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3 Levels of Strategy

2011 March 27
StratoChessSet

What makes a good strategy?  Ask a collection of management gurus and you’ll get a variety of answers. Some say that you need a vision.  Others emphasize focus on your core competencies.  Still others would insist that you innovate your business model and on it goes.  

There is also a divide on who should formulate strategy.  While some hold that it is a management function, others believe that it should emerge from the bottom-up. Often it is developed by high priced consultants who specialize in strategy (many of whom have never actually run a business themselves.
 
The veritable Noah’s Ark of voices and theories can be downright stupefying.  I would submit that one reason for the confusion and cacophony is that, far from being monolithic, there are three levels of strategy and each requires a very different approach. Here’s an overview:

Mission and Strategic Intent

On the top level, in the domain of the founder or current CEO, a mission must be articulated.  Hamel and Pralahad call this strategic intent (pdf).

Articulating a vision in this way serves as a battle cry for the organization and forms a basis for making decisions.  Google strives to “organize the world’s information.”  Southwest Airlines focused on being “THE low cost airline.”  Jack Welch, when he was at GE, insisted on being number one or two in each and every business where they compete.

Forming and pursuing a specific strategic intent is important, even crucial, because it defines success and infuses an organization with meaning. However, it is somewhat limited because it doesn’t provide much guidance about how to actually achieve goals.

Moreover, strategic intent is somewhat static.  Some companies maintain a specific strategic intent for their entire life.  So strategic intent should be considered a good basis for long-term strategy, ranging from five years to the life for the company.  However, it is incomplete.  Necessary, but not sufficient.

Strategic Moves

On the next level down we have strategic moves.  This involves where a company puts its resources and therefore, like an organization’s mission,  is under the purview of top management and should be considered medium-term strategy (six months to a few years).

Strategic moves should be pursued with a specific strategic intent in mind. Google’s move into mobile phones, oil companies’ decisions about whether to invest in alternative energy and the Gates Foundation’s determination of sub-Saharan Africa as a center of activity are all examples of strategic moves.

Analytical management gurus of the “positioning school” can be very helpful in guiding strategic moves.  Michael Porter and his 5 Forces framework, which takes into account not only competitors, but suppliers, customers, market entrants and substitute goods in formulating strategy is an excellent approach.

Also, as I alluded to in an earlier post, Game Theory can be a helpful guide when considering strategic moves.  While much of the literature surrounding game theory is highly technical, Dixit and Nalebuff have written a highly readable book that will guide you through the basic concepts.

Operational Strategies

The final level is both the most difficult and the most exciting, because it involves the way things actually get done.  Operational strategies can be short-term to medium-term, ranging from a few months to several years to execute.  There can be dozens or even hundreds going on at once.

For instance, Apple incorporated iTunes into their iPad and mobile devices in what Clayton Christensen would call a business model innovation.  They also priced the iPod to sell briskly, started selling iPhones through Verizon and are constantly launching new products with features that represent a plethora of smaller strategic ideas.

As Henry Mintzberg points out, operational strategies are mostly out of the control of the CEO (although sometimes subject to final approval).  However, in the best companies, operational strategies eventually filter up into strategic moves, as when Intel’s decided to move out of memory chips.  Mintzberg calls this emergent strategy.

Putting it altogether

Once you realize that different approaches are needed for different levels of strategy, a lot of confusion can be avoided.  For instance, management consultants can be helpful in formulating strategic intent and strategic moves, but are usually a disaster at operational strategies (very few have ever had real jobs).

Another salient point is that the bulk of  strategic activity occurs much further down than most managers realize.  If the rank and file doesn’t buy into the organization’s strategic intent and strategic moves, they will seek to undermine them and operational strategies won’t be in line.  After all, it’s the lunatics that run the asylum.

Most of all good strategy is a dynamic, reflexive process, constantly seeking to resolve inevitable tensions between the three levels.  Leadership after all, is as much about watching and listening as it is about setting direction.

- Greg

17 Responses leave one →
  1. March 27, 2011

    Hi Greg,
    I was wondering what you thought about this idea. When I teach organizational leaderships courses there is a distinction that is made between leaders and managers. Managers manage tasks. Leaders lead people. What I have found is that the difference is that what they bring to the table re: strategy also differs. And when you have a manager leading the company, things are done very tactically. When you have a leader leading the company, things are done from a visionary point of view. Of course the best would be if you had one of each at the top, but because they generally don’t mix, and like hires like, you end up with staff and people reporting to them that are more like themselves… How do you think that fits into your model above? These two ways of approaching strategy?

    [Reply]

    Greg Reply:

    Dr. Nat,

    Fantastic question!

