Strategy vs. Tactics: What is the Difference?
Copyright 2015 Faleiro, LLC. No reproduction without permission.
Any business school professor or MBA student theoretically should be able to clearly articulate the difference between strategy and tactics, as should any good senior executive. However, in my experience, the number of those who should be able to not only articulate the difference, but also be able to craft and implement strategy is frighteningly low. Too many people confuse strategy with tactics, believing that the tactics themselves are the strategy. Years of working with senior executives, many of whom did not truly understand the concept of strategy, have led me to compose what I hope will be a helpful explanation.
The Tool Box of Tactics
One simple way to think about strategy and tactics is to look at tactics as the tools and strategy as the plan for the combined application of those tools, i.e. a plan detailing when the tools are used, how the tools are used and to what extent they are used. It is, however, more than just a plan. It is a plan that is crafted in such a way as to incorporate critical pieces of information that can have an influence on the performance outcome.
A strategy is a high-level view of the business landscape. It incorporates multiple pieces of information, which are then brought together to establish goals and an outline of how to achieve those goals. As it is high-level, it can have multiple layers, the layers themselves made up of individual tactical plans. For example, a company could have a 5-year growth strategy, with an overall goal of market position and revenue at the end of the five years and certain more specific targets to be achieved at the end of each year. As a part of this growth strategy, there could be a branding strategy outlining certain goals in terms of increasing brand value that contributes to the growth strategy. The growth strategy could also have, as a part of its revenue targets, a certain number of updates or new products, each of which has its own strategy to compete and gain dominance within its specific category. One of these product strategies (or product launch strategies) could in turn have an associated marketing strategy, which would support the brand strategy and help create dominance for the specific product. This marketing strategy (i.e. created using the marketing mix) would the be made up of tactical plans such as a public relations plan, trade show plan, and an advertising plan, the combination of which in conjunction with the overall strategic marketing goals.
Start with the Fundamentals
In order to make the decisions about which tools to use and when, a basic understanding of the fundamental business environment is critical. Starting with Porter’s Five Forces model can help to answer the strategic questions. Analyzing and understanding the threat of competition, the threat of substitute products (services), the barriers to entry, the bargaining power of suppliers and the bargaining power of customers helps to identify which tools should be used. As the questions in each force are answered, interactions will begin to be seen, how one area may have an affect on another. It is at this point that tools can begin to be identified, and the timing of their usage begins to take shape.
Strategy is a high-level guide. As such, begin at the highest level possible and identify specific goals. This goal identification tends to be one of the most complex aspects of strategy creation. Many heads of companies think, “we want to grow revenue” or “we want to increase our profit margins” is enough of a goal. Goals such as these are too general and do not provide enough of a framework to begin to craft a strategy. “We want to grow from 30% market share to 55% market share in the next 5 years” or “at the end of three years we want our overall profit margins to be 22%” provide guidelines. These are specific goals that are measurable; there is a time constraint and they take into consideration strategic forces such as competition, suppliers, and customers.
Taking this example to the next level, a cooking analogy can be helpful. As in the previous analogy, tactics are the tools – pots, pans, stove, mixer, spoons, etc. In addition, they can also be the ingredients – eggs, butter, wine, mushrooms, tomatoes, etc. Strategy is what helps create the end goal – a quiche, a veggie omelet, or a cream sauce. Strategy helps dictate what ingredients are used when, in what quantities, and with what tools. Whisk vs. spoon. Fold vs. whip. Over heat. How much heat? For how long? Which ingredients first, second, third, and at what time in the cooking process?
Any chef will tell you that cooking is chemistry, and temperature, ingredients, and timing will all affect taste, smell, and texture. Moreover, the latter two, smell and texture, will affect taste. Texture can even affect smell. Similarly in strategy, there will be multiple interactions. Taking the example given above, the marketing strategy for the product will affect the branding strategy for the company and vice-versa. The marketing strategy can affect sales, which will affect the revenue strategy for the company. Therefore, one should always be aware of possible interactions and contributions when creating strategies.
