A decade ago, at about the time Baldrige began, the literature on strategy was quite thin. There’s been an explosive growth in scholarship since, and a deepening understanding of the part strategy plays in organisations’ competitive advantage, sustainability and growth.

It’s important to start with a clear understanding of the differences between strategy, tactics and planning.

Based on the notion that long-term competitive success depends on managers’ willingness to continually challenge their frames of reference - their own and their firm’s established wisdom, acquired from business schools, peers, consultants, the business press and their own career experiences - the concept of stretch is now entrenched in the literature.

Hamel and Prahalad began their deconstruction of conventional wisdom by challenging common understandings of the meaning of strategy. They considered many managers understood strategy to mean: "… fit, or the relationship between the company and its competitive environment; the allocation of resources among competing investment opportunities; and a long-term perspective in which ‘patient money’ figures prominently … ‘being strategic’ implies a willingness to take the long view, and ‘strategic’ investments mean … betting bigger and betting earlier."

This view is not wrong, they said, just unbalanced, and its predominance has obscured the merits of alternatives in which the ideas of stretch, leverage, and consistency of effort feature. Creating stretch, "… a misfit between resources and aspirations, is the single most important task senior managers face."

Looking for the reasons for failure, Campbell and Alexander consider that the key mistakes are:

• misusing objectives - by not distinguishing between purpose and constraints
• confounding processes - mixing objectives with strategy; and by
• mistaking planning for insight.

The answer is not new and better planning processes, but an understanding of two fundamental points:

1. the need for a clearly articulated purpose, and
2. the importance of discovering, understanding, documenting and exploiting insights about how to create value.

MOST (Mission, Objectives, Strategy, Tactics) is an acronym used in many strategy courses. It suggests that there is a structure to strategy development that managers should follow:

1. choose a mission - a long-term purpose for the organisation
2. then define short and mid-term objectives that will move the organisation on a path towards the mission
3. then develop a strategy, with tactics to implement it.

The reality is "… much more messy, experimental, and iterative…". And because it is essentially a-processual in many instances, a form of planning paralysis results.

The solution is to understand the fundamental building blocks of strategy - insights into how to create more value than competitors can.

How should organisations find those insights? While Campbell and Alexander’s answer is - "We don’t know … by definition, there is no best way" - they do identify three schools of thought:

1. Those who focus on operating issues, and proclaim the value of the tools of operational effectiveness
2. Those who focus on gazing into the future, including competitive-strategy analysis in the Porter mold, scenario analysis as used by Shell, Hamel and Prahalad’s group thinking processes, and the recent work of chaos theorists
3. A behavior and culture camp, separated into "… data-free planning enthusiasts", who believe that a clear vision is the key to insights (as typified by Hamel and Prahalad’s strategic intent ideas), and a behavior and culture camp which focusses on organisational learning.

Few companies have competed successfully on the basis of OE over extended periods, "… staying ahead gets harder every day".

OE-based competition "… raises the bar for everyone" as competitors become more alike - through the deployment of an increasingly sophisticated array of management tools. Hamel (1996) also makes the point that corporations around the world are reaching the limits of incrementalism.

The stagnation of the Japanese economy can be attributed to an a-strategic concentration on OE. As the gap between Japanese companies and the rest of the world disappeared, a Japanese cultural strength (which values consensus and the mediation of differences) became a liability æ strategising requires hard decisions, and Japanese organisations find that more difficult than their Western competitors.

According to Porter, competitive strategies "… deliberately choosing a different set of activities to deliver a unique mix of value" (Hamel’s "strategy is revolution; everything else is tactics") emerges from three distinct sources:

1. variety-based positioning, producing a subset of an industry’s products or services
2. needs-based positioning, serving most or all the needs of a particular group of customers; and
3. access-based positioning, segmenting customers who are accessible in different ways.

Whatever the basis - variety, needs, access, or some combination of the three - positioning requires a tailored set of activities because it is always a function of differences on the supply side - of differences in activities.

Having defined positioning, Porter went on to answer his central question - "What is strategy? It is, he wrote "… the creation of a unique and valuable position, involving a different set of activities."

But choosing a unique position is not enough to guarantee a sustainable advantage. Sustainability requires trade-offs with other possible positions - for three reasons:

• to eliminate or minimise inconsistencies
• to maximise and concentrate the benefits of a chosen position
• and to recognise and accept the limits of co-ordination and control.

The essence of strategy is choosing what not to do. "Without trade-offs there would be no need for choice, and thus no need for strategy."

Porter completes his analysis by considering ‘strategic fit’, as the way various components of a strategy interlink, or fit together. In this context ‘fit’ locks out imitators by creating a value chain that is as strong as its strongest link, and is a more potent, and central, strategic concept than the more common idea that strategy comprises the ‘core competencies’, ‘critical resources’ and ‘key success factors’ mantras of much modern management.

Porter recognised three types of fit:

• first order or simple consistency between activities
• second order, or reinforcing activities
• and third order, or activities which optimise organisational effort

In all three, the whole is more than any individual part. Competitive advantage grows out of the entire system of tightly linked activities.

Thus defined, strategic fit is fundamental not only to competitive advantage, but also to the sustainability of that advantage, and the more an organisation’s positioning rests on activity systems with second- and third-order fit, the more sustainable its advantage will be. The definition of strategy becomes "creating fit among a company’s activities." The success of a strategy depends on doing many things well - not just a few - and integrating them.

Porter concludes that improving OE is a necessary part of good management, but it is not strategy.

