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I revisited my definition of strategy several years ago and realized recently that I hadn’t written about it – just presented it privately to executive teams in the context of my strategy work with them. I decided to rectify that oversight by writing this Playing to Win/Practitioner Insights (PTW/PI) piece on it called Revisiting my Definition of Strategy: Compelling Desired Customer Action. And as always, you can find all the previous PTW/PI here.
Need for a Definition
For any field to develop, the terms used in the field must be defined. Otherwise, participants can’t discuss the field intelligently, and it is therefore hard for the field to advance. I experienced that phenomenon when I joined the founding board of the Skoll Foundation in 1999 (on which I served for 20 years). Its stated purpose was to invest in, connect, and champion social entrepreneurs, which sounded great. At my first board meeting, when we were reviewing candidates to receive the Skoll Award for Social Entrepreneurship (which included $1M in funding for their organizations), I asked what I thought was an innocent question: OK, so what is a social entrepreneur?
I was relatively taken aback by the multitude of answers I got. Generally, it boiled down to a vague notion of a person doing good for humanity – in an entrepreneurial kind of way. I asked if Mother Theresa was a social entrepreneur. No. OK, how about Steve Jobs? No. How about Muhammad Yunus? Yes. In due course, I gave up and realized that we had a vague definition that provided little guidance as to what was in or out.
I found the fuzziness unsatisfactory, so I worked hard with the brilliant founding Skoll CEO Sally Osberg to come up with a clear and actionable definition of social entrepreneurship to guide our field-building work. In due course, we wrote up our definition in a Stanford Social Innovation Review article called Social Entrepreneurship: The Case for Definition, which has gone on to be the most downloaded article in the history of that journal and the most cited article in social entrepreneurship. Its popularity demonstrated that people in the field needed a definition of the field to work productively in it.
Need for a Strategy Definition
Despite business strategy being a much older field than social entrepreneurship, it still suffers from a lack of consensus on a definition. I see every definition under the sun as I observe and practice strategy. The most common definition is a list of initiatives which the company plans to carry out – and is called a strategic plan. I am not fond of that definition, as I explain in my viral video (with just under 6 million views), A Plan is Not a Strategy. Another definition is an adjective connoting importance. So, strategic sourcing is more important than sourcing. Strategic HR is more important than HR, and so on. Yet another common definition of strategy is a dream – e.g., our strategy is to become the best life insurance company in the world.
These, and many more definitions floating around out in the business world, are simply not helpful. A list of initiatives is just a list. An adjective is just a modifier of another word. And hope is, as my friend AG Lafley always says, is not a strategy.
My Original Definition
In the mid-1990s, as I did a decade later with social entrepreneurship, I leaped into the breach to attempt to provide a useful definition that could guide the practice of strategy. I think I came up with my original defintion in 1995, but the earliest slide of mine that I could find with it is the one below from January 1998 (if you look at the lower-left footer). That served as my definition for a quarter-century.
Funnily, I was prompted to look for the origin of this definition because I was recently asked to work alongside a consultant who parroted this exact, word-for-word definition of strategy in his presentation – without citing me as the source. This kind of thing happens frequently, so I was not terribly surprised. And the beneficial outcome of his plagiarism is that it gave me the impetus to write this piece.
In any event, there are five important elements of my original definition.
First, it is made up of choices – to do some things and not to do other things. You don’t have a strategy if it doesn’t identify what you are not going to do.
Second, it is an integrated set. It is not a list. It is a set of choices that fit together and reinforce one another. At the same time as I was doing this work, I was helping Michael Porter with his landmark 1996 Harvard Business Review article, What is Strategy? It debuted the idea of the central importance of fit and reinforcement in strategy.
Third, the set of choices positions the firm in its industry. This definition was designed to complement the five-question Strategy Choice Cascade, which I created contemporaneously, and this is a reference to the Where-to-Play choice.
Fourth, the set of choices is designed to create sustainable advantage relative to competition, which is an obvious connection to the How-to-Win choice.
Fifth is the payoff of doing the first four and that is superior financial returns, which are both the reward and the proof that choices accomplish the third and fourth elements.
My New Definition
I liked the definition a lot, which is why I kept using it for a quarter-century. But about three years ago, I started including a modified definition (shown at the head of the article) in the presentations I give to clients as I work them through exercises to create strategy.
