What is Strategy ?

This is blog post entry 2 after blog post 1 of quotations of Charlie Munger, a wise man.

Strategy is the set of actions taken by management ensuring company survival, chasing company growth.

Ensuring company survival

Company survival is the basis for strategy. If every established company survives and thrives, then there is no need for strategy. Because not all companies survive and thrive, because many companies die after few years or decades, companies formulate strategies to survive and grow.

Why don’t all companies survive and grow?

Because of competition. Competition in the free market place forces company’s to offer their best to the consumers. If there is no competition then it isn’t a free market.

NOTE from Economics : Few companies in few industries have little competition. They are classified as either duopoly’s or oligopolies. Competition commissions of various countries ensure free markets in their countries & discourage monopolies. How effective are they is a topic for another day.

So what do companies do to survive?

Companies do a lot of things to survive. Companies have survival instinct as high as any animal. This instinct is even higher in case of new born companies often called startups. Following are the ways they use to survive competition.

1. Kill competition
   1. By acquiring competitors
   2. Wage price war or legal war or both
   3. Develop far superior products than the competition
2. Diversify company portfolio by expanding into other industries
3. Reduce or cut down costs (Restructuring)
   1. Layoff resources
   2. Scale down capacity (incase of manufacturing company)
4. Raise capital to fund existing operations
   1. Issue Debt (bonds)
   2. Issue Equity (sell ownership stake)

How does strategy help companies to grow?

There are many tools and techniques used by company’s management to grow their companies.

Predominantly, management analyses

1. External environment – conditions outside company which influence/affect company’s performance.
2. Internal environment – conditions inside company which influence/affect company’s performance.

Once the above analysis is completed, management then formulates a strategy to address factors which influence company’s growth. There are generic strategies which the company can choose from. Once strategy is formulated, strategy is implemented.

Strategic formulation and strategy implementation are the next steps after initial analysis.

As mentioned above, strategy strives to address competition. However, strategy goes beyond competition! So what is strategy?