In my strategic planning work with small and mid-market B2B companies, I often see management teams struggling with the key concepts of business strategy and strategic thinking during the development of a strategic plan. Operational thinking is often prevalent. The term ‘strategy’ is often used rather loosely for anything that involves some kind of planning, whether it’s truly strategic in nature or not.
In this post, I’ll try to provide some clarification. Let’s take a look at the essence of strategy and strategic thinking, its characteristics, and how it’s different from tactical or operational thinking.
Key Characteristics of Business Strategy
Take the Initiative
No organization, not even a Fortune 500 company, has the unlimited resources to go after each and every opportunity that looks attractive. In particular, small business needs to be smart about how and where to deploy their limited resources to achieve growth. They can’t afford to waste time and money.
A good business strategy involves focusing on specific markets, the specific products and services to sell, and deploying distinctive sales and marketing activities. Resisting the temptation to go after every ‘shiny object’ is a key element of strategic focus.
It is just as important to decide when to say “No” to an opportunity as it is when to say “Yes”, perhaps even more so. Pursuing too many opportunities leads to dilution of management’s attention and company resources, increasing the risk that none of the goals will be achieved.
Standing out from the competition in a meaningful way is a key objective of developing a sound strategic plan. It is important to occupy a unique position as perceived by your target market. A position that is of value to your customers and that the business ‘owns’ and can defend against the competition. Trying to be all things to all people is simply a bad idea, is counter to a differentiation approach, and lacks the power of focus.
Another objective of formulating a business strategy is to identify or create a sustainable competitive advantage that can be leveraged. However, keep in mind that no competitive advantage lasts forever. Everything in business, or life, for that matter, is temporary. If you’re successful, a competitor is bound to move in, copying your business model, products, and services, and probably at lower prices. You can never rest, you need to keep innovating and find new ways to stay ahead of the competition.
Outperform the Market
A well thought-out business strategy involves smart decision-making to enable the company to outperform the overall market. Simply coasting along and having the business move up and down with the market is not an option if you want to be in control of your future.
An innovative strategy may involve avoiding the competition altogether, rather than fighting the competition head-on. This is called ‘blue ocean strategy’: creating an entirely new market or segment, instead of competing in an existing market.
Doing The Right Things vs. Doing Things Right
- If you’re asking, “Are we doing the right things?”, you’re dealing with strategic issues.
- If you’re asking: “Are we doing things right?”, you are addressing tactical issues.
A company’s strategy spells out longer-term objectives and WHAT needs to be done to do to achieve these objectives. The strategic plan provides a high-level perspective, not any detailed operational specifics. In addition, the strategic plan should also include the rationale, the WHY of the business strategy.
Operational thinking and decision making deal with the detailed steps of implementing the strategy. This is the HOW. This is where the rubber hits the road; without skillful implementation even the best strategic plan is worthless.
Elements of a Good Business Strategy
A carefully thought-out business strategy is by definition proactive and competitive. You can evaluate a strategic plan on its level of competitiveness. A smart business strategy does things that:
A competitor cannot do – The competitor may lack the resources, knowledge, and skills to execute the strategy you have chosen to pursue.
A competitor will choose not to do – Because it does not meet their long-term objectives or, given their strengths and resources, the competitor may see better opportunities elsewhere or it is in conflict with a prior strategic decision.
Puts a competitor at a disadvantage – If a competitor adopts that same business strategy their competitive position may weaken or limit their ability to pursue future options. Perhaps they lack the resources to execute and acquiring these resources would take a major investment.
Grow the market overall – This is a situation where everyone gains, for instance by creating a new market (blue ocean strategy). The idea being that a “rising tide lifts all boats”. Of course, the company that puts this process in motion has an advantage as a first mover.
Business Strategy and Tactics
Let’s look at some of the characteristics of strategic vs. operational thinking and decision-making.
Strategic thinking requires an open-minded thought process for exploring and evaluating options, free of bias and prejudice. A “Not Invented Here” attitude is detrimental to good and productive strategic thinking. You need to be able to challenge assumptions, ask tough questions, be innovative, and explore ‘what-if’ scenarios to create a sound strategic plan. Developing a strategic plan is a creative, iterative process that requires an innovative look at the company and the business environment. Without the right mindset strategic planning is not going to be successful. Keep in mind that strategy development is about addressing the WHAT and WHY of the business.
Operational decision making and problem-solving follow more of a linear, step-by-step process that could be described as somewhat mechanical. An operational mindset is geared towards dealing with the HOW: creating and improving processes.
