WHAT IS BUSINESS STRATEGY?
Every business has its objectives and take so many ways to actualize those objectives. These ways make up the business strategies of such businesses.
Business strategy is a company’s working plan for actualizing its vision, organizing goals, competing successfully, and improving financial performance with its business model. It could also be said to be the taking of a set of decisions that help the entrepreneurs in actualizing certain business goals.
Business strategies are roadmaps that the administration of a firm applies to acquire a competitive rank in the market, carry out its enterprise, satisfy customers and achieve the desired goals of the business.
WHY IS BUSINESS STRATEGY IMPORTANT?
Business goals without strategy are similar to dreams. Venturing into business without a well-planned strategy is likened to taking a bet. Hence with so much market competition in many industries, the importance of business strategy cannot be overemphasized. Below are the reasons why it is important:
Business strategy helps to achieve effectiveness and efficiency: When you strategize on how business plans will be carried out, how resources will be mobilized and allocated and how each person in the organization will carry out a particular chore, business activities become effective and efficient automatically.
Business strategy helps in business planning: Business plan sets the goals and objectives of a company while the strategy provides routes to actualizing those goals. Hence one can say that business strategy is part of a business plan that helps an entrepreneur attain the level he desires.
Most of the time, you discover your latent strengths and weaknesses while developing strategies, this helps one take advantage of what they are best at and use these advantages to obliterate or their weaknesses.
Strategy is the driving force of decisions in business: Strategy helps one make decisions that are crucial in ensuring a business has a profitable and sustainable future.
An effective business strategy helps one predict and meet up with challenges and threats in the market.
In conclusion, business strategies give directions to businesses on routes to be followed and goals to be actualized.
BUSINESS STRATEGY VS BUSINESS MODEL
A business model and a business strategy are the necessary foundations on which a company is built. A business model describes how a company functions and makes money. A business strategy explains how, where and for what reasons and goals a business model will be used. Often, people mistake a business strategy for a business model. It is also important to note that business strategy is not a business plan; business strategy is a part of the business plan which is a part of the big imaginary structure called the business model.
The business model is an imaginary design that describes how a firm functions, makes money, and how it intends to achieve its goals. The business plan portrays those goals while business strategies outline road maps of how to achieve them.
LEVELS OF BUSINESS STRATEGY
Business strategy can be classified into three levels: The corporate level, the business level, and the functional level.
The corporate level: The corporate level is the highest and most broad level of the business strategy. This level answers the foundational question of what you want to achieve. Is it growth, stability, or retrenchment? It sets the direction on how these goals are to be achieved. It comprises the mission and visions of a business. Corporate level strategy is long-range and action-oriented and is usually designed by the top administrators.
The Business level: The strategies that pertain to a particular business are known as business-level strategies. It is usually formulated by the general managers who convert missions and visions to concrete strategies. They design strategies that differentiate the business from the competitors using competitive strategies. It is like a plan for the entire business.
Functional level: This is formulated by the supervisors of different operational units of the business. It involves decision making at the operational level concerning specific functional areas like marketing, sales, finance, production, research, and so on.
In summary, a typical business structure always possesses the three levels of business strategy.
TYPES OF BUSINESS STRATEGY
There are three basic business strategies. These generic strategies were discovered by Michael Porter, a Harvard professor. The strategies are cost strategy, differentiated product/service strategy, and focus strategy. An understanding of these strategies is needed when designing a good strategic business plan.
Cost Strategy: This is a strategy where a company sets out to become the low-cost producer in its industry. A company with this strategy maps out goals on how to produce goods/services at a low-cost operation than its competitors and then sell at the same price as the competitors and make a larger profit. The company can decide to sell lower than competitors and still make a profit. The focus should be on low-cost operation and not on low selling price. This strategy is available for all business types.
DIFFERENTIATED PRODUCTS/SERVICE STRATEGIES: The second basic strategy is product differentiation. This is the strategy that deals with being distinct from other companies either in branding advertising, design, service, quality, and new product development. This distinctness must be something that will require customers to pay a premium price. This differentiation does not have to be anything strange, it can be as simple as the best customer service in the industry. It can also be the speed with which products/services are delivered when orders are made. A company that uses this strategy competes based on the special features of its products/services. For this strategy to work for you, you have to make customers pay more for those special features than those special features cost you.
FOCUS STRATEGY: The focus strategy could be said to be a combination of cost and differentiation strategy to serve a particular audience/ niche of customers. It ignores a service market and focuses on a particular niche. The niche could be a geographic market, a particular buyer group, and so on. For a company to succeed using focus strategy, it must ensure that the market segment being served is completely different from the main market.
KEY COMPONENTS OF A BUSINESS STRATEGY
Effective business strategy is made up of the following:
Mission, vision, and goals: A strategic business plan consists of a mission statement (This is the all-round reasons on why your company exists and what it hopes to be), visions, and objectives. The main focus of a business strategy is actualizing the goals and mission of a business. It provides guidelines on what needs to be done, how it should be done and who should do them.
Core values: Core values state the “musts” and “must-not” of your company. They are the key principles guiding employers and employees in their day-to-day decisions
SWOT analysis: The analysis of Strength, Weakness, Opportunities, and Threat is a rundown of the company’s current situation from the perspectives earlier mentioned. It is an important make-up of a business strategy as it portrays the current strengths and opportunities which a company can make use of and the current weakness and threats which the company should be careful of.
Operational tactics: Effective business strategy cuts across functioning details of how work needs to be done to be effective and efficient. This saves time as everyone knows what to be done and when it should be done. A standard business strategy also contains answers on how and where the necessary resources needed for the smooth running of the business could be purchased, how it will be allocated, and personnel that will handle it responsibly to avoid mishandling.
Measurement: Good business strategy always includes ways to analyze the company’s output and performance against set targets.
DEVELOPING AN EFFICIENT BUSINESS STRATEGY
To develop an effective business strategy, you must first build on the vision. All companies have vision statement of what the company intends to be like in future. So while creating a strategy, you must boldly carry along the vision.
Secondly, focus on the most critical objectives which I the company’s most important goals
Thirdly, plan the attack, choose the battlefield; employing the differentiation and focus strategy, you decide on an approach to differentiate the firm and its services from the competitors and then choose a specific market where the competition will take place.
Fourthly, do a reality check, does the business model work? The strategy will bring desired results only if it corroborates with a quantitative business model
Finally, build a support structure. Generic strategies need support to complete the general strategic framework.
EXAMPLES OF BUSINESS STRATEGY
Some examples of business strategies are:
Buying or merging with the competitor; some big companies buy or merge with competitors to reduce competition. This allows the larger company to compete in a market its existence was not well known while still retaining the users of this service.
Obtaining a technological advantage; this will help in achieving better sales or even market domination. This could be achieved by hiring employees with unique skills or even acquiring a smaller company to gain access to their technology.