How to Define Business Strategy in 3 Steps (+Examples)

When you type “What is a strategy?” on Google, you get an astounding 4.5 billion results. For comparison, searching “How would you define spirituality?” returns half as many.

Yet, it’s nearly impossible to find a common and easy-to-understand definition of a business strategy, let alone how to define it. Unlike words like “Business Plan,” "Budget," or “OKRs & KPIs,” despite decades of investments in intellectual capital and ink spilled by well-known scholars, the word "strategy” continues to be divisive.

This article aims to provide a perspective on defining business strategy, guide you through three simple steps to create one and provide business examples of effective strategies in action. 

The word "strategy” traces its roots to the Greek word στρατηγία (strategia), from “Stratos," meaning "army,” and “again,” meaning “to lead.”  While the term is credited to the Greeks, no ancient Greek ever used the word.  It was primarily used in military terminology. As a result, in the army, a strategy is a general plan to achieve one or more overarching goals under conditions of uncertainty.

In the military, a Strategy is a general plan to achieve one or more overarching goals under conditions of uncertainty.

Indeed, quite a few well-known battles are perhaps the best illustrations of a good strategy. The Battle of Trafalgar, which took place in 1805 with Lord Nelson's victory against Napoleon, is one of the most famous examples. Similarly, "The Art of War" by Sun Tzu provides a systematic guide to strategy (and tactics) for commanders in just a few pages.  Or the DARPA, whose detailed strategy analysis we also mention.

The term strategy became widely used in business with the advent of the strategic management discipline, which originated in the 1950s and 1960s. Igor Ansoff, a Russian-American mathematician and business manager, mentions the term "business strategy" in his 1965 book Corporate Strategy.  

Ansoff is considered one of the fathers of strategic management.  This process consists of 3 pillars:

• Strategy development – The analysis and choices that set the company up for success.
• Strategy execution – The strategic goals and metrics coupled with alignment to achieve the strategic initiatives.
• Strategy evaluation – The monitoring and assessment of performance and the making of necessary adjustments.

Despite the large variety of definitions of “Strategy” in business, the prevailing description is based on positioning. Roger Martin, a strategy advisor to CEOs at companies like Procter & Gamble, Lego, and Ford, defines strategy as “a set of choices that position a company to win in a chosen field.”  In most articles on strategy, his doctrine is summarized as "How to Win, Where to Play," which is also a classic business management concept.  

Alongside Roger Martin, Richard Rumelt — an American University Professor, strategy expert, and best-seller author of books on management, including Good Strategy Bad Strategy — explains that “strategy coordinates actions to address a specific challenge” or “to seize an opportunity” around a certain business positioning.

Strategy coordinates actions to address a specific challenge [or to seize an opportunity].

This article explores the 3 steps based on Richard Rumelt’s strategy framework, “The Kernel,” which will assist in developing a good strategy.

Rumelt defines the "kernel” of good strategy as “an effective mixture of thought and action with a basic underlying structure.”

It contains three elements: A diagnosis, a guiding policy, and a set of coherent actions.

1. The diagnosis explains the nature of a challenge or opportunity. It’s a judgment call based on hypotheses and informed guesses about what the facts mean.
2. The guiding policy addresses the challenge. Leveraging key insights simplifies complexity and reduces ambiguity. It directs actions toward specific areas while remaining flexible and non-prescriptive.
3. The coherent actions follow the guiding policy. Actions that lack coherence either conflict with each other or address a different challenge.

Let’s bring these three elements to life with some strategy examples. 

Chloe’s strategy case

Consider Chloe, for example. Chloe was the name of a small French patisserie with one shop in central London, founded by, as you might guess, Chloe. She was a French citizen who moved to London in 2010 to study. During her time in London, she noticed a gap in the market: no affordable shops offered authentic French pastries. So, she decided to open one.

However, she quickly realized a challenge. Her shop was mostly empty during the week, with only Sunday mornings seeing a line of customers eager to buy her delicacies. The issue was that her running costs — electricity, staff, etc. — were evenly distributed throughout the week, while her sales were lumpy, peaking on Sundays.

After some reflection, she adjusted her business positioning while staying true to her core vision: offering the authentic taste of traditional French pastries at affordable prices. Without altering the essence of her business, she added a line of freshly baked baguettes made daily in-store. The investment was minimal, and the shop layout was easy to adapt. This simple shift in positioning transformed her business.

A series of coherent actions followed, such as opening earlier, adjusting staffing for the morning bread rush, and enhancing service levels for the new influx of bread customers. Foot traffic increased dramatically — by 200 times. The smell of freshly baked baguettes drew in most people, but once inside, they couldn't resist the tempting display of French pastries.

