This article is designed to provide executives with a better understanding of the nature and purpose of strategy and draws on Jack Welch's record at GE, as well as examples from other companies, to show how these strategy-related terms, concepts, and principles apply in practice.
The terms, concepts and principles of strategy
From my work as a strategy consultant, executive, and professor of strategy in graduate and executive programs, I have found that strategy can be best understood if it is viewed as an element of a troika that includes policy, strategy, and resources (the PSR Troika). I have also found that it helps to focus on two aspects of strategy: the causal relationship between strategy and the other elements of the PSR Troika; and the plurality of inputs, options, and outcomes that characterize strategy.
The elements of the PSR Troika
Policy is from the word for the Greek city-state, polis. In government, policy is the product of a legislature that delineates the goals, objectives and priorities of the state. In business, the term "policy" is used to define a company's principal goals and objectives and to prescribe the company's operational domain. Corporate policies define a company's reason for existing (to maximize shareholder wealth and/or fulfill one or more social or economic function), what the company does (design, develop, manufacture and/or market products and/or services), and where the company does it (by industry and/or geographical area). The responsibility for determining corporate policy rests with a company's legislative branch its board of directors under the leadership of the chairman of the board. Policy defines a company's raison d'être and sets the parameters within which it intends to achieve its purpose. Policy defines what is to be achieved.
Strategy is from the Greek strategos, which means general. In the Greek city-states, the military general was responsible for formulating a plan for bringing the legislature's policy decisions to fruition and for implementing that plan. In business, strategy is a design or plan for achieving a company's policy goals and objectives. Whereas, policy defines the company's goals and objectives and its operational domain, strategy decides how the company's goals and objectives will be achieved, what operational units will be used to achieve the company's goals and objectives, and how those operational units will be structured. Strategy also determines what resources will be needed to achieve the company's goals and objectives and how these resources will be acquired and used. Strategy is a design or plan that defines how policy is to be achieved.
This definition of strategy applies to corporate strategy and unit strategy. Unit strategies are plans for achieving the goals and objectives of an operating unit, an industry or geographical operating area, or a managerial or business function. Unit strategies include a company's marketing strategy, acquisition strategy, alliance or affiliation strategy, human resources recruitment and retention strategy, production strategy, and financial strategy. They also include a company's division strategies, subsidiary strategies, and country strategies. Corporate strategy, on the other hand, refers to strategy that is used to achieve corporate goals and objectives, that is, to achieve corporate policy.
Whereas policy is a legislative function, strategy is an executive function. The responsibility for formulating and implementing a corporation's strategies rests, therefore, with a company's senior management, under the leadership of the chief executive officer.
The third element of the PSR Troika is resources. Resources...