Strategy is a set of choices about where an organisation will compete and how it will win, held over the long term. Michael Porter (1996) adds that strategy means doing different things from rivals, or doing similar things differently, accepting trade-offs, and making activities fit together so the advantage is hard to copy.
Ask ten managers "what is strategy?" and you will hear ten answers: a plan, a vision, a list of priorities, a five-year budget. Most of these are useful things, but they are not strategy. In this guide I set out the clearest definitions, explain Michael Porter's famous answer in plain English, and give you a simple test to check whether your organisation actually has one.
What is strategy in simple terms?
In simple terms, strategy is a set of choices about where an organisation will compete and how it will win there, which it then backs with its resources over time. The important word is choices. A strategy says yes to some customers, products and activities and, just as importantly, no to others.
The definition used in the UK's most widely taught strategy textbook, Exploring Strategy by Johnson, Scholes and Whittington, describes strategy as the long-term direction and scope of an organisation. As ICAEW summarises it, that direction achieves advantage in a changing environment through how the organisation configures its resources and competences, with the aim of meeting stakeholder expectations. Four ideas sit inside that sentence:
- Long term: strategy is about years, not weeks.
- Scope: which markets, products and activities the organisation covers.
- Advantage: a reason customers choose you over rivals (or, in the public sector, a reason you deliver more value for the money).
- Stakeholders: strategy has to satisfy the people with power over and interest in the organisation, from shareholders to regulators.
What did Michael Porter say strategy is?
Michael Porter's 1996 Harvard Business Review article, "What Is Strategy?", is the most cited answer to this question. His core argument is that many companies confuse operational effectiveness with strategy.
Operational effectiveness means doing the same things as rivals, but better: lower costs, fewer defects, faster delivery. Tools such as total quality management, benchmarking and re-engineering all improve it. Porter does not dismiss these tools. He says they are necessary, but because competitors can copy them, everyone improves together and nobody pulls ahead for long. Industries converge and profits get competed away.
Strategy, in Porter's view, is different. It means performing different activities from rivals, or performing similar activities in different ways, so that you deliver a unique mix of value to a chosen group of customers. He builds the idea from three parts.
1. A unique and valuable position
Porter says a position can come from three sources:
| Source of position | What it means | Porter's example |
|---|---|---|
| Variety-based | Offer a narrow subset of an industry's products or services, and do it exceptionally well | Jiffy Lube (oil changes only) |
| Needs-based | Serve most or all of the needs of one particular customer group | IKEA (young, price-conscious furniture buyers) |
| Access-based | Serve customers who are reached in a different way, for example by location or size | Carmike Cinemas (small towns) |
2. Trade-offs
A position only lasts if it involves trade-offs, meaning that doing more of one thing forces you to do less of another. Trade-offs stop rivals simply copying you, because to copy your position they would have to give up their own. Porter's warning example is Continental Lite, an attempt by Continental Airlines to run a low-cost, point-to-point service alongside its full-service network. Trying to do both at once, which Porter calls "straddling", left it doing neither well. His short line on this is that strategy is about choosing what not to do.
3. Fit
Finally, the activities must fit together and reinforce one another. Southwest Airlines is his main illustration: fast turnarounds, no meals, no seat assignments, standardised aircraft and point-to-point routes all support each other. A rival can copy one activity, but copying the whole system is far harder. That is why fit turns a position into a sustainable advantage.
Porter also says strategic positions should be held for a decade or more, not reinvented every planning cycle. Growth pressure is the most common reason companies blur their position, so he recommends deepening a position rather than broadening it.
What are Mintzberg's 5 Ps of strategy?
Henry Mintzberg took a different route. In his 1987 California Management Review article, "The Strategy Concept I: Five Ps for Strategy", he argued that the word strategy is used in five distinct ways, and that each is valid. The University of Cambridge Institute for Manufacturing gives a useful summary of the five.
| P | Strategy as... | Example |
|---|---|---|
| Plan | A course of action consciously decided in advance | A retailer's three-year plan to open 50 stores |
| Ploy | A specific manoeuvre to outwit a rival | Announcing a new factory to deter a competitor from entering |
| Pattern | A consistent stream of actions, intended or not | A firm that keeps winning on quality, whatever its plans say |
| Position | Where the organisation sits in its environment | A budget airline serving price-sensitive leisure travellers |
| Perspective | A shared way of seeing the world, like a personality | A company that always sees itself as an engineering business |
The "pattern" idea is the most important for practising managers. It led to Mintzberg and Waters' 1985 paper on deliberate and emergent strategies: the strategy an organisation actually follows (its realised strategy) is a blend of what it planned and what emerged as people responded to events. Porter's view is closest to "position"; Mintzberg reminds us that real strategy is also learned along the way.