Elements Kept
As is clear, I kept the first two elements exactly as they were in the old definition. Nothing changed in my thinking. These are both critical to a useful definition of strategy and counter to the conventional practice of what most executives and consultants call strategy. These many years later, strategy is still primarily a disconnected list of initiatives called a strategic plan. That is why integrated set and choices are so very important – and are still the opening elements of my definition.
One aspect on which I have elaborated is the choice element. I have come up with what those working on strategy find to be a useful test for whether or not they have made a strategy choice. A strategy choice is one for which the opposite of the choice is not stupid on its face. For example, a choice to be customer-centric is not a strategy choice because the opposite – ignoring your customers – is stupid on its face and will result in abject failure. That doesn’t mean such a choice is not important. In fact, if the opposite is stupid on its face, then it is what I call an operating imperative – it is imperative that you make that choice. But choosing an operating imperative won’t generate advantage because it is so obvious that every competitor should – and will – choose to do it too.
Elements Subtracted
I removed the other three elements of my old definition and replaced them with one new element. I didn’t remove the third and fourth elements because I no longer believed they were relevant or appropriate. They – Where-to-Play and How-to-Win – are both still critical elements of strategy. But this definition is meant to accompany the Strategic Choice Cascade, and those specifics are covered precisely and thoroughly in it, so I don’t need either here in this definition – at least I don’t think so. However, for any practitioner using this set of tools, I would encourage you to link this definition directly and explicitly to the Strategy Choice Cascade.
I could have continued to include superior financial returns in the new definition. But I didn’t because after using the original version for a long time, I wanted to simplify wherever possible. And it felt to me that this aspect is obvious. If a strategy produces crummy financial returns, it isn’t a strategy worth having.
Plus, the added element below incorporates this financial aspect implicitly.
Element Added
Over the past decade or so, I have been thinking a lot about why I am so committed to strategy – especially when so many others (e.g. them and her) downplay its importance or even relevance. Companies have gotten so big, so rich, can’t they do anything they wish? What is wrong with just asking every business or function what it wants, assembling that list, then funding each initiative and calling that its ‘strategy?’
But so many big companies fail! Nearly once every two years of the 140-year existence of the Dow Jones 30, one of these 30 corporate giants gets kicked out of the index because it has fallen on hard times. It became clear to me that while they are big and powerful, and control lots of things, they don’t control everything.
A company controls how many employees it hires, how much it pays them, how many factories/service operations it builds, how many dollars to spend on advertising, how much to invest in R&D, through which distribution channels to sell, and on and on. The lists of things companies control is exceedingly long.
However, the one essential element over which the company has zero control is the customer. Customers can take whatever actions they please – unless the organization is a regulated monopoly like the Department of Motor Vehicles, which customers are forced to use if they want to drive a car. Normal customers can’t be forced to do anything. Companies can’t impose decisions on them.
Hence, the task of strategy is to make choices in areas under the control of the company that together compel desired customer action. Generically, the desired action is for customers to buy enough of the company’s offering at sufficiently high prices to earn attractive returns over the short and long term. If many buy but are willing only at too low a price, that does not amount to desired customer action. If customers instead buy at the target price but there are too few of them, that is also a failed strategy. Quantity and price are both necessary aspects of customer action.
Happily, since I am a Peter Drucker fan, this view of strategy is consistent with his view of the purpose of business – which is to create and keep a customer. (It is not completely clear that he actually included the and keep part of that definition, but I think it is logically implied). I see the purpose of the strategy that guides a company’s action is to compel potential customers to become customers – at prices and volumes that make the economics attractive.
Practitioner Insights
A big enemy of strategy is fuzzy definitions that make the job of creating effective strategy harder than it really needs to be. Strategy can’t be anything you want it to be. You need to embrace and enforce a tight definition to assist you in creating a valuable strategy.
My latest and tightest definition has three elements: choices, integrated set, and desired customer action. An essential feature of the choices is that the opposite of each choice is not stupid on its face. It is an integrated set if the choices across the five questions of the Strategy Choice Cascade fit with and reinforce one another. And the choices must be configured to compel the thing the company does not control, which is desired customer action.
If you ensure that you are guided by those three elements of a tight definition, you will be able to create productive, winning strategies.
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Hello and welcome to Modern CEO! I’m Stephanie Mehta, CEO and chief content officer of Mansueto Ventures. Each week this newsletter explores inclusive approaches to leadership drawn from conversations with executives and entrepreneurs, and from …
