Some companies are finding that the most effective answer to "what is your strategy" is to identify three to five strategic themes that are simple to communicate and comprehend. For instance, a leading telecommunications group now uses three such themes to describe where and how it will win:

1. We will be the profit leader in our chosen local markets, not the global scale player
2. We are a customer relationships business, not a network operator
3. We make new wave work for wireless customers

Distilling corporate strategy into a few simple themes in this way can create a powerful management tool for aligning behaviors and decision making at all levels within the company - the primary purpose of strategy. This, in turn, can provide the basis for communication to the broader stakeholder community. But getting to the right strategic themes is easier said than done. Our experience suggests that the best strategic themes pass three tests: They are distinctive, selective and suggestive.

In this article, we use the example of a telecom client¹ to illustrate how these three tests can be used to develop strategic themes.

Test #1: Distinctive
Strategic themes rooted in profitable differences, not industry consensus
Strategic themes should be based on how the company will be different from its competitors in a way that creates more value, not on how the company will be similar to its industry.
As one of our telecom clients undertook a comprehensive review of its corporate strategy, the first questions the management team asked were a) what will be the future drivers of value creation across businesses, products, customers and activi-ties and b) how much of the value created will come from our company’s "profitable differences" versus industry performance? The results challenged their three core strategic assumptions.
First, management had assumed that in most businesses achieving global scale was the key to competitive advantage. However, new analysis indicated that the "advantages" of global scale (pan-regional cost and revenue synergies) were starting to look more like "travelling hopefully" than hard facts. In addition, the standard response of most incumbent telecoms to home market deregulation and competition had also been the pursuit of global scale.

Another historical belief was that competing effectively required ownership of network assets. The new evidence indicated, however, that value creation was migrating away from running networks toward providing customers with value-added services. Because most competitors had been pursuing similar ownership strategies, overcapacity was rapidly emerging and the profitability of the whole market was declining fast. Network ownership looked set to become less and less a source of profitable difference and was rapidly starting to look like an unprofitable similarity between competitors.

And finally, the top management team had felt that broad participation across new wave telecommunications markets would be the key to dealing with the increased deregulation in traditional, voice business together with customer adoption of new technologies. However, new insights suggested that the economic outlook for many such new wave markets had been substantially overoptimistic, while the economic outlook for many "old wave" markets had been substantially overpessimistic, once again because of homogeneous competitor strategies.

Convinced that these three core assumptions were not leading to a distinctive strategy, the top management team created a short list of the company’s most important profitable differences, as defined by the following criteria:

• They should be capabilities and assets that generate material economic advantages (the ability to charge higher prices/gain greater share/deliver lower unit costs than the competition)
• They should be proprietary (i.e., competitors cannot match them, or only with great difficulty)
• They should be relevant to many, not just a few, of the Group’s businesses

Five profitable differences met the criteria: 1. The home market consumer franchise; 2. Front-end service; 3. Understanding of consumer behavior; 4. Strong positions in select non-domestic markets; 5. Patented technology for delivering new products to wireless customers.

Bucking the industry trend to focus instead on areas of unique advantage required the confidence to be different. Looking outside of their industry for other examples of distinctive strategies helped create this confidence. For example, Coca-Cola’s move to reduce exposure to the assets and low returns of bottling and Lloyds TSB’s focus on customer relationship management together provided useful analogies for describing one emerging new strategic theme: reducing exposure to network asset ownership to focus instead on customer relationship management.