We all know that while driving, we need a roadmap to guide us to our destination. Similarly, while running a business, we need a sound business strategy that can guide us to our goals. Different businesses use different business strategies in order to achieve their targets. And while the concept of business strategy looks simple enough, delve deeper and you find it to be a matter of profound importance. So, in this article, we are going to take a deep dive into business strategy and see what it’s all about.
What Is Business Strategy?
In a nutshell, Business Strategy comprises of a set of decisions, or possible courses of action, that guide businesses to achieve their desired goals. A business strategy is actually a large-scale plan which companies need to successfully implement in order to maintain their competitive advantage, cultivate a satisfied customer base and ultimately set a course of action for achieving organizational targets, both short and long term.
Definition of Business Strategy
According to Official CIMA Terminologies business strategy is defined “A course of action, including the specification of resources required, to achieve a specific objective”.
Johnson, Scholes and Whittingham Define strategy as “The direction and scope of an organization over the long term, which achieves advantage for the organization through its configuration of resources within a changing environment, to meet the needs of the markets and to fulfill stakeholder expectations”
Why Business Strategy Is Important
Weaknesses are inherent in every organization, and this is not necessarily a negative to be flinching from. Presence of a business strategy helps to overcome these shortcomings. A business strategy also helps companies by identifying risk factors and lays down how to tackle competitors. The following are some important facets delineating the importance of business strategy:
As mentioned before, a business strategy helps guide an organization towards achievement of its business goals.
Proper evaluation of market trends are the key to the successful operation of any business. A business strategy can help an organization recognize present market trends and predict future ones efficiently; thus, a business strategy helps a business adapt and change itself according to market conditions and consumer preferences.
For any business to remain relevant it is essential that all levels of stakeholders within the organization operate with the same vision and mission. A business strategy clearly lays down the vision of the business: it tells management where the business stands now, and where it needs to be in the future.
A business strategy lays bare how the business is performing, compares the performance against that of competitors, and also lays down plans regarding how to overcome obstacles and gain competitive advantage.
Now that we have a clear idea about what a business strategy is and why it is so essential, let’s now take a look at the different levels of business strategy.
Levels of Business Strategy
In any business, having just a single business strategy that applies across all levels of the organization is very difficult. In fact, taking such a broad view of the business can cause loss of focus from important details. For this very reason, businesses usually formulate separate business strategies at the following three levels:
Corporate Level Strategy
Corporate level strategy represents an action plan that is laid down by the Top level management of the organization. It’s meant to be a cohesive and wide-ranging plan that is used to determine opportunities for growth and expansion such as mergers, acquisitions and diversification.
Business Level Strategy
This level of strategies relates to a particular business. Business level strategies are usually formulated by general managers. Here entire frameworks are laid down regarding how individual businesses would operate.
Functional Level Strategy
At the functional level, business strategies are concerned with taking operational decisions regarding particular functions of the organization.
A robust business requires seamless integration across all levels of strategic functioning in order to achieve the desired ends.
Business Strategy Development
Crafting a business strategy that perfectly suits an organization can be a tricky task. To simplify the process here are five steps to develop a business strategy:
The first and most important step of all, here businesses need to gain a comprehensive idea of their current standing and environment. A careful SWOT (Strengths-Weaknesses-Opportunities-Threats) & PESTLE (Political-Economic-Social-Technological-Legal-Environmental) analysis can prove useful in this regard.
Vision and Mission Statement
These are two steps that are best developed in tandem. While the vision statement lays down the future path for the organization, the mission statement concerns itself with delineating what steps need to be taken to achieve said vision.
This step involves identification and strategizing about high-level aspects of the business such as budgetary requirements. Objectives set in this step must be actionable ones.
This is the step where initiation of short-term plans for realizing goals must be set into motion. Tactical plans ideally involve all levels of stakeholders in the organization, even business partners.
The last, but as equally important as the first step is continuous performance evaluation and reiteration of strategic action plans. Without proper evaluation your business strategy is bound to go astray. Careful appraisal of all steps makes sure you are on the right path.
By keeping to the above steps an organization can hope to chart out a course for itself that, if followed assiduously, can lead to success.
Examples of Business Strategy
After so much of discussion regarding business strategies it would be a shame not to look into some practical examples of the same. Here are a few instances of business strategies in action:
Merger and Acquisition
This strategy involves dominating an emerging market by merging with or taking over a competitor. Usually established firms acquire newer entrants in this move. Case in point: Google’s acquisition of Android was a gamble, but one that paid of immensely by changing the world of smartphones forever.
In a sea of similar products, the success of a business lies in its unique-selling-point (USP). How well a business is able to differentiate it’s offering from that of competitors often determines the impact it is able to create. Just think any Apple product versus the closest competitor, and you get the idea.
Businesses have to be strategic while pricing their products. In order to maintain profitability, there are two roads: either price low and sell high, or price high and market as a luxury brand. Both these approaches can be seen in the context of the mobile phone industry. While Nokia feature phones were low on the price tag and made up for it in volumes sold, iPhones are marketed as a luxury item and priced significantly higher.
The possession of superior technology can often prove advantageous, and businesses are fierce in protecting their tech assets. The ever-present patent-wars between major firms are a clear example of this.
Change and Adaptability
The best example of this strategy is the expansion of amazon.com. What began as an online bookstore has now successfully managed to morph into what is perhaps the largest online store in the world.
A sound business strategy can effectively lead a business to accomplishment even in tough market situations and reach a dominant position in the industry. Absence of proper business strategies can often result in a business floundering along aimless paths till it ultimately dissolves into nothingness. Hence the presence of a business strategy can be the differentiator between a successful business and a failed one.
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