In the current fast-moving competitive environment, striving for something beyond average expectations – and taking the steps to sustain that goal can form the basis of an effective business strategy.
It is worth mentioning that the success of a business strategy is not driven individually by a CEO or a single person on your team. It is the combined efforts of every person within a company and how they work together to reach their strategic goals.
In order to come to terms with the significance of business strategy, let’s take a closer look at the question: “What is business strategy?” Once we understand the basics, we can move to analysing why it is so fundamental to success.
As per the fundamental understanding, strategy is a long-term, specific course of action, involving detail about required resources, in the changing environment to achieve planned objectives.
Do not confuse business strategy with tactics!
Business strategy is a long-term approach followed by the company. It is considered a path towards success. While tactics involve the implementation of small steps followed by the firm to accomplish its mission.
Strategy is divided into three levels:
– Corporate level strategies: At this level, (Which) questions are generally answered. This level is concerned about firms entering and exiting “which” the industry. Under this level, decision and formulation of strategies revolve around the area related to acquisition and diversification
– Business level strategies: This level establishes the course of actions related to (how). How is the company going to achieve a competitive advantage over competitors in the selected market? The goal at this level is to successfully lead the market in which the firm operates.
– Functional level strategies: This level takes care of (day-to-day) related decisions. Such as; looking into the areas of resources, people, and processes that are responsible for delivering the main strategic direction. Further, this level can be broken down as follows: –
As the business strategy is a long-term course of action, having a formal planned business strategy approach helps the firm in forecasting and being creative. Strategy assists the firm in being proactive instead of reactive. Further, having a systematic business strategy promotes the effective utilization of available resources. Business strategy can individually act as a base for monitoring the progress of the company. Moreover, an extraordinary business strategy can be used as a benchmark that distinguishes a company from its competitors.
It would be worth mentioning, the successful strategy involves a complete chain composed of two key components; formulating to implementing. The absence of either of them fails not just business strategy but also becomes a key element for business failure.
There are several different models which can be used in establishing a business strategy. Depending on the type of industry a firm operates in, accordingly, the firm can adapt the required model. There is no “best” approach for formulating a business strategy.
Several factors play a significant role in strategy development. A few of them are listed as below:
– Clear Vision with long-term objectives: Holding the clarity concerning a final goal, what a firm aspires to achieve, assists in providing a direction in the formulation of business strategy.
– Opportunity: Thoroughly understanding the internal and external environment of the firm generates deep knowledge along with awareness about the market. The external analysis, involving the PESEL model, assists the firm in evaluating its opportunities and threats. Those findings can act as an early warning indicator for the firm and accordingly firms can establish their strategies. Likewise, a business can identify possible gaps and scope for improvement.
– Innovation: Serving and producing anything unique that is easily differentiable, gives a strong edge to a firm in achieving a competitive advantage. Implementing advanced technology and remaining updated with the latest trend as per industry ensures the firm’s business strategy is working in the right direction.
– Competition: To be successful, a firm needs to continue to strive to serve something better than the present. Expanding the current product/service to new geography can be one of the approaches to remain competitive. Also, coming up with a new product/service for the current market in which the firm operates at present can help the firm in improving its turnaround and market share. Apart from it, to expand sales and improve market value, a company can provide extra services or give special offers to its existing customers. These strategies can help the company in establishing new customers and retaining the existing ones.
– Economies of scale: Offering the lowest price to the target audience, in comparison to what other competitors are offering, without compromising the quality leads to an economy of scale. Some of the common methods to achieve economies of scale are; bulk buying of raw material, using advanced technologies, increasing production scale, etc.
– Time to Market: In this fast-moving period where there is hardly any place for inefficiency and ineffectiveness. Valuing all pros and cons, companies need to be extremely vigilant in analyzing and making a decision to evaluate which activities can be outsourced or which operation needs to be managed in-house.
– Tests: Time to time review of performance and strategy ensures that the company is moving in the right direction. Also, if there are any identified gaps, corrective measures can be taken immediately without wasting any time.
– Risk & Failures: As there is a saying, nothing good comes without a risk. Therefore, it is required to identify the potential risks in advance to mitigate the impact of risk that can appear to be a barrier to success. Besides that, holding an attitude of embracing failure and learning from mistakes removes the hindrance for business growth.
– Stakeholders: Knowing high interest and low-interest stakeholder groups, along with their power, helps firms in prioritizing their stakeholders’ groups. This impacts the firm’s business strategy formulation process. It is essential for a company to always keep high interest and high-power group stakeholders satisfied, such as government, trade unions. Evaluating how a company’s business strategy impacts stakeholders can make or break a firm’s market value with goodwill.