In their 2010 article in the MIT Sloan Management Review, “What Every CEO Needs to Know About Nonmarket Strategy”, David Bach and David Bruce Allen contend that sustained competitive advantage arises from engaging with “social, political and environmental issues” as part of corporate strategy.
I completely agree, but would make the case more strongly: much of what passes for corporate “strategy” is actually tactics. The same goes for much of the advice dispensed by illustrious “strategy” consulting firms. “Strategy” sounds more important than “tactics,” so everybody calls whatever they’re talking about strategy, and then moves on to dispensing advice. But what sounds like a linguistic quibble matters, because the distinction between these words bears directly on building a sustained competitive advantage in business.
We get the word strategy from the Greek word στρατηγός/strategos, which has the literal meaning “army leader”. In the Classical context, however, a strategos was someone who was both a military general and a civilian politician: in other words, a strategos was expected to employ every aspect of power at his command in pursuit of victory, and sometimes even to define victory. In contrast, the word “tactics”, comes from the Greek τακτική/taktike; it was a far more narrow term that encompassed only how an army was organized.
Most traditional MBA-style business strategy and consulting frameworks (e.g. Porter’s Five Forces or the Value Chain) grew out of Economics. Like a general who thinks only of narrow military matters, economists usually treat the “rules of the game” as fixed, and call anything that disturbs these rules (e.g. NGO critics, new regulations, or geopolitical shocks) “exogenous” (another Greek word, used in Economics to mean “stuff I don’t want to think about”). By treating the rules and broader environment of business as fixed, everything beyond the immediate trinity of customers, competitors and suppliers becomes an afterthought. By addressing only those traditional market forces, you are by definition engaged in a tactical discussion. That’s OK – tactics are important! – but sometimes calling tactics “strategy” keeps truly strategic matters from moving to the top of the agenda while there is still time to craft a long-term response.
Given the pace of social, technological and political change today, businesspeople have to integrate factors beyond the traditional value chain into the core of their decision-making, planning and business models. I call this 360 degree view of both your environment and your strategic toolkit – employing every element at your disposal to achieve your business goals – “Integrated Strategy”.
Here’s another way to think about “Integrated Strategy” and about the distinction between strategy and tactics. In a 1985 article in American Sociological Review, called “Talking Social Structure: Discourse, Dominance and the Watergate Hearings,” Harvey Molotch and Deidre Boden wrote about three “faces” or forms of power in public discourse. Their first “face of power” is most people’s common sense idea of the term: the ability to prevail in an explicit struggle through superior resources, contacts, or a formal position. The article addressed winning an argument, but that description also describes most contemporary business “strategy” frameworks. Such “strategy” limits your thinking to margins, buyers, suppliers, customers, and the existing competition. It’s really tactics (or what Kim and Mauborgne from INSEAD recently called “Red Ocean Strategy”). This face of power is a war of attrition on the battleground of the market.
Sometimes, however, Christensen’s famous strategic disruptions arise, and entrepreneurs and innovators set a new agenda for an industry. Frequently, the fresh agendas are the result of a changed technology, process or business model. Such ability to “set agendas” is Molotch and Boden’s second “face of power”. Setting new agendas in business is certainly an improvement upon the zero-sum tactics an explicit struggle (and is akin to Kim and Mauborgne “Blue Ocean Strategy”). Ultimately, however, the vision of the “set a new agenda” school of corporate strategy remains bounded by market forces, and their frames of reference cannot remove completely the blinders inherited from Economics.
A truly strategic approach in business is akin to Molotch and Boden’s third face of power: the ability to shape the rules of an entire interaction – to set the agenda, to decide who speaks, and to choose when they get to speak. Now that’s power. It’s also what business strategy worthy of the name should aspire to: anticipating and shaping the rules of competition, like a Classical strategos deciding not just how a battle would be fought, but when a war would start, with whom, and what the peace would look like.
To work towards shaping their environment, businesspeople need both to recognize and to engage with – to treat as unexceptional – factors outside of traditional business strategy. That was the point of “What Every CEO Needs to Know About Nonmarket Strategy”. Businesses need to work towards creating integrated strategies that employ every element of their interaction with the outside world to create sustained value. Doing so includes active engagement with social and political issues well outside the boundaries of traditional market forces. Its focus is less on predicting the future (about which we will be writing more), and more on formulating “non-predictive” but robust and realistic strategies that actively engage with and shape their environments.
Isn’t this just Corporate Social Responsibility (CSR)? No. I’ll explain more fully why not in later posts, but the short answer is that CSR initiatives almost by definition are bolted-on to rather than integrated within corporate strategy, and also tend to be issue-specific. Companies usually have their strategies and their CSR activities, activities that frequently amount to apologies for their marketplace strategies!
As usual, Peter F. Drucker probably said it first and pithiest: “Tactics is doing things right, strategy is doing the right things”. In the long run, the horizon of true strategy extends well beyond the economics of the present, to consider every resource and approach available to the business in its quest for sustained competitive advantage. This is especially the case because arguably the social, political and technological environment of business is changing faster than ever.
Exploring how and why the broader environment of business is changing, and what those changes mean for the creation of business strategy, is the purpose of this blog.