"Managers must clearly distinguish operational effectiveness from strategy. Both are essential, but the two agendas are different. The operational agenda is the place for constant change, flexibility, and relentless efforts to achieve best practice. In contrast, the strategic agenda is the place for defining a unique position, making clear trade-offs, and tightening fit. The strategic agenda demands discipline and continuity."

Strategy and the e-economy - chaos and uncertainty
Chaos theory has its origins in the scientific equivalent of urban myth - stories about small changes in one part of a natural system creating large and unpredictable changes somewhere else. In fact though, many natural systems (businesses included) do seem to behave chaotically - in unpredictable ways, subject to forces only dimly seen. Compelling (or not), the theory doesn’t give leaders much practical insight into what to do when chaos seems to be taking over (Eisenhardt and Brown, 1999).

That’s where complexity theory comes into the picture - focusing on the capacity of a system to adapt to chaotic turbulence. Complexity theory suggests that systems (in our context, organisations, businesses) adapt to chaos best when the individual parts are connected, but only partially. Too rigid - gridlock. Too loose - chaos. The challenge is to construct a networked organisations that’s sufficiently flexible to adapt and maximise opportunity, but not so disconnected that it descends into chaos.

Eisenhardt and Brown’s prescription (for ‘staying poised on the edge of chaos’), is a process known as patching, a key factor in the success of a number of high-performing companies like Hewlett-Packard, 3M, Johnson & Johnson, Dell Computer and Cisco Systems, and the next step in the reinvention of companies like British Petroleum, AlliedSignal and Lucent Technologies.

The key element of this argument is that because strategy is about understanding the environment æ developing models of the future based on environment scanning (even if that’s not the language) and using a sophisticated world view to seize opportunity and make the most of a dynamic, unpredictable environment - a strategic approach is not only essential, it’s actually sufficient; all you need to do!

The essence of strategy, according to Brown, is much simpler than many organisations seem to believe, "It can be represented, at heart, by the formula O/C: opportunity divided by capacity. … there are those who insist that it’s flexibility, not strategy, which ought to be revered and studied … ‘Just keep moving!’ "

The new global competitors (among them the then Asian Tigers, as well as Japan), with their "perspective that is fundamentally different from that of Western management…," were seen to be leveraging resources to reach seemingly unattainable goals - as typified by Komatsu’s ‘encircling’ of Caterpillar in the world-wide earth-moving machinery market.

What characterised the rise of firms like Komatsu, Honda and Canon was ‘strategic intent’; ambition out of all proportion to resources and capabilities, an obsession with winning, and a quest for global leadership. Strategic intent was seen as the ‘different’ characteristic that allowed these firms to capture the essence of winning, to be stable over time, and to set targets that deserved personal effort and commitment.

Making the point that global leadership is not something that can be planned for, Hamel and Prahalad noted that the goal of strategic intent was to "fold the future back into the present." Not to ask ‘how will next year be different from this year’, but rather ‘what must we do differently next year to get closer to our strategic intent?’

But just as firms can’t plan for a 10- to 20-year quest for global leadership, so the chance of falling into a position of leadership by chance is remote. Unlike the ‘Silicon Valley’ view of entrepreneurship, where top managers’ roles are to retrofit corporate strategy to the entrepreneurial success that emerges from below - where growth depends more on the inventive capacity of individuals and small teams than on the ability of top management - organisations with strategic intent exhibited a much different relationship between means and ends.

While clear about ends, strategic intent is flexible about means - it leaves room for improvisation.

Strategic intent implies stretch - and that current capabilities and resources will not suffice. Unlike the traditional view which focusses on fit between resources and opportunities, strategic intent creates an extreme misfit between resources and ambitions, and in this respect it is like a marathon run in 400m dashes - management focuses the organisations attention on the next 400 meters, no-one knows what the terrain will look like at the end of the race.

For challenges of this sort to be effective, top management has to:

• create a sense of urgency
• develop a competitor focus at every level through widespread use of competitor intelligence
• provide employees with the skills they need to work effectively
• give the organisation time to digest one challenge before launching another
• establish clear milestones and review mechanisms.

For the past twenty years, ‘advances’ in strategy have taken the form of ever more typologies, heuristics, and laundry lists, often with dubious empirical bases. Moreover, even reasonable concepts like the product life cycle, experience curve, product portfolios and generic strategies often have toxic side effects: they reduce the number of strategic options management is willing to consider. They create a preference for selling businesses rather than defending them. They yield predictable strategies that rivals easily decode

Armed with concepts like segmentation, the value chain, competitor benchmarking, strategic groups, and mobility barriers, many managers have become better and better at drawing industry maps - while their competitors have been moving entire continents. In a changing world, the strategists goal is not to find a niche within existing industry space, but to create new space æ off the map.

In the vast majority of companies, strategic planning is a calendar-driven ritual, not an exploration of the potential for revolution - the task is to position products and services within boundaries that are taken as given, rather than how to invent new, uncontested competitive space. Any company that believes that planning can yield strategy will find itself under the curse of incrementalism while freethinking newcomers lead successive insurrections.

As an aside, the confusion between strategy and tactics is endemic in the strategy literature - for an example see Viljoen (1991), who notes that "Budget Rent-a-Car [has] a corporate strategy of operating in the vehicle rental market, and a competitive strategy … of equivalent or superior service at a lower price. In order to support these strategies it has developed a number of operational strategies based on efficiency, cleanliness of vehicles, friendliness of staff and so on."