Simply Tactics vs. Strategic Planning: A Case Study
Two companies, Ducky International and Apex Global each develop a new widget (for this example, the product does not matter). At the beginning of the planning process, the tools available to both CEOs are the same. They include pricing, promotion, staffing, distribution, and support. The tactical questions are many: how should each CEO staff the project to oversee development, launch and beyond? What role will Marketing play? When is Sales brought in to the process? When should they begin to sell the product and what support will they receive? How will the product be distributed? What will the price point be? The smart managers will look beyond the tactical questions and begin with the strategic ones: what is the company’s goal for the new product? How does the new product fit in with the overall company growth strategy? What specific goals might the company have, i.e. brand positioning, margins, market share, that this new product will affect?
A Plan and a Strategy
The companies take completely different approaches. Ducky developed the product because the CEO was under pressure to grow the revenues of the company. The CEO told the head of Engineering to develop a new product and gave him a set budget. Engineering met with Sales, who, based on their experience, developed a list of what was needed in the marketplace in terms of functionalities, and Engineering in turn designed, built and tested a new product.
Ducky’s CEO focuses on the widget launch. Having decided that sales of the product was the sole goal, he brings in a sales manager to take charge of the product launch. Design of the product was handled by the Engineering department, but now that development was near completion, the CEO felt it was time for a sales manager to take control. The sales manager determined a pricing structure comprised of a lower “introductory price” at launch, with a regular price being implemented shortly after the launch at a trade show. He had Marketing develop a page for their online catalog, highlighting the words “New” and “Introductory Offer”. Then he looked at his trade show schedule, spoke to Engineering about when he could have the product and / or mock-ups, and had Marketing develop POP (point-of-purchase) materials & signage for the shows.
Apex Global is a direct competitor of Ducky International. The development and launch of a new product line was part of the overall growth plan laid out by senior management several years earlier. At the beginning of the product development process, the CEO of Apex selected a product manager, who then assembled a multi-disciplinary team and set about laying out a development plan. An initial list of marketplace demands was compiled. This was then tested with focus groups where additional information was gathered, and demands were refined. Competitive analysis was done on similar products from other widget producers, and a search of industry publications was conducted to determine who might be developing a product that could compete. The pool of information was then used to develop a sketch of what the new product should do and what its differentiating characteristics should be.
From here Engineering began working on designs, determining components and sourcing options and a cost estimate for full development was created. Simultaneously, the Sales and Marketing departments worked up a product lifecycle plan including launch plan, long term sales plan, and distribution plan. The Customer Service department worked up support and service plans including training schedules. Customer Service also worked with Engineering to develop a purchasing and supply chain plan for parts, as well as to gain an understanding of what additional tools may be needed for repair. This collaboration between the Customer Service and Engineering departments helped in the development of a parts & equipment budget. The product manager oversaw each of the departments’ efforts, allocating resources when necessary, aligning goals, and crafting the next generation product development plan. Associated budgets were developed, combined with the engineering budget to create an overall product development budget. In addition to outlining costs, a revenue / breakeven analysis and ROI forecast were drafted based on competitive analysis, pricing strategy, and customer interviews, surveys, and focus groups. A final proposal was presented to the CEO, who then made sure it was in line with and contributed to the long-term strategy of the company.
Reactive vs. Proactive Launches
Ducky launched their product at the first trade show of the year, which was not the largest of the industry shows, or the signature show where most new product launches occurred. The thinking behind not waiting until the signature show, which happened in late Q3, was that they could book a full year of sales for the product while simultaneously being first to market with the newest product in the industry. Using bright neon yellow signs with red lettering, they promoted a special introductory price that was only slightly higher than existing models of their mid-range competitors.
Apex was aware that Ducky would be launching their new product. Word travels within industries. While Apex risked losing first-mover advantage, they determined it was best to stick to their strategy, watch and learn from customer reactions following Ducky’s widget launch, and roll out the Apex product at the Q3 tradeshow, leveraging all the industry press that would be present.
In the end this is exactly what Apex did. Their marketing plan, developed as a part of the overall product strategy, included leveraging PR efforts such as “leaking” rumors at the Q1 trade show that Apex may be launching a next generation widget and just before the Q3 trade show sending advance release sample products to members of the industry press, building momentum for the official launch at the show. The effect of the “leaks” caused some buyers to wait before making a purchase decision to see what Apex would come out with and how it would compare to Ducky’s. In every story and review about Ducky’s new product, the Apex rumor was mentioned.
