Why Your Business Needs a Strategy

When executed well, a business plan can serve as a guide for making decisions about anything from staffing to company structure. All hands on deck are more likely to be productive when the company's long-term vision and strategy are in sync. The purpose of this article is to define corporate strategy, explain its evolution, and explain why these topics are important.

What is the definition of business strategy?

Everything an organization does to realize its mission and vision is referred to as its "business strategy." It entails realizing the company's function, resources, and objectives. Allocation choices for both human and material assets are driven by such data.

When resources are limited and everything must be prioritized, this method comes in handy. When everyone in the company has a firm grasp of the strategy, they can use it as a compass to ensure they're all pulling in the same direction.

While business strategy is undoubtedly crucial to the continued success of any company, it is not the only factor at play. In contrast to the organization's stated goal, the term "business strategy" is used to describe how the company really operates.

The mission statement articulates the goals of the company's leadership, while the strategic plan details the steps that will be taken to realize those goals.

Furthermore, the organization's strategy is distinct from the value-creating relationships the company has with its customers, employees, and suppliers. The vision is a picture of how the world would seem if the goal were successfully completed, and this is not the same thing as a strategy.

Related: Employee Turnover: Strategies to Retain Employees

Why is a business strategy important?

Every business should have a strategy for various reasons: Business strategies are developed to aid in the planning process by outlining the actions that must be taken for a business to achieve its stated goals and objectives.

Evaluation of the company's strengths and shortcomings is an important part of developing a business strategy. Then, your overall plan will play to your advantages while sidestepping your disadvantages.

Effective resource allocation for corporate activities is a key component of an efficient business strategy. You'll have more say in the actions you take and will be able to gauge their success in terms of bringing you closer to your goals.

As was previously noted, business strategies are critical since they reveal your company's strengths and shortcomings, giving you a competitive edge. With these advantages, you can demonstrate what sets your business apart from the competition.

Related: Want to Increase Customers' Confidence in Your Business?

Components of a Business Strategy

Successful business strategies typically consist of the following six tenets, though the exact language may vary slightly depending on the industry:

Vision

The company's strategy is grounded on the company's vision and its goals for making that vision a reality. Restating the original mission statement of the organization is often the first step in many strategic planning procedures. By starting with this goal in mind, firm managers can stay faithful to the desired trajectory.

Related: Vision Statement: What is it Why is it Absolutely Important?

Values

The values of the firm outline what is acceptable and what is not in pursuit of the vision. Moral principles, adherence to the law, and adherence to norms of conduct are all included. You can often find these ideals represented prominently throughout the company’s offices and other facilities.

Strengths, Weaknesses, Opportunities, and Threats (SWOT)

The plan relies heavily on a thorough examination of the organization's SWOT (strengths, weaknesses, opportunities, and threats). This technique helps describe the company landscape properly and capture nuances that could otherwise be ignored. Since market conditions are constantly shifting, the SWOT analysis may need to be revisited and updated.

Tactics

Business strategies outline the methods by which an organization plans to accomplish its goals. Tactics are plans to save the organization time and money by achieving tasks with the least amount of time, energy, and finances. Rather than being decided by upper management, tactics are typically decided by those closest to work being done. They are still a vital component of the company's overarching plan.

Distribution of resources

People, money, tools, and materials are all examples of resources that might be discussed in the context of an allocation plan. Once this plan is in place, it may help drive personnel, plant organization, and other critical components of its operation. When resources of any kind are in short supply, resource allocation often proves to be a particularly vexing part of the planning process. Still, it's of paramount importance to be frugal with resources even more so in hard times like these.

Measurable goals

The business requires a means to measure the strategy’s success so that management understands when and how to make adjustments. Your measurable data points should meet the concepts of SMART goals, meaning they are specific, measurable, achievable, relevant, and time-bound. While market share, profitability, and relative competitiveness are common metrics, the specific statistics used will differ by sector.

Related: How to Become a Better You

Types of business strategy

Common business strategies can be categorized into three broad categories, but there are those that add a fourth.

Corporate Strategy

The vision, mission, values, and goals of an organization are the primary emphasis of a corporate-level strategy, also known as an organizational-level strategy.

It usually has something to do with the company's central promise and the ends it seeks to achieve. It may also think about the values of the firm and how it will be regarded by outsiders.

