The Real Essence of Strategy

As I sit here pounding on a battery-powered laptop while a storm which has knocked power out of my office and home rages outdoors…..I want to wish you a happy new year and I hope you’re warmer than I am right now!! I just read an article by strategy guru Michael Porter in the Harvard Business Review. As usual, Porter’s thoughts on strategy are incisive, and his detailed nuts-and-bolts analysis of competitive forces are useful. Yet, as I’ve noted in the past, conventional approaches to strategy have some significant limitations. It’s not merely that they’re too linear and mechanical (the world often doesn’t align itself to the logical premises and categorizations of planners). It’s also that they miss the essence of what a successful strategy is all about. Porter’s very first sentence is the giveaway: “In essence, the job of the strategist is to understand and cope with competition.” Respectfully, I say: No it isn’t. Of course leaders must understand and cope with competition. That’s a given for corporate survival. But when an organization’s strategy revolves around its competition, you can bet that the strategy will be more defensive and reactive than groundbreaking—and thus limited in scope and impact. You can bet that innovations will revolve primarily around imitation (“me-too” products) and incrementalism (“hopefully a little better than what our competitors are doing”), neither of which yields sustainable competitive advantage. Think about it. Back in the 1960’s, American tire companies—all bias-ply producers—concentrated so much on one-upping each other that they were blindsided by the powerful left hook coming from Michelin and its radials. Kodak concentrated so much on its jousting with known competitors like Fuji that it failed to see and exploit the opportunities in digital media. United Airlines actually “beat” Eastern and Pan Am before plunging into bankruptcy as the economics of the airline business changed and radically different business models from Southwest Air and Jet Blue changed the rules of the industry. Once again, I agree that leaders must constantly survey competitors in order to fully understand and cope with them. But unlike Porter, I would argue that in essence, the job of the strategist is to go to a place beyond competition. I would argue that the job of the strategist is to mobilize the organization to achieve something special, great, and unexpected in the marketplace so as to create new, compelling, and significant value for customers—and thereby for investors. That raises the bar significantly, doesn’t it? But isn’t that what market leadership and sustained competitive advantage is all about? After all, when John Mackey launched Whole Foods Market, he certainly had to be knowledgeable about the business practices of competitors—from giant grocery retailers like Albertsons and Kroger to small corner shops like 7-11 and Harry’s Deli. He certainly had to understand competitor-driven forces like capital requirements, customer switching costs, potential retaliation from entrenched players, supplier power, pricing impact, and such. And he certainly had to (still has to) continually monitor the moves of other food retailers. But at the end of the day, Mackey’s strategic purpose was not to understand his competitors, cope with them, or even to “beat” them. His purpose was to provide customers a radically new and desirable alternative in the form of natural, organic foods. His purpose was to create an exciting and lucrative market. That, in turn, is why Whole Foods busted the competitive landscape and transcended its competitors while becoming the fastest growing, highest-margin food retailer in the industry. Without a doubt, understanding and coping with competitors is a vital part of competitive strategy. But never forget that the soul of a winning strategy revolves around the pathbreaking value that your organization can create, regardless of what competitors are doing. That’s what excites customers, turns on employees, and brings investors rushing in.