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Opinion pieces on business & economic issues


Strategy Begins with a Strategic Principle


Jan. 19, 2005

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Strategy is a topic constantly discussed by business leaders and crucial to corporate management. One can easily access it in bookstores, research papers and through the media. People often think of strategy as something elaborate when logically organized, and, if carried out, can certainly strengthen a company's market position over its rivals thus generating exceptionally high returns. It is even thought of as a stratagem that can drive competitors out of the market. The problem is whether such strategy actually exists. If it does exist, one may then ask whether such strategy can actually be established.

To jump to a conclusion, it is extremely tough to create a strategy that is logical, systematic, and precise. Nevertheless, this does not mean that strategy is not critical to corporate management. This edition of the CGC Column starts by examining how managers and working-level staff understand strategy and strategic planning, and how they approach these issues. The intention is to illustrate how businesses can establish a simple and clear strategic principle that can guide all members of the organization in a unified direction.

Is strategy useless?

The term strategy first came to prominence in the 1980s through two books, "Competitive Strategy" and "Competitive Advantage" written by Harvard Business School professor Michael Porter. He presented an argument that businesses need to implement three strategies to gain competitive advantage: cost leadership, differentiation, and focus . His theory on competition attracted significant attention from the business world, and strategic management became a hot issue in the boardroom and classroom.

But Porter's theory is problematic when businesses actually plan strategy. Henry Minzberg's "Rise and Fall of Strategic Planning" emphasizes the ineffectiveness of strategic planning. According to Minzberg, strategy analysts and planners tend to set up strategy through careful analysis and forecast of the competitive environment. However, the environment constantly changes during the strategy-making process. This means that planning requires constant modification. The result is companies making a plan that they can never execute in a timely manner.

Strategic planning comes under further scrutiny when it comes to Porter's analysis of the competitive environment. Accurate data are required in order to analyze the environment surrounding organizations and to create a logical strategy. The question then comes down to whether accurate information on relevant technologies, industries, and consumers can be obtained. Generally, the only obtainable information is reports of plans removed from reality and thus inapplicable. This has engendered fundamental doubts on the effectiveness of strategic planning.

Is strategy unnecessary to businesses? The answer, ironically, comes from those scholars and managers who seem to believe that strategy is useless. They argue that it is indispensable to organizations. What companies should avoid is the excessive planning process. This has some important implications. First strategy derives from visionary insights rather than from the process of planning. Second, it proves to be valuable only when put into practice. This narrows our focus to what kind of strategy is truly needed.

A simple and compelling strategic principle

One of the greatest challenges facing companies nowadays is presenting a clear strategic principle to employees, which encourages them to take risks and proactively carry out their jobs. The strategic principle is a short and memorable one-sentence slogan of company strategy that motivates employees to perform their duties by entrusting them with ownership. Two important points should be kept in mind when creating a strategic principle: it should have strategic focus and motivate all members of an organization to action. Business strategy has recently undergone a paradigm shift, as companies now believe that long-term complicated plans are no longer effective in rapidly and flexibly coping with the fast changing environment. General Electric's "No. 1 or No. 2" and Wal-Mart's "Everyday Low Price" are representative examples of strategic principles. It is through this simple and clear principle that managers and employees can strive to generate the highest returns.

"Strategy is not just a passing fad." This statement tells us that one needs to cut through the misconceptions associated with strategy. Top management should create a strategic principle that compels the entire company to head in a single direction while consistently executing strategy.

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