We all confuse words, often unknowingly, but in the case of strategy and policy there is a world of difference which truly matters for your business. How have we gotten to a point of convergence and what are the differences that you need to know?
Written by: Deborah Biscomb, Head of Marketing
The academic and professional discipline of strategic management has been in circulation for over 80 years in business literature and practice.
Indeed, over this time what once was as simple as Sun Tzu’s commandment about direction setting has evolved into an area which inspires millions across the world, and with good cause.
But, as with anything in business, the original meaning can become muddied, and tools, frameworks and conversations evolve the discipline.
Indeed, the introduction of new concepts and terminology can, frequently, confuse meanings and lead to crucial gaps in strategy execution.
Business strategy and policy has fallen into this trap. But how did we reach this seeming impasse and what are the points of clarity which can help academics and professionals alike return to the beaten path?
From strategic management’s origins and points of theoretical separation to the tools and frameworks which are leading in the space we can, and will, arrive with absolute clarification on the differences between strategy and policy in this blog.
Origins, Chaffee and beyond
Strategic management, in principle, is a simple concept – analyze your internal and external situation, set objectives, tactics, measurements, review and move forward, putting into place systems and resources to manage the strategy’s journey.
Indeed, it all begins with looking towards the future and setting out a course for your business, unit or team, to improve on its current performance – be that financial, output, or whatever your unit of measurement.
Without doubt, it requires critical thinking and a pinch of good fortune.
Formally, strategic management theory begins in the 1950s with well known thought leaders such as Drucker, Chandler and Ansoff.
Their combined ideas fused business adaptation and organizational structure with corporate planning and decision making.
This fueled the 1960s enlightenment of strategic thinking, and numerous frameworks, such as:
- Porter’s Five Forces
- SWOT Analysis
- Value Chain Analysis
- VRIO Framework
A rapid influx of theories were born in the proceeding years, with names such as the Boston Consulting Group introducing its revolutionary experience curb analysis halfway through the decade.
In 1970, this growth in interest gave Professor Ellen Earle-Chaffee cause to review and clarify, with the hindsight of near 20 years evolution, what strategic management stood for:
- Adapting the business to its environment
- Agility and complexities require quality, often creative, responses
- Providing direction to the entire business
- Formulating the strategy through process and implementing the strategy’s content
- It can be planned (intended) and unplanned (emergent)
- It will be created at multiple business levels
- It covers conceptual and analytical thinking
Frameworks and tools
Moving to the present day, the theory of strategic management has presented us with a division – frameworks and tools – which are used to formulate and manage the strategy.
Frameworks – Provide clarity and inspiration to all your employees about how the business will strive to its vision, mission and objectives.
Popular examples include Hoshin Kanri, OKR and OGSM.
Tools – If we consider the framework as being the foundation and structure for the house which represents your strategy, it is the strategic tool which fills out that framework to add paint, furniture and other fittings.
Examples include vision statements, PESTEL analysis, the McKinsey Matrix and the IFE Matrix.
Semantics vs choice?
The choice of frameworks can very well come to semantics – though the terminology changes, there is considerable parity to be found no matter whether you’re applying the framework that powers Danaher’s success or Google’s exponential growth.
Crucially, however, it is important to note that the use of the strategic tools, and indeed the choice of framework, is intertwined with a business policy.
After all, as we shall explore later, it is a business’ policy which establishes a commonly accepted understanding of what drives decision making.
It is those decisions which impact the framework, tools and execution of a business’ strategy.
Back to basics with strategy
Before we move forward to business policy, let’s recap the basics of strategy, as captured expertly by Chandler:
“Strategy is the determination of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.”
Strategy and Structure, Chandler
Where confusion began to enter the conversation is perhaps identifiable with another of Chandler’s quotes:
“Basically, a strategy is a set of decision-making rules for the guidance of organizational behavior.”
Strategy and Structure, Chandler
We know that a strategy is concerned with forward facing objectives and a suite of initiatives and projects to achieve this ambition, but Chandler’s quote is easy to misinterpret.
The strategy is formulated and used to guide decisions beyond its implementation, but there is an overarching force which is left unacknowledged before we reach the strategy formulation – the business policy.
What is a business policy within strategic management?
That is the crux of today’s discussion.
