Thursday, July 27, 2006

What is Strategy and why does it matter?

Suppose a company can produce and distribute 10 dozen boxes of Product A for a profit of $50,000. Suppose it can also make and sell 4 items of Product B for $50,000 profit. And suppose they know that if they try to do all of both, their profit will decline to $75,000 because they will have to hire incremental labor and buy incremental inventory. . . . .

How does the company decide what to do?

Deep in our hearts, almost every one of us who survived ninth grade algebra believes there is some mathematical formula that should answer this question, if only we could figure what that formula is.

But there is no formula. If we tried to impose one, it would have to assume that all labor was interchangeable Xs and all supplies were interchangeable Ys – or, at least that there were finite numbers of kinds of labor and supplies to be plugged into the formula.

This fantastical formula would also have to assume that all time is the same – that what works now will work equally well next week, next year, a decade from now. Although such an assumption might have been reasonable the day fire was discovered or the wheel was invented, how many of you are reading this on a computer you owned a decade ago or over an internet connection through an ISP you used 5 years ago?

Not all labor is the same; there is a practically infinite range of potential supplies; time is in perpetual motion; and we haven’t even mentioned the notoriously fickle nature of consumer behavior.

So, instead of a formula, we have Strategy.

Strategy is not a fixed solution, mathematically computed or not. Instead it is a set of dynamic guidelines that provide the context for a disciplined review of the many factors that affect any organization. It provides a context and process that allows the organization’s managers to make thoughtful decisions about immediate actions, long-term goals, and the terrain to be navigated between them.

Many entrepreneurs think Strategy is nothing more than fuzzy-headed abstract thinking, and that Strategy has little to do with the on-the-ground choices and activities that make an organization succeed. We disagree. Every organization has a Strategy, whether it thinks about it, talks about it, names it, or not. Left to fate, Strategy often turns out to be the mess you’re stuck with when everything that can go wrong has.

Used well, Strategy is the fulcrum on which is balanced every difficult decision a management team has to make. It is also the safe deposit box from which alternatives can be drawn and action taken when time brings its inevitable surprises.

This blog will focus on the practical activities that make up Strategy – its development, its implementation, and its day-to-day implications – for several types of organizations. We hope you will add your thoughts and examples.

3 comments:

John Davidoff said...

Penelope, congratulaions on your new blog. I believe strategy in combination with an inspiring mission and a well run operation is likely to produce a successful organization.

John Davidoff said...

Penelope, congratulations on your new blog. I believe strategy, in combination with an inspiring mission and a well-run operation has the makings for a successful organization.

Douglass Davidoff said...

I also greet your new blog, Penelope. I concur with my brother's comment. Please read the blog post I wrote today about your comments on strategy. Congratulations, Penelope. Write early and often.