    Great leadership is certainly within the domain of strategic intent. That’s what forms a group identity and drives the organization forward. Strategic moves and operational strategies are much more management oriented.

    However, I genuinely believe that you have to walk and chew gum at the same time. Jim Collins likes to talk about “Level 5″ leaders who aren’t particular charismatic. Others have natural leadership skills, but need to learn to the nuts and bolts of running a business. Still other times, great partnerships form where two people can form a whole greater than the sum of the parts.

    So, in the final analysis, I think it’s a false choice (as it is between strategy and execution, incidentally). Everybody comes to a job with certain skills and needs to learn others.

    Thanks a lot for such a great question!

    - Greg

    [Reply]

    DrNatalie Petouhoff Reply:

    I think you are right, that “leaders” come with a certain set of skills. The books say that great leaders don’t lead tasks they can lead people. That means that they can easily gain followership (of people.) And those that lead tasks, are managers, but don’t end amounting to being about to get followership. thanks for writing back!
    DrNatalie Petouhoff´s last blog post ..The Art of Transmedia Storytelling at SXSW- Summit by the Summit and Clean Drinking Water

    [Reply]

    Greg Reply:

    My father used to say, “A leader is one who has followers.” Somehow, I “managed” to get through childhood:-)

    - Greg

  2. March 28, 2011

    Greg
    You have touched on an interesting topic and as you mentioned, defining strategy is often a Rorschach test which reflects on the management team implementing it. There is an interesting article in McKinsey Quarterly which proposed 10 timeless tests of strategy including fundamental questions such as: Will it beat the market?; Is it a true source of competitive advantage?; Does it embrace uncertainty? and Have you translated your strategy into an action plan? I find this approach valuable because regardless of the path taken to develop the strategy you need to confront the ultimate test of, “how will this help my business?” The link to this article, which I think you will find interesting, is http://www.mckinseyquarterly.com/Strategy/Have_you_tested_your_strategy_lately_2711

    [Reply]

    Greg Reply:

    Thanks Steve!

    - Greg

    [Reply]

  3. Dr Singh permalink
    March 31, 2011

    Greg

    I enjoy reading your posts a lot and you touch on some things that strike a chord of sanity that encourages me to think deeper before I consider getting on the bandwagon. Case in point, I have always questioned measurement metrics as posed by the social media gurus, and your posts on that are really insightful.

    Keep up the good work

    Dr Singh

    [Reply]

    Greg Reply:

    That’s very kind of you to say.

    Thanks.

    - Greg

    [Reply]

  4. April 9, 2011

    Interesting post as always. Notice you are getting into your management theory – don’t get sucked in. Harvard MBA programme had Enron as its case study for best management and strategic practice in 2000. By 2002 it was their case study for worse practice. Beware gurus who right rules by hindsight post rationalisation of a [previous success to create that dreaded phrase “best practice”.

    I do a lot with companies and “leaders” in the area of innovation. I would postulate, from observation that we are in and have been in a massive period of change both in defining what a strategy is and also leadership. The process and rules that have been learned. The consultants brought in are not working anymore. Strategy to use the line of that hugely successful ad agency BBH is zigging when everybody else zags.

    A lot of the models on strategy have steps, processes, stages. Anything that helps people question their world or their organisations is good – especially as it removes them from seeing the world, their business or their opportunities from a narrow closed perspective. However, if anyone thinks strategy or leadership can be developed from some commn rules or management styles…it isn’t so. Its people and thinking. The differences are the differences.

    To my mind, I feel it is preferable to simplify what causes a leap in thinking that is then executed. Call it a strategy – if we want. I did a lot of work with the Economist a while back where we stopped asking the question “who reads the Economist” – instead we started asking the question “why do people read the Economist”. If you make the link that Economist readers (many of which are hugely successful leaders in all sorts of fields and create strategic leaps in all sorts of fields – not just business) – it is perhaps interesting to see the results.

    If there was one word that defined a typical Economist reader it was “curiosity”. They were curious outside of their business area. They were – for example – more likely to be invited to an attend a meeting that wasn’t directly in their area. What was also interesting was their ability to entertain and process ambiguity. They were more able to be open minded to suggestions that seemed weird and adapt their views and ideas to embrace change. The Economist took therefore to starting considering its readers more as “ideas people” (notice not leaders or C Suite…even though they were). There were three charateristics that they were also more likely to have or to appreciate in others. Change, strategy, management…leadership…if we prefer involved having or appreciating 3 abilities. These were “pioneers” (first to do..invent new things…change stuff)….”catalysts” (you may have a new idea – but how do you get it started, get others behind it, get momentum)….builders (ideas and movements are nothing if they don’t happen or deliver) – the delivery or ability to make stuff real is crucial…without this we are just sitting in the bar, discussing change at university or a conference. http://theideaspeople.economist.com/ if you want to check out more.