Process, Not an Event
A company’s strategy always needs to be evolving and adapting to changes in market conditions, technology, customers’ preferences, and so on. A strategic plan is a living, dynamic document that needs to be reviewed and updated on a regular basis. As a result, strategic planning should be an ongoing activity, high on the agenda of executive management. That two-day retreat at the country club can be a great kick-off for a formal strategic planning process, but it’s not a quick substitute for comprehensive strategic planning.
Solving a tactical issue is typically more narrow, both in scope and in time, allowing for quicker evaluation of options and faster decision making.
Impact on the Organization
Strategic decisions have an impact on the entire organization. For instance, the decision to enter a new market involves all departments and functions. Similarly, M&A initiatives impact everyone in the firm. For a business strategy to be successful, the entire organization needs to be on-board.
Operational issues are typically limited in scope and in their reach across the organization. The scope of operational problem solving is more narrowly defined.
A strategic plan sets a long-term course for the business. Strategic decisions often have to be made on the basis of incomplete, ambiguous market intelligence. There is just no time for perfection if this were possible to achieve in the first place.
It takes time to find out if a chosen strategy is successful and produces the expected outcomes. Reviewing and adjusting a strategy takes time as well. As a result, the risks of a poorly thought-out strategy can be rather high because of the time, cost, and effort of making course corrections. Quick, on-a-dime, strategy changes are just not realistic, especially if you keep in mind the impact on the entire organization.
Tactics/operations deal with shorter-term issues of a well-defined scope. The results of a particular decision become visible quickly. Fine tuning a particular solution is quicker. Combined with the quantitative information that is typically available, the risk associated with tactical decisions is short-term and more manageable.
Strategic planning, by definition, requires an external focus, a comprehensive and candid look at the organization in relation to its environment. Strategic decision making involves gathering information about markets, customers, competitors, suppliers, and trends that may impact the business. You need a solid understanding of the business environment in which you’re operating to make smart decisions about the company’s long-term direction.
Tactics deal with implementing the strategy. Making decisions about operational issues, such as manufacturing, finance, or HR, have more of an internal focus.
Options Are Hard to Quantify
In strategic planning we use both quantitative and qualitative information. As a result, it is difficult to reduce everything down to mere hard numbers. This adds a level of subjectivity that makes it more difficult to determine which option to pursue. It then becomes a matter of personal preference, risk tolerance, experience, and, yes, your ‘gut feel’ as a manager to decide which strategic direction to take.
In operational decision making, the problems are typically much more quantifiable. This allows for a careful analysis of the operational options, weighing the pros and cons, and deciding on the optimum solution.
By its very nature, strategic decision-making is difficult, risky, and complex. Market intelligence is often incomplete, may lack detail, and is ambiguous. Assumptions about markets and competitors may or may not be valid. As a result, it is difficult to evaluate strategic options quantitatively and with a high degree of confidence. This makes trade-off decisions rather difficult.
Tactical or operational problems are, for the most part, easier to solve. The pros and cons of each solution can be evaluated with more confidence. Identifying the ‘best’ solution is easier, relatively speaking, with less uncertainty and less risk involved. The impact of a trade-off, or choosing one solution over another, can be more easily evaluated.
Scenarios Can’t Be Proven Correct
Because strategic alternatives are hard to quantify and making trade-offs is difficult, determining the best path forward for the firm is not that easy. You cannot reduce strategic decision making to a spreadsheet analysis. Being able to make decisions in an environment of ambiguity, risk, and uncertainty is part of the strategic mindset. This does not remove the fact, however, that it is difficult to prove a particular strategic scenario to be ‘correct’ or ‘better’ than another. You may end up with several strategic options that appear equally attractive for the firm to pursue. As mentioned above, this is where experience and risk tolerance come into play in the decision making process.
However, this does not mean that we should not be doing strategic planning. Despite the ‘fuzziness’, following a structured strategic planning process, careful evaluation of the available strategic options still leads to better, smarter decision making and preparedness for the future.
In operational decision making, issues are much more quantifiable. The available options can be assessed carefully in detail to find the best solution.
Executing a business strategy involves taking action today for the long term, usually 2 to 3 years, sometimes longer. As a manager, you need to be comfortable taking that long-term perspective and the required commitment to seeing the strategy through. You need to give the company’s strategy time to pan out and produce results.
The time span for operational thinking is much shorter. Decisions are made much faster and their outcomes can usually be observed much more quickly than strategic decisions.
I hope this post gave you a better understanding of business strategy and strategic thinking. Next time you’re dealing with an important business issue, try to identify whether it’s strategic or tactical/operational. Understanding the difference can help you to take the appropriate approach to addressing the issue and managing expectations about the nature of the solution.
Tactics without strategy is the noise before defeat.Sun Tzu, The Art of War