes I

really want to focus your attention on

the four questions we discussed before

as you strategically analyze companies

and/or develop your own strategies you

need to have compelling answers to these

four questions first where do we compete

second what unique value do we bring to

the table in those markets third what

resources and capabilities do we utilize

to deliver that value

and forth how do we sustain our ability

to provide that unique value when you

have these answers you will be well on

your way to articulating a clear

strategy