Definition of Strategy

There is general confusion about the difference between an organization's vision, mission, long term goals, long term plans, strategy and even tactics. My approach is to acknowledge that different people use these terms in different ways but, in any given specific planning process, to require that we agree to arbitrary but shared definitions. I have, for many years, used a great working definition of strategy as "the decisions about how we will apply resources to objectives".

A strategic planning process starts with (or generates) a vision and mission, agrees on long term objectives, and identifies the resources available. It then makes decisions about how to apply resources to the objectives.

This is never as clean a process as it sounds, but working with explicit (if forced) definitions about each of these elements, really helps.

However, I now want to revise my definition, perhaps only subtly, having seen the TED Talk by Bjorn Lomborg, on setting global priorities.

In this talk he suggests that before you decide where to spend resources, you should know the cost-benefit ratio for the possible solutions. He notes that if there are a dozen key global problems, the decisions on where to spend the money should first be informed by the cost-effectiveness of the solutions, and not the size or even "importance" of the problem alone. This requires some agreement on a standardized notion of costs and, especially, benefits. In Lomborg's case he is looking at lives saved, or possibly QALYs. For a corporation, the costs and benefits are likely entirely financial, but at any given time one metric (e.g., revenue growth) may be more or less important than any other (e.g., profitability, or return on net assets). Ideally all the benefits of achieving each objective can be measured uniformly (for easy comparison) so you can show a dollar cost figure per unit of objective-achieving benefit.

Lomborg's examples are very clear (whether or not they are fashionable), and it makes sense to me to add this to my thinking about strategy ... considering the proposed approaches to achieving the objectives being considered, and the cost-benefit ratios of each - before deciding on resource allocation.


stefano said...

Excellent post, Richard. This is a pet peeve of mine as well. A lot of people use "strategic" as a synonym of "important" as in this sentence:

We have to make this sale because this account is strategic.

Well, sometimes closing a deal can be INCREDIBLY important AND not strategic at all!

I have a working definition which focuses more on the criteria for the decisions than the decisions themselves. In general, these criteria affect the quality of decisions, helping organizations shape growth, development and change to become more competitive. And I agree with you that careful consideration of both cost and value are important factors.

Anonymous said...

Hi Richard,

I agree with you fully. If you don't know where you are heading - you'll never get there... And you'll only get there if you make choices and resources bets that contirbute to getting you to the desired destination.

Strategy should mean that you have set a destination and that all that is done is somehow contributing to the move to that destination.

I find that "The Strategy" of a business is something everyone should at least know and understand so everyone is better equipped to make decisions and trade-offs which contribute to the strategy. Easier said than done. But if it is not articulated or shared - we can be sure people will come up with their own way of prioritizing :)


Paul Mamane