What is Strategy?

As an assignment in the Strategy and Marketing course of my ongoing MBA studies we were required to give our personal view of what strategy is and I thought I should publish the result here. Part of the reading for the assignment included five articles from Harvard Business Review, three by Michel Porter and two by Kathleen Eisenhardt.

The three articles by Porter takes a high level perspective, defining strategy in terms of the nation state, the industry as a whole and strategy at the highest level of the enterprise. Essentially this is a top-down perspective, or perhaps one could call it outside-in. For Porter strategy is about making conscious trade-offs (what not to do), supported by a unique set of activities that reinforce each other and are difficult to reproduce, all in all creating a unique strategic position giving a sustainable competitive advantage (What is Strategy, p 70).

In the two articles by Eisenhardt et al strategy is something emergent, arising from the pattern of activities (patching and the application of simple rules). It is more about the internal strategy process than finding a strategic position. Essentially this is more of a bottoms-up perspective on strategy, or perhaps one could say inside-out.

Porter and Eisenhardt also differ in the time scale of strategy. Strategy in the eyes of Porter is long term; if a strategy does not lead to a sustainable advantage with a high performance outcome, it is not strategy or at least not successful strategy. As a counter point, the two articles by Eisenhardt et al discuss strategy with a shorter horizon (“internet time”).

The two following quotes make the differences particularly evident. In *Strategy as Simple Rules *(p 116), Eisenhardt says:

Like all effective strategies, strategy as simple rules is about being different. But that difference does not arise from tightly linked activity systems or leveraged core competencies, as in traditional strategies. It arises from focusing on key strategic processes and developing simple rules that shape those processes. When a pattern emerges from the processes-a pattern that creates network effects or economies of scale or scope – the result can be a long-term competitive advantage like the ones Intel and Microsoft achieved for over a decade. More often, the competitive advantage is short term.

This is the exact opposite of what Porter says in *What is Strategy *(p 75):

Strategy is creating fit among a company’s activities. The success of a strategy depends on doing many things well-not just a few- and integrating among them. If there is no fit among activities, there is no distinctive strategy and little sustainability.

Personally I tend to think about strategy in military terms: strategy is about winning the war; tactics however is about winning a battle. To me it seems like Eisenhardt’s patching and simple rules are more about tactics and less about strategies. They tell you how to maneuver in everyday business but they do not tell you much about how competitive advantage can be sustained. For Eisenhardt, sustainable competitive advantage is reached more by accident than deliberate choice. Another way to look at it is that she discusses two strategies in particular, strategies that both serve well in a volatile business environment. By continuously reconfiguring the business to fit the current business environment (patching) and by creating simple rules allows an organization to maneuver with agility in the short term. It does not say anything about what the right direction or what business the company should be in. It is in effect, giving up strategy and focusing only on tactics. In Eisenhardt’s view, this is the right choice since finding a sustainable strategic position is very difficult or even near impossible in todays accelerating business context.

An interesting, and I would say even somewhat damaging fact about Strategy as Simple Rules, is that several of the provided examples that in hindsight really should be considered strategic failures: Enron’s simple rules were certainly not right since it eventually led the company to bankruptcy in 2001; Yahoo though being one of the dot-com stars have not done so great after the dot-com bubble burst and Dell is struggling with the competition that has imitated its business model with an innovative supply and channel management. Dell really is a case in point of Porter’s argument on Operational Efficiency from What is Strategy. Although these examples do not invalidate her argument about the benefit of using simple rules, I believe it does illustrate rules more tactical than strategic nature.

The business impact of a more “Porteresque”, long term view of strategy is really that business should be clear on what business it is in. Trying to do things better or be more nimble is not a sustainable position; in the long term the pack will always catch up. Both Porter and Eisenhardt agree that strategy is about being different (What is Strategy, p 62 and the Eisenhardt quote above). This is something I believe to be almost trivially true: you will not be long term competitive by doing the same thing in the same way as everybody else. Thus a business has to think seriously on what it is doing, how it is doing it, who it is doing it for etc and make sure defends this position vigorously. To close with a another military analogy: a company has to choose its battles wisely.

Primary reference sources:

Porter, M. (1996). What is strategy? *Harvard Business Review. *(November-December) p. 61-78.

Eisenhardt, K & Sull, D. (2001). Strategy as simple rules. Harvard Business Review. (January) p. 106-116.

Secondary reference sources:

Porter, M. (2008). The Five Competitive Forces that Shape Strategy. Harvard Business Review. (January) p. 78-93.

Porter, M. (1990). The Competitive Advantage of Nations. Harvard Business Review. (March-April) p. 73-93.

Eisenhardt, K. & Brown, S. (1999). Patching. Restitch Business Portfolios in Dynamic Markets. Harvard Business Review. (May-June) p.72-82.