Strategic Planning and Strategy

Defining Strategy

Theorists have often debated on ‘what’ strategy is and ‘how’ it comes about. Some of them focus more on allowing a firm to position itself in an industry in order to choose the game to play, while others focus more on determining how well a given game is played. Broadly, strategy is about both – that is, choosing new games to play and playing existing games better.

In view of globalization, companies increasingly have to be flexible to respond rapidly to competitive and market changes, as well as changing technologies. Porter (1996) defines strategy by drawing a distinct difference between strategy and operational effectiveness. He highlights that whilst operational effectiveness means performing similar activities better than rivals perform them, strategic positioning means performing different activities from rivals’ or performing similar activities in different ways. In short, competitive strategy is about being different. He emphasizes three basic ingredients of strategy:

• 1.

  Ability to identify unique activities;

• 2.

  Requirement for trade-offs; and

• 3.

  Need to combine activities to achieve a strategic fit for sustainability.

A strategic position is not sustainable unless there are trade-offs with other positions. Trade-offs occur when activities are incompatible. And, clearly, trade-offs create the need for choice and protect companies against a competitor that intend to imitate a successful position by repositioning itself or straddling to match that position while maintaining its existing position.

On strategic positioning, there are three distinct types. First, variety-based positioning is about choosing and producing a subset of an industry’s products or services. Porter (1996) explains that it makes economic sense when a company can best produce particular products and services using distinctive sets of activities. Second, needs-based positioning arises from understanding that the market has groups of customers with differing needs, and when a tailored set of activities can serve those needs best. Those special needs can range from price sensitivity and demanding different product features to different needs on different occasions and different transaction preferences. Third, access-based positioning relates to companies having to segment customers according to how they can be reached and served in the best way. Among the three types of positioning, segmenting by access is less common and less well-understood.

From a more holistic viewpoint, Whittington (2001) introduced four different perspectives on strategy. The approaches are, namely, Classical, Processual, Evolutionary, and Systemic. The main characteristics of the four approaches are summarized in Table 1.

(Source: Whittington, 2001)