STRATEGY REPORT

Strategic Planning

Demystifying Strategy: The What, Who, How, and Why by Michael D. Watkins

September 10, 2007

Many leaders I work with struggle with strategy. They know it’s

important to have strategies in order to align decision making in their

businesses. They understand that they can’t observe and control

everything in their organizations (much as many of them would like

to). They earnestly want to develop good strategies and they get the

theory. But when it comes down to the nitty-gritty of crafting

strategy, they rapidly get bogged down.

This is unfortunate, but it’s not that surprising. It’s a direct

consequence of confusion about what a “business strategy” is… and is

not. Here’s my definition: A business strategy is a set of guiding

principles that, when communicated and adopted in the organization,

generates a desired pattern of decision making. A strategy is therefore

about how people throughout the organization should make decisions

and allocate resources in order accomplish key objectives. A good

strategy provides a clear roadmap, consisting of a set of guiding

principles or rules, that defines the actions people in the business

should take (and not take) and the things they should prioritize (and

not prioritize) to achieve desired goals.

As such, a strategy is just one element of the overall strategic

direction that leaders must define for their organizations. A strategy

is not a mission, which is what the organization’s leaders want it to

accomplish; missions get elaborated into specific goals and

performance metrics. A strategy also is not the value network — the

web of relationships with suppliers, customers, employees, and

investors within which the business co-creates and captures

economic value. Finally, a strategy is not a vision, which is an

inspiring portrait of what it will look and feel like to pursue and

achieve the organization’s mission and goals. Visioning is part (along

with incentives) of what leaders do to motivate people in the

organization to engage in above average effort.

In a nutshell, as illustrated below, mission is about what will be

achieved; the value network is about with whom value will be

created and captured; strategy is about how resources should be

allocated to accomplish the mission in the context of the value

network; and vision and incentives is about why people in the

organization should feel motivated to perform at a high level.

Together, the mission, network, strategy, and vision define the

strategic direction for a business. They provide the what, who, how,

and why necessary to powerfully align action in complex

organizations.

One straightforward implication is that you can’t develop a strategy

for your business without first thinking through mission and goals.

Likewise, you can’t develop a coherent strategy in isolation from

decisions concerning the network of partners with whom the

business will co-create and capture value. By focusing on all four

elements, and sequencing them in the right way, the process of

crafting strategy can be demystified.

Do you agree with my definition of business strategy and the other

elements of strategic direction? Have you seen people get into trouble

confusing strategy with mission, goals, network, or vision? Do you

have advice for how leaders can best establish strategic direction for

their organizations?

Michael D. Watkins is a cofounder of Genesis Advisers, a professor at IMD Business School, and the author of The First 90 Days and Master Your Next Move (Harvard Business Review Press).

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