The Three Levels of Strategy

An excellent overview of strategy design by Greg Satell at Digital Tonto:

"What makes a good strategy? Ask a collection of management gurus and you’ll get a variety of answers.

Some say that you need a vision. Others emphasize focus on your core competencies. Still others would insist that you innovate your business model and on it goes. There is also a divide on who should form strategy. While some hold that it is a management function, others believe that it should emerge from the bottom-up.

The veritable Noah’s Ark of voices and theories can be downright stupefying. I would submit that one reason for the confusion and cacophony is that, far from being monolithic, there are three levels of strategy and each requires a very different approach.


Mission and Strategic Intent
On the top level, in the domain of the founder or current CEO, a mission must be articulated. Hamel and Pralahad call this strategic intent (pdf).

Articulating a vision in this way serves as a battle cry for the organization and forms a basis for making decisions. Google strives to “organize the world’s information.” Southwest Airlines focused on being “THE low cost airline.” Jack Welch, when he was at GE, insisted on being number one or two in each and every business where they compete.

Forming and pursuing a specific strategic intent is important, even crucial, because it defines success and infuses an organization with meaning. However, it is somewhat limited because it doesn’t provide much guidance about how to actually achieve goals.

Moreover, strategic intent is somewhat static. Some companies maintain a specific strategic intent for their entire life. So strategic intent should be considered a good basis for long-term strategy, ranging from five years to the life for the company. However, it is incomplete. Necessary, but not sufficient.

Strategic Moves
On the next level down we have strategic moves. This involves where a company puts its resources and therefore, like an organization’s mission, is under the purview of top management and should be considered medium-term strategy (six months to a few years).

Strategic moves should be pursued with a specific strategic intent in mind. Google’s move into mobile phones, oil companies’ decisions about whether to invest in alternative energy and the Gates Foundation’s determination of sub-Saharan Africa as a center of activity are all examples of strategic moves.

Analytical management gurus of the “positioning school” can be very helpful in guiding strategic moves. Michael Porter and his 5 Forces framework, which takes into account not only competitors, but suppliers, customers, market entrants and substitute goods in formulating strategy is an excellent approach.

Also, as I alluded to in an earlier post, Game Theory can be a helpful guide when considering strategic moves. While much of the literature surrounding game theory is highly technical, Dixit and Nalebuff have written a highly readable book that will guide you through the basic concepts.

Operational Strategies
The final level is both the most difficult and the most exciting, because it involves the way things actually get done. Operational strategies can be short-term to medium-term, ranging from a few months to several years to execute. There can be dozens or even hundreds going on at once.

For instance, Apple incorporated iTunes into their iPad and mobile devices in what Clayton Christensen would call a business model innovation. They also priced the iPod to sell briskly, started selling iPhones through Verizon and are constantly launching new products with features that represent a plethora of smaller strategic ideas.

As Henry Mintzberg points out, operational strategies are mostly out of the control of the CEO (although sometimes subject to final approval). However, in the best companies, operational strategies eventually filter up into strategic moves, as when Intel’s decided to move out of memory chips. Mintzberg calls this emergent strategy.

Putting it altogether
Once you realize that different approaches are needed for different levels of strategy, a lot of confusion can be avoided. For instance, management consultants can be helpful in formulating strategic intent and strategic moves, but are usually a disaster at operational strategies (very few have ever had real jobs).

Another salient point is that the bulk of strategic activity occurs much further down than most managers realize. If the rank and file doesn’t buy into the organization’s strategic intent and strategic moves, they will seek to undermine them and operational strategies won’t be in line. After all, it’s the lunatics that run the asylum.

Most of all good strategy is a dynamic, reflexive process, constantly seeking to resolve inevitable tensions between the three levels. Leadership after all, is as much about watching and listening as it is about setting direction