Five tests of a Good Strategy

From ExecuNet

Some companies are adjusting their strategies to compensate for the current economic conditions, but if "strategy" is the long-term blueprint for an organization, why change it for temporary insecurity?

Michael Porter, Harvard Business School professor and leader of the University's Institute for Strategy and Competitiveness, told the senior-level executive audience at HSM's World Business Forum in late September that many leaders are misinformed about how to develop long-term competitive strategy plans for their companies. They often confuse strategy with some type of action, such as merging, internationalizing or outsourcing. Other flawed concepts are strategy as aspiration (becoming the "tech leader" or to "grow"), and strategy as mission/vision statement. "Companies spend days arguing over which six words go in the sentence. It's a concept. Don't confuse it with strategy," said Porter.

A simple, yet accurate, way to test whether your organization is on the right strategic track is to see if your entire management team would be able to independently articulate the same thing. If they can't, Porter said, you don't have a true strategy.

There are five tests of a good strategy, Porter outlined:

* A unique value proposition. "If you don't have one, you're competing on operational excellence but unlikely to achieve superiority."

* A different, tailored value chain. "If not, you are competing on operational excellence — who can do the same thing better?"

* Clear tradeoffs, and choosing what not to do. "If you choose what to do, you have to also choose what not to do because they are incompatible. It's very hard because tradeoffs limit opportunity."

* Activities that fit together and reinforce each other. Porter said to harness the synergies across the value chain instead of discrete advantages.

* Strategic continuity with continual improvement in realization. "Strategy takes about three years to kick in. If you shift strategy every year, year and a half, you'll never get there."

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