Developing a strategy is necessarily a highly iterative process. There is no best sequence of activities. There is no best format. What is important, however, is to ensure that strategic thinking, as a process, is owned and executed at the operating unit level. That is, by the people who must deliver on the resulting strategy. Consequently, whatever approach is adopted must be natural for the type of organization and the background and experience of the team that will carry out the bulk of the work.

However, there is a set of fundamental principles of sound strategic thinking that is useful regardless of the approach taken: The central goal is long-term superior performance. Businesses exist to provide returns to their shareholders. Accordingly, the goal of the strategy is to position the business to achieve, over the long term, returns that are superior to competitors and compensate the shareholders for the risk they are taking. Superior performance requires a sustainable competitive advantage. The way to achieve long term, superior returns is to create and sustain an advantage over competitors. Competitive advantage derives from creating and exploiting the differences between a business and their competitor. Advantage is a relative term. It requires some other point of comparison to illustrate the benefits of one advantage over another. Those differences must be well understood relative to the value placed upon it by the customer. Competitive advantage can be fragile and requires continuous improvement. Once competitors understand a particular advantage, it may be copied, improved upon, or replaced with superior substitutes. Customers and competitors are (ultimately) rational. Over the long term, people and businesses behave rationally, that is they do not (generally) intentionally operate at a loss, etc. Consequently, it is important to look behind what appear to be “crazy” competitors to understand why they are making the choices they are. This can often be an opportunity to learn something valuable about the industry and the marketplace. Segments have different relative attractiveness. Even segments that appear to be very close in proximity can have widely different return potentials. Often just re-targeting the same offerings to a different customer (who may have a bigger need, or where there are fewer options) can yield much bigger returns. Superior strategies are unique. It is difficult to copy a winning strategy, unless the business also copies the value chain (operating model) that makes it work. And, it is typically very difficult to copy the value chain because it is so inextricably linked with the company’s culture, and its management and governance processes. No single strategic model is right for everyone.

A good strategy is not about tools, diagrams, documents, or plans. It is about competition and customers, sustained competitive advantage, where to compete (the “positions”), how to compete (the “capabilities”), and, of course, it is about execution and delivery.

When attempting to evaluate a strategy, the following questions can be helpful: Can individuals in the unit clearly articulate the strategic direction? Is it aligned with the corporate strategy? Has it adequately answered the fundamental strategy questions? Is the return potential clear and unambiguous? Does the organization understand why this particular strategy was selected? Can the organization pull it off?

Balance is essential for sound, prudent decision making. Many situations require tradeoffs to be assessed. Blind adherence to any one principle or goal will not be effective or even desirable. The successful companies of the future will consist of leaders who have the understanding and judgment to exercise balance in their decision-making and priority setting. This balance is important especially when faced with the following very common trade-offs: Short term and long term Operating and strategic Intuitive and analytical Individual and team Consistency and experimentation Reduction of waste and addition of value Action and study

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