Naturally, though strategic management involves forming a strategy which is forward facing and almost requires predicting future market forces and conditions, this will be formed with the past in mind.
That is through the business’ policy.
“Business policy is the study of the function and responsibilities of senior management, the crucial problems that affect success in the total enterprise, and the decisions that determine the directions of the organization and shape of its future.”
Business policy: text and cases, Christensen
If we take a step back to clarify Christensen’s words in the light of this blog and strategic management, a business policy is formed from the core of an organization.
The business policy concerns itself with the purpose, organizational identity, what needs to be achieved, and utilization of resources to support any given strategy, project portfolio or task.
It is the strategy which adds a further layer of direction, almost as if to concentrate the policy in any one direction based on future-facing analysis.
However, the policy typically remains sturdy, regardless of the direction the business is being taken.
That is, of course, unless a seismic shift in the market or conditions necessitates a policy shift.
That means that the choice of strategic framework, tools and resulting portfolio of projects, measurements etc. must be aligned to the business’ policy.
Similarities and differences between business policies and strategy
With these two elements of strategic management defined, the following provides clarity on the different qualities each possesses:
|A guideline for decisions and actions delivered to staff for fulfilling objectives||Are concerned with direction for human and physical resources and maximizing their usage in light of internal and external pressures|
|Commonly accepted understanding of decision making||Specific actions needed to achieve objectives|
|Thought oriented||Action oriented and empowers those affected to implement actions|
|Must be integrated with the strategy to ensure successful strategy execution||Work with the policy to enable decision aligned to the DNA of the business|
|Work with the strategy to push the organization towards achieving objectives|
A policy concerns itself with decisions – it is a guiding light which links back to the DNA of the organization.
It is formed through consensus, experiences over a period which have informed the business as to what it should stand for.
With a policy in mind, decision-makers can know, with a certain degree of certainty, what they should do.
A strategy concerns itself with action – what are the steps we can take to achieve a desired objective which is future-facing? It is created with competition, resources and other environmental pressures in mind.
Though the two can be confused as synonyms, there are indeed differences which can, and should, be drawn out.
Chicken or the egg – which comes first, strategy or policy?
So, which should come first – strategy or policy?
Well, to answer that we must return to Drucker.
In his Age of Discontinuity thesis, Drucker did speak about the phenomenon of discontinuity. Here he focused on several interesting points:
- The pace of new technology outstrips the importance of past experiences
- Older industries fall to the wayside to make way for innovative ones
- Knowledge is the most valuable asset to businesses
Indeed, past experiences do not guarantee future events.
The acceleration of society, business and their norms has been no more evident than with COVID-19, but to dismiss the past because of its inability to guarantee the future is short-sighted.
It is the past, the knowledge holders and their experiences which should, and do, form by and large a business policy.
It is the injection of new talent, fresh eyes and different perspectives which should, and will, challenge your business to adopt new strategies, and, in an ironic twist, evolve your business policy.
And in the 2020s, it is time to re-consider the importance of business policy for your strategic management.
Indeed, change is the word of the decade so far, but change doesn’t mean fundamentally altering who you are as a business because of your strategic direction.
Neither your policy nor strategy take the role of chicken or egg.
It is for your organization to utilize its past and harness its future-thinkers to execute its strategy, regardless of what the world presents.
Learn more about Strategy Execution Management
Click here to learn more about the Hoshin Kanri strategic framework or take a look at these content recommendations:
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- Hoshin Kanri - OGSM - OKR: A case of apples and oranges?: Uncover the similarities between Hoshin Kanri, OGSM and OKR in our comparison feature.
- Download our Hoshin Kanri eBook: Read how Hoshin Kanri is supporting organizations to drive great business results, how two businesses have used the methodology to build their business systems, case studies and more.
About the author
Deborah Biscomb is Head of Marketing at i-nexus. Deborah has wide-ranging experience of markets such as retail, manufacturing, financial services, public sector, telecommunications, energy and utilities, distribution and logistics. As Head of Marketing, her drive is to raise awareness and understanding of the challenges facing enterprises in controlling their strategy and driving superior results.
If you’d like to talk more about Strategy Execution, reach out to Deborah on email@example.com or connect with her on LinkedIn for the latest strategic insights.