A few years later, the business has 30 shops and counting. All are profitable, with remarkable gross margins — something rarely seen on the high street.

This example might seem too simplistic, especially for more complex businesses. However, it is a good case to illustrate how Chloe fully exploited the kernel of a good strategy.  

In fact:

• Diagnosis of the challenge: Evenly distributed costs, but sales concentrated on Sundays, coupled with limited space and resources.
• Guiding policy: French-inspired approach — fresh, affordable products and excellent service — while leaving specific actions to the store manager and team.
• Coherent actions: Adjusted shifts, extended hours, competitive pay to boost retention, and student loan access for employees.

NVIDIA’s strategy case

Take Nvidia as another example of a successful strategy.  Since Jen-Hsun Huang became the CEO of Nvidia in 1999, the company's shares have increased over 2,700%.  Nvidia's explosion is an example of a great strategy based on Rumelt's "kernel" approach.  

Here is a quick snapshot of the three elements underpinning their strategy.

• Diagnosis of the challenge: Recognizing and convincing the market that 3D graphics chips were the future of computing.
• Guiding policy: Shifted from a broad multimedia approach to focusing sharply on developing superior GPUs for PCs.
• Coherent Actions:  
  • Established three independent development teams.
  • Minimized production delays by investing in advanced design simulation processes.
  • Streamlined driver production with a unified driver architecture (UDA), enabling all chips to use the same downloadable driver for smoother operations.

Nvidia grew rapidly each year and avoided the design and production bottlenecks that challenged companies like Intel.

Netflix’s strategy case

Netflix's strategic pivot from DVD rentals to streaming is another excellent example:

• Diagnosis of the challenge: Netflix identified digital streaming as the future of content consumption and said that relying solely on DVD rentals was unsustainable.
• Guiding policy: Transition to a streaming-first model while maintaining the DVD rental business during the transition.
• Coherent actions: Netflix invested in building a robust streaming infrastructure, negotiated streaming rights with content providers, and began producing original content to differentiate itself from competitors.

Apple’s strategy case

Apple's resurgence under Steve Jobs in the late 1990s and early 2000s is another demonstration of the power of Rumelt's framework when applied properly:

• Diagnosis of the challenge: Apple recognized that it had lost focus, with a confusing product lineup and declining market share.
• Guiding policy: Simplify the product line and focus on creating innovative, user-friendly devices that seamlessly integrate hardware and software.
• Coherent actions: Apple streamlined its product offerings and developed the iMac, iPod, and later the iPhone and iPad. They also created the iTunes Store and App Store to build a robust ecosystem around their devices.

Amazon’s strategy case

Amazon's development of AWS shows, instead, how the framework can be applied to create new business opportunities:

• Diagnosis of the challenge: Amazon identified that its internal cloud computing infrastructure could be valuable to other companies facing similar challenges.
• Guiding policy: Commercialize Amazon's internal cloud computing capabilities as a separate business unit.
• Coherent actions: Amazon invested in building out its cloud infrastructure, developed user-friendly APIs and services, and aggressively marketed AWS to startups and enterprises. 

These examples demonstrate how companies have successfully defined their strategies, applying Rumelt's strategic framework to diagnose their challenges, develop guiding policies, and implement coherent actions to achieve their strategic goals.  

Following this approach, these companies transformed their businesses, entered new markets, and created significant value for their stakeholders.

Suppose it is true that there are businesses out in the marketplace that are successful despite their (lack of -) strategy. In that case, it is also true that those like Chloe, Nvidia, Netflix, Apple, or Amazon have mastered the space of strategy management to give themselves an unfair advantage over their competitors. A good strategy is a lever, a magnifier of power, and a multiplier of resources.  

Using R. Rumelt’s words: 

“A good strategy is, in the end, a hypothesis about what will work, what won't, and why. Not a wild theory, but an educated judgment.” 

With Quantive StrategyAI, identifying challenges, formulating guiding policies, and designing coherent actions is intuitive, collaborative, and data-driven.

Here’s how it works:

• AI-powered decision: Use the power of AI to analyze challenges, generate actionable insights, and strategic hypotheses to explore further.
• Collaborative tools: Bring your team together on a single platform to brainstorm, align, and execute goals.
• Real-time adaptability: Monitor progress and adjust instantly with AI-driven recommendations.
• Scalability: From startups to enterprises, Quantive StrategyAI adapts to your organization’s needs for smooth operations.

Ready to transform the way you formulate and run your strategy? Contact us to learn more about how Quantive can help your organization drive better, faster strategic initiatives.