What are the five elements of strategy?
If Porter tells you what a good strategy achieves, Donald Hambrick and James Fredrickson tell you what a complete one contains. In their 2001 article "Are you sure you have a strategy?", they argue that a strategy must answer five questions, and that the answers must form one joined-up whole.
| Element | Question it answers | Example (a specialist coffee chain) |
|---|---|---|
| Arenas | Where will we be active? | City-centre commuters in the UK and Ireland |
| Vehicles | How will we get there? | Company-owned sites first, then franchising |
| Differentiators | How will we win? | Speed of service and a high-quality app |
| Staging | What is our speed and sequence of moves? | Prove London, then Manchester, then Dublin |
| Economic logic | How will we make our returns? | High volume per square metre and low rent |
This is my favourite practical test. When a leadership team says "our strategy is to be customer-centric", I ask them to fill in the five boxes. If they cannot, they have an aspiration, not a strategy.
What is NOT strategy?
Many documents labelled "strategy" are something else. Knowing the difference saves a great deal of wasted effort.
| Often called strategy | What it really is | Why it falls short |
|---|---|---|
| "Be the market leader" | A goal or ambition | Says what you want, not how you will win |
| A list of 15 priorities | A to-do list | No trade-offs, so nothing is ruled out |
| Matching a rival's new product | Operational effectiveness (Porter) | Easily copied, so no lasting advantage |
| The annual budget | A financial plan | Allocates money without a theory of advantage |
| Cutting costs by 10% | A tactic | Useful, but serves a strategy rather than replacing it |
The last row matters. Strategy and tactics are linked but different, and I cover the distinction in full in my guide to strategy vs tactics.
What are some examples of strategy?
IKEA: a needs-based position
Porter uses IKEA to show a position built on a customer group: buyers who want style at a low price and will trade service for cost. Customers pick, carry and assemble the furniture themselves. Flat packs, out-of-town stores, large car parks, on-site restaurants and in-house design all reinforce each other. That is position, trade-offs and fit in a single business.
Southwest Airlines: fit between activities
Southwest chose to serve price-sensitive travellers on short routes, and gave up the things those travellers did not value (meals, connections, seat assignments). Each choice made the others work better. Competitors who copied one feature without the rest did not get the same results.
A professional services firm: arenas and differentiators
A mid-sized accountancy practice might choose to serve only owner-managed businesses in one region (arena), grow by acquiring retiring partners' client lists (vehicle), and win through a fixed-fee advisory package (differentiator). The choice to decline large audit clients is the trade-off that makes the rest credible.
How does strategy differ at corporate, business and functional level?
| Level | Main question | Typical owner | Example tool |
|---|---|---|---|
| Corporate | Which businesses should we be in? | Board and group CEO | BCG matrix, Ansoff matrix |
| Business (competitive) | How do we win in this market? | Business unit head | Porter's generic strategies |
| Functional (operational) | How does each function support the business strategy? | Function heads | Value chain |
Most of the confusion about strategy comes from mixing these levels. A marketing plan is a functional strategy; it only makes sense if it serves a clear business-level position.
Who is responsible for strategy?
Formally, the board is responsible for approving strategy and the executive team for proposing and delivering it. In a well-governed company the board challenges management's proposals, checks they match the organisation's risk appetite, and monitors progress against them. In practice, though, Mintzberg's point about emergent strategy means that strategy is also shaped lower down. A sales manager who keeps winning a certain type of customer, or an operations team that finds a cheaper way to deliver, can change the realised strategy long before the board writes it into a plan.
That is why I encourage managers at every level to understand strategy, not just directors. If you know where your organisation is trying to compete and how it intends to win, you make better day-to-day decisions, you spot emerging opportunities sooner, and you can explain to your team why their work matters. It is also the foundation for the strategic leadership skills that senior roles demand.
