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Monday, April 13, 2009

What is Strategy?

We all have heard about strategy. Every organization has various strategies i.e. operations strategy, management strategy, HR strategy etc.

Recent management literature challenges this notion of having multiple strategies within the organization and suggests that at its core an organization should have only 1 strategy that should be closely aligned to deliver its core objectives.

That leads to the questions of difference between objectives and strategy. Objective defines what an organization wants to achieve. For example, An organization's objective can be defined as "Achieve 10% return on invested capital in next 1 year with 97% certainty".

Strategy defines how organization will achieve those objectives. A well defined strategy answers three questions i.e. "Who is the customer? What does he value? and How organization is delivering that value?". For example, strategy for a local Mexican cuisine is "provide local household (within 10 km radius), family oriented setting to enjoy the pleasure of Mexican meal or beverages in a relaxed environment".

Once the organization answers those big questions then such questions further percolate down within organization levels where individual departments are aligned to deliver strategically defined value proposition. In essence, strategy has multiple levels where each lower level's organizational strategy is tightly aligned to deliver the value proposition of higher level strategy. For example, extending the strategy of Mexican cuisine - we can say that beverage department can have a strategy to sell freshly made frozen margaritas. In this case, beverage department's strategy builds on top organizational strategy i.e. selling frozen margarita which is a Mexican beverage.

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