Ducky ran into additional problems following the launch. Raising the price from the “Introductory Offer” shortly after the trade show caused some frustration among potential customers – this was not a product that was a discretionary purchase. It was somewhat pricey and often involved financing. This frustration reflected poorly on Ducky’s brand reputation and was expressed through social media outlets among industry players. This also caused some to delay purchase decision, as mentioned, in order to be able to compare Apex’s pending product, even though Apex was known to be the most costly in the industry. Apex was, however, known to be the best. Ducky did eventually reissue the introductory price as a result of the complaints and the constant, building competitive threat by Apex, however this was only honored at trade shows. Potential customers who spoke with the Sales team in between shows, if hesitant, were told of this special, and again word quickly spread throughout the industry.
Service was also an issue for Ducky. As the new widget was managed by Sales, which took over from Engineering once the product was designed, support ended up suffering. Sales did not have authority over the Service department, and during the planning process simply requested that Service work with Engineering to develop a service plan. The head of Sales assumed that the head of Service would prioritize an entire service plan, without any awareness of how the Service department functions, or active coordination between the heads of departments. Engineering had shifted priorities onto the design of upgraded widgets to replace older models in a different line, so there was little coordination beyond transfer of schematics. Moreover, Engineering didn’t inform Service what parts were the most likely to need replacing. As such, no volume purchase contracts were established, causing higher costs in not only components, but express shipping as well. The result was that service suffered. Those few customers that had new Ducky widgets sent in for warranty service experienced less than top quality responsiveness or turnaround time. This again made it into the social media networks among industry customers, hurting Ducky’s brand and affecting sales. Ducky’s revenues suffered as a result of the pricing, service, PR issues, and competitive threat from Apex, causing Ducky’s CEO to readjust his breakeven timeline and ROI calculations.
Apex’s PR plan, combined with Ducky’s pricing and service issues, had successfully prevented Ducky from capturing first-mover advantage. While this certainly helped Apex, it did add pressure to deliver on built-up expectations and its brand promise. Apex was ready. They launched at the large show, with great fanfare, stealing any attention Ducky or other competitors may have wanted. Price was not mentioned in any promotional materials or in any of the presentations by the Sales reps. The focus was on the widget and its features. Apex’s widget was on the higher end of the price scale, but this reflected their brand positioning. They were the “Mercedes” of the industry, a quality manufactured product, designed with the user in mind, and with all the bells & whistles. Price was only discussed when asked, and although not a discretionary purchase, finance solutions were available for those who had come prepared to make a widget purchase.
A Winner and the Rest of the Field
In the end, Apex’s strategy and Ducky’s lack of strategy helped not only Apex, but other competitors as well. Apex knew that as the top-of-the-line widget they would not capture a high percentage of the market share. However, they were able to capture a significant percentage while simultaneously preventing Ducky from getting the majority. Ducky’s lack of strategic planning, combined with Apex’s marketing strategy and PR tactics, gave other competitors room to enter the field, thus diluting the market, and while Apex had the highest cost product, they captured the highest percentage of the market of any single company. As well, Apex’s strategy development guided revenue and profit margin targets, which led to collaboration among departments in the creation of supply chain and purchasing contracts, service, and distribution models, reducing bottom line costs.
Strategy Guides Execution: Making the Perfect Omelet
While this example may be basic and might seem extreme, it is realistic. Companies who think strategically, plan properly, and understand how tactics and timing make up strategy are the ones who end up succeeding. Going back to the cooking analogy, imaging trying to make an omelet with sautéed mushrooms, tomatoes, peppers, and shredded cheese. It’s much easier to slice the mushrooms, dice the tomatoes and peppers, and have the cheese shredded before turning on the stove. Having all your ingredients in little bowls within reach of the pan is helpful. You probably want to sauté the mushrooms just before you start cooking the eggs. It is important to know at what temperature and for how long to have the mushrooms and the eggs on the fire. A tactical approach in the kitchen, as in business, will usually result in a mess and leave you hungry. With a little strategic planning, however, you might just be the next Top Chef.