How do you know if you have a good strategy?
Run these five quick tests, drawn from the authors above:
- Difference test (Porter): could a competitor describe their strategy in the same words? If yes, you do not have one.
- Trade-off test: name three things your strategy says you will not do.
- Completeness test (Hambrick and Fredrickson): can you answer all five element questions?
- Fit test: do your main activities support each other, or pull in different directions?
- Stakeholder test (Johnson, Scholes and Whittington): is it acceptable to the people with power to block it? The suitability, acceptability and feasibility framework is the standard way to check.
Once you can answer "what is strategy?", the next step is understanding how organisations analyse, choose and implement one. That is the subject of my guide to strategic management, and the thinking skills behind it are covered in strategic thinking.
Where can I learn the core strategy models in one place?
My book, Becoming A Strategic Business Leader, is a concise guide to the core strategy, governance and leadership models. I originally wrote it for the ACCA Strategic Business Leader exam, but it works for any manager who wants the essentials without a 900-page textbook. Chapter 1 covers strategic planning, Chapter 2 strategic analysis (including Porter's Five Forces and the value chain) and Chapter 4 strategic choice (generic strategies, Ansoff and the suitability, acceptability, feasibility test). You can read the first three chapters free.
Bottom line
Strategy is a coherent set of choices about where to compete and how to win, held over the long term. Porter's test is the sharpest: if your organisation is simply doing the same things as rivals a little better, that is operational effectiveness, not strategy. A real strategy is different, involves trade-offs, and has activities that fit together so tightly that rivals struggle to copy them.
FAQs
What is the simplest definition of strategy?
Strategy is how an organisation chooses to win over the long term. It covers where it will compete (markets, customers, products), how it will be different from rivals, and what it will deliberately not do. Plans, budgets and targets support a strategy, but on their own they are not one, because they do not explain why customers will choose you.
What is Porter's definition of strategy?
In his 1996 Harvard Business Review article "What Is Strategy?", Michael Porter defines competitive strategy as being different: choosing a different set of activities to deliver a unique mix of value. He stresses three ideas: a unique and valuable position, trade-offs that stop rivals copying you, and fit between activities that makes the advantage sustainable.
What is the difference between strategy and operational effectiveness?
Operational effectiveness means performing the same activities as rivals but better, for example with lower costs or fewer errors. Strategy means performing different activities, or the same ones in different ways. Porter argues operational effectiveness is necessary but not enough, because rivals can copy improvements quickly, so it rarely produces lasting advantage on its own.
What are the 5 Ps of strategy?
Henry Mintzberg's 5 Ps (1987) are five ways the word strategy is used: plan (a course of action decided in advance), ploy (a manoeuvre to outwit a rival), pattern (consistent behaviour over time), position (where the organisation sits in its market) and perspective (a shared view of the world). Together they show strategy is both planned and learned.
What are the five elements of a strategy?
Hambrick and Fredrickson (2001) say a complete strategy answers five questions: arenas (where will we be active?), vehicles (how will we get there?), differentiators (how will we win?), staging (in what speed and sequence?) and economic logic (how will we make returns?). The answers must fit together as one integrated whole rather than five separate decisions.
Is a mission statement a strategy?
No. A mission statement explains an organisation's purpose and a vision describes where it wants to be. Strategy is the set of choices about how to get there and how to beat rivals along the way. A good mission guides strategy, but without choices about markets, advantage and trade-offs, it remains a statement of intent.
Sources
- Porter, M.E. (1996) What Is Strategy? Harvard Business Review
- Mintzberg, H. (1987) The Strategy Concept I: Five Ps for Strategy, California Management Review 30(1)
- Mintzberg, H. and Waters, J.A. (1985) Of strategies, deliberate and emergent, Strategic Management Journal 6(3)
- Hambrick, D.C. and Fredrickson, J.W. (2001) Are you sure you have a strategy? Academy of Management Executive 15(4)
- Whittington, R. et al. Exploring Strategy: Text and Cases, 13th edition (Pearson)
- ICAEW: How to further develop your strategic role
- University of Cambridge IfM: Mintzberg's 5 Ps for Strategy