Competitive Strategy

A competitive strategy, often known as a business strategy, is a plan for beating out rivals in a certain market.

The competitive strategy being implemented by a business unit should contribute to the larger organizational plan.

Building a long-term edge over the competition is the ultimate goal of any competitive strategy.

The Resource-Base View (RBV) of the firm is another well-respected theory on the topic of competitive advantage; RBV advocates for the efficient application of available company resources to achieve a distinct edge in the marketplace.

Value chains, like Porter's, are useful for quantifying the steps involved in bringing an end product to consumers. Because of this, we have a better idea of where to implement competing techniques.

Functional strategy

How a certain department within an organization plans to reach its goals is the focus of its functional strategy. The competitive strategy of a business unit can be supported by carrying out a functional plan that maximizes resource productivity. Competency building is stressed in an effort to gain an edge in the marketplace. Marketing, Accounting, Finance, Operations, R&D, and HR are all important sub-functions.

Key individuals in the functional area will be at the center of the functional strategy, which will then move on to concentrate on key operational aspects in the value chain, including productivity, pricing, logistics, cost-effectiveness, efficiency, product design, product branding and image, product life cycle, etc.

Recommended Book: Your Next Five Moves: Master the Art of Business Strategy

Operating strategy

The operating strategy of a company is concerned with how its parts (operating divisions) use their resources, procedures, and people to effectively implement corporate, business, and functional-level plans. Short-term goals are established on a regular basis at the department level.

Characteristics of a successful business strategy

Management should evaluate the efficacy of a corporate strategy by measurable criteria. That's why it's essential to specify what constitutes success in the plan.

Growth indicators, market share relative to the competition, and financial success are all possible metrics to track. There could be a number of metrics to measure and monitor over time for each class.

For example, product demand, the volume of repeat business, customer retention, and average sale are some possible ways to measure growth. Market share, growth rate as compared to competitors, and brand awareness are ways to measure market position.

Profitability, also known as financial performance, can be measured in a number of ways. While indicators of success should be constantly monitored, they are especially important after management makes strategic adjustments to see if the modifications bring sought-after results.

Business strategy examples

Cross-sell more products

Some firms' business plans will focus on selling more products to the same consumer. This type of campaign is successful for office supply firms, banks, and internet merchants. By increasing the number of items sold per consumer, a firm will effectively increase its average cart size. Even a little expansion in cart size will have a huge influence on profitability and organizations won't have to spend more money to get new customers.

Most creative products or services

Many companies in the technology and automotive space will distinguish themselves from the competition by developing the most unique product or services. However, to use this as your business strategy, a corporation has to define how and what “innovative” means to its organization and industry.

Grow revenues from new items

Some organizations prefer to invest in research and development to remain continually innovative, generating new items even when they already have numerous successful products.

Improve customer service

This is a wonderful business strategy if your organization has a problem delivering quality customer service consistently. Many organizations globally have developed solid reputations for exceptional customer service.

Usually, firms have a difficulty in one specific area, thus a company strategy focusing on enhancing customer service will focus its aims on areas like online help or a more effective call center.

Product differentiation

This business strategy is common for business-to-consumer, or B2C, businesses. They can use this strategy to differentiate their products by highlighting that their company has more innovative technology, features, pricing, or styling.

Pricing strategies

With pricing, businesses can decide to keep their prices low to attract more customers or give their products an aspirational value by pricing them beyond what most ordinary customers can afford. If a company focuses on low prices, it will need to sell a higher volume of products, as it will have a lower profit margin.

Alternatively, if a company prices its products beyond the reach of ordinary customers, it will maintain product exclusivity while retaining a large profit margin per product.

Technological advantage

When a company has a technological advantage, it can often achieve better sales, improved productivity, and market domination.

A business strategy focused on technological advantage may include objectives like investing in research and development, acquiring a smaller company to gain access to its technology, or hiring employees with unique skills that will ultimately give the organization a technological (and often competitive) advantage.

Improve customer retention

It's easier to keep a customer than spend money to attract new customers, which is why this is another brilliant business strategy if you see opportunities for improvement in customer retention in your company. When implementing this strategy, you'll need to identify key tactics and projects that will help you keep customers.