Can You Say What Your Strategy Is?
form or other. Unfortunately, the form is usually wrong. Companies tend to confuse their statement of values or their mission with their strategic objective. A strategic objective is not , for example, the platitude of “maximiz- ing shareholder wealth by exceeding customer expectations for _______ [insert product or service here] and providing opportunities for our employees to lead fulfilling lives while respecting the environment and the commu- nities in which we operate.” Rather, it is the single precise objective that will drive the business over the next five years or so. (See the exhibit “A Hierarchy of Company State- ments.”) Many companies do have—and all firms should have—statements of their ultimate purpose and the ethical values under which they will operate, but neither of these is the strategic objective. The mission statement spells out the under- lying motivation for being in business in the first place—the contribution to society that the firm aspires to make. (An insurance company, for example, might define its mission as providing financial security to consumers.) Such statements, however, are not useful as strategic goals to drive today’s business decisions. Similarly, it is good and proper that firms be clear with employees about ethical values. But principles such as respecting individual differences and sustain- ing the environment are not strategic. They govern how employees should behave (“doing things right”); they do not guide what the firm should do (“the right thing to do”). Firms in the same business often have the same mission. (Don’t all insurance companies aspire to provide financial security to their customers?) They may also have the same values. They might even share a vision: an indeterminate future goal such as being the “recognized leader in the insurance field.” However, it is unlikely that even two compa- nies in the same business will have the same strategic objective. Indeed, if your firm’s strat- egy can be applied to any other firm, you don’t have a very good one. It is always easy to claim that maximizing shareholder value is the company’s objective. In some sense all strategies are designed to do this. However, the question to ask when creating an actionable strategic statement is, Which objective is most likely to maximize shareholder value over the next several years?
your business will do differently from or better than others defines the all-important means by which you will achieve your stated objective. That advantage has complementary external and internal components: a value proposition that explains why the targeted customer should buy your product above all the alter- natives, and a description of how internal ac- tivities must be aligned so that only your firm can deliver that value proposition. Defining the objective, scope, and advantage requires trade-offs, which Porter identified as fundamental to strategy. If a firm chooses to pursue growth or size, it must accept that profitability will take a back seat. If it chooses to serve institutional clients, it may ignore retail customers. If the value proposition is lower prices, the company will not be able to compete on, for example, fashion or fit. Finally, if the advantage comes from scale economies, the firm will not be able to accom- modate idiosyncratic customer needs. Such trade-offs are what distinguish individual companies strategically. Defining the Objective The first element of a strategy statement is the one that most companies have in some
A Hierarchy of Company Statements Organizational direction comes in several forms. The mission statement is your loftiest guiding light—and your least specific. As you work your way down the hierarchy, the statements become more concrete, practical, and ultimately unique. No other company will have the same strategy statement, which defines your competitive advantage, or balanced scorecard, which tracks how you imple- ment your particular strategy.
MISSION Why we exist
VALUES What we believe in and how we will behave VISION What we want to be STRATEGY What our competitive game plan will be BALANCED SCORECARD How we will monitor and implement that plan
The BASIC ELEMENTS of a Strategy Statement OBJECTIVE = Ends SCOPE = Domain ADVANTAGE = Means
harvard business review • april 2008
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