The purpose of business strategy is to define how the organization should allocate resources in order to meet its goals and objectives and move toward its vision. Business strategy describes where and how the organization competes. This strategy is set in the context of customer needs, core competencies of the company, and the value offering relative to that of the competitors.

When I think of strategy, I focus on for-profit businesses because that is my experience and my audience for consulting. These same concepts apply to other types of organizations with some minor translation.

The primary goal of a business is to achieve a return on investment for those providing resources to the business. In the long run that return is a function of the value that they offer to customers compared to the perception of value of the offering in the eyes of customers.

Businesses provide some combination of goods and service to their prospective customers. This combination of goods and services is their value offering. Customers make choices about the value of each prospective supplier’s offering based on the customer’s needs. What level and array of service has value and how much? What features and benefits of products has value and how much? There are generally an array of prospective customers with varying needs and an array of potential suppliers with varying value offerings.

The ability of the organization to generate profits is a function of identifying customers with needs that match the organization’s ability to supply a value offering that is either produced more economically or a value offering that has unique value attributes (or some combination) compared to competitors. It is easy to see the extreme examples. Customers who buy sand often want the least expensive sand whereas customers who buy rocket engines probably have a unique set of desired features and benefits.

Organizations have a variety of capabilities to supply their package of goods and services. When certain of these capabilities are able to provide unique value to customers, we call this capability a core competency. Core competency might be proprietary technology that allows a unique design or manufacturing process resulting in some superior value to certain customers. It might be unique knowledge of a market or a customer’s needs. It might be unique access to lower-cost resources. It might be anything that differentiates us and adds value for the customer.

The purpose of strategy is to identify where and how to compete and to guide the allocation of resources. (For another interesting perspective of how strategy should allocate resources see this article in HBR by Michael D. Watkins.) Strategy identifies core competencies the organization is building that will enhance its value offering, the how to compete. Strategy identifies the types of customers that will most highly value the offering, the where to compete. Where to compete might include definition of region, demographics, end applications, specific names of customers, or many other attributes.

The strategy statement then should be a clear and concise statement of this where and how to compete. The organization should be able to look to the strategy statement in the midst of every decision and answer the question, “does this decision support and build our strategy?” The action plan is a natural outflow as we attempt to implement the strategy to build core competencies and achieve our objectives. These are all part of an overall strategic management system for the organization.

Every organization has a strategy, whether it is explicitly stated or implicit in the way that they operate, and whether it is well-defined or a murky mystery. How would you describe your organization’s strategy?