Strategy is usually described as the art of the general. But for business purposes, it requires a more rigorous definition. This is necessary to establish a firm distinction between strategy and tactics. The context of use is competitive enterprise; military definitions of tactics (are quite elaborate and distinct.

Strategy requires that the management of a firm to set priorities and make choices for both the present and future. In other words, strategy reflects the ability of management to earn revenues ahead of costs, as well as secure a viable position in future market environments.

Strategy is put into action through resource allocation. Firms have three types of resources to deploy: money (consider this as tangible and intangible assets), people (think here of skills rather than the more banal use of headcount, since employees aren’t equally capable) and time (how money and people are combined, against what activities). The key here is that the combination of resources yields unique outcomes, which explains the observed differences between firms.

Managers make choices about strategy even though they have imperfect information. This means most managers would like additional, empirically-derived information, to further reduce risk. Moreover, since most markets are contestable, managers should expect retaliation (or response) from competitors. These facts all condition strategic choice.

The aim of strategy is to secure competitive advantage, or superior long run return on invested capital (including debt and equity) rather than strive for short run movements in share price.

A shorthand way of describing strategy is to notice that it results in a (hopefully) positive difference between revenue and the cost of providing a service or product. Strategy is about the creation of margin.

Strategic decisions are those which are important to the firm, entail a significant commitment of resources, and generally are hard to reverse. Consequently, strategic decisions receive considerable attention from senior management, are the subject of extensive analysis and usually are debated with vigour.

Examples of strategic decisions are: market entry, merger, acquisition, commitment to a technology platform, expansion of capacity through building a plant, etc.

In contradistinction, tactics represent decisions that fine-tune, adapt or adjust strategy to novel conditions encountered in the firm’s environment. As resource commitments are slight, tactical decisions are made more frequently and with less analysis. Tactics reflect industry norms about the appropriate response to predictable stimuli. There is generally a shorter feedback cycle for tactical choices in relation to strategic choices – tactics yield information about their efficacy quite rapidly.

Examples of tactical decisions include price changes, selection of advertising themes, adjustment of sales force compensation schemes, etc.