    To the point, therefore, of what is strategy and what are leaders? Is there a difference between execution and vision 0r managers are different to leaders..etc? Beware of asking the wrong questions – strategy and leadership needs both. The biggest issue many of the current leaders have is that word “leader”. If you want to be a “leader” and the power is the driver…perhaps you will be less successful in the fute than you would have been in the past. Perhaps “galvaniser” might be better.

    To your point Greg, it is learning to be rounded, but also assembling a team of people who think differently but can work together towards a common aim. I prefer the advice my good friend, and highly successful chief exec, Roy Jeans once gave to me when I took on a new job in a new company as exec head of strategy. I’d change “lead” to “galvanise”, but it worked 10 years ago and works now – especially now in our digital, social and connected world:
    1.Deal with reality as it is, not as you would like it to be.
    2.Be candid with everyone.
    3.Don’t manage. Lead.
    4.Change before you have to.
    5.If you don’t have a competitive edge, don’t compete.
    6.Control your destiny or someone else will.

    [Reply]

    Greg Reply:

    Mark,

    Thanks for the Economist story. I really love the magazine (and am including it in an upcoming post on media user experience, of which it is a very interesting example).

    However, I want to assure you that I’m not becoming a management theorist. I got the idea about 3 levels of strategy from running a large company. Forming strategy is something you simply can’t avoid doing when there are hundreds of people depending on you. Somehow, I had to come up with an answer.

    Eventually it occurred to me that when people were talking about strategy, they were often meaning different things:

    Core principles: These should almost never change. Wal-Mart is a discount operation. Estee Lauder is about luxury. Google wants to organize the worlds’s information. You don’t want to change stuff like that and you want to be able to state what you’re about very clearly. Employees aren’t motivated by a paycheck (they can get that anywhere), but a purpose. You need to be able to articulate what that purpose is.

    Resource Allocation: If you’re the boss, you need to decide where the money goes. Once it goes somewhere, it doesn’t go somewhere else. That kinda stuff matters.

    Everything else: If it’s not included in the two categories above and didn’t create a big mess, I didn’t have to worry too much about it.

    Once I figured that out, my job became easier. See, no theory! Just lessons learned from hard practice:-)))

    - Greg

    [Reply]

  5. April 9, 2011

    Greg.

    Couldn’t agree more. Commercial reality is that people want to buy a system or best practice. Saying that the answer to strategy is guesswork, stories and commonsense…is harder to charge for but true. Also the concept that what the job is in strategic leadership is help people “how to think” vs “tell them what to think”.

    I hear recently a great story about Pret A Manger. Julian Metcalf the owner was approached by a management guru to discover the process and training he put in place to get such good customer service from his team. Metcalf told him that the secret was…we just hire happy jolly people. Cant see that getting onto the Harvard MBA course – but it should. Keep up. Keeping me thinking.

    [Reply]

    Greg Reply:

    Thanks Mark. I think the problems start when people think that strategy will give them answers instead of framing questions.

    - Greg

    [Reply]

  6. Bambo permalink
    September 16, 2011

    I am actually in the middle of my Post Graduate Exams hence I do not have the time to read all responses. However during my Undergrauate studies in Organistional Behaviour I learnt about two categories leadership in an organisation. ” The Manager” and ” The Boss”. The manager is a leader that is, a person who has the qualities, charisma and knowledge on how to motivate people to get things done. While the Boss has the knoweldge and power to make people get things done. The prime difference I learnt between the two is that people will be willing to go beyond the expectations of the Manager. However people would only do as much as not to get sanctioned in the case of the Boss.

    [Reply]

    Greg Reply:

    Good point. Good luck on your exams.

    - Greg

    [Reply]

  7. Drew permalink
    March 10, 2013

    Great leaders can manage but great managers often can’t lead. The issue has to do with human dynamic. Leaders present concepts. They get buy in from the followers by appealing to their human needs. Managers present tasks. They don’t require buy in from the followers because they direct via orders or regulations. A true leader can swap between the two as easily as someone bilingual might change languages during a threeway conversation (e.g., me talking to a German only and a English only person in the same conversation).

    [Reply]

  8. Drew permalink
    March 10, 2013

    To add to my comment. Leaders understand the concept of framing and have the ability to quicky asses people in order to frame the directive in a way that creates support. Managers can’t be bothered with such trivial accomodations as they have to be concerned with widget throughput.

    [Reply]

    Greg Reply:

    Interesting ideas. Thanks for sharing.

    - Greg

    [Reply]

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