A business’ success is determined by the strategy it follows. An organization’s strategy determines how it plans to compete in a market and how it intends to grow profitably.

Throughout the world, businesses sell goods and services in highly competitive markets, to ensure their continued existence, they need to increase their value for owners and shareholders. To achieve key goals, managers need a plan that guides their decisions and enables them to use resources effectively. The plan is also called a business strategy.

Business strategies define a plan of action for achieving a company’s vision and objectives and guide the decision-making processes to increase its financial stability in competitive markets.

Attempting to reduce complexity, many online sources define business strategy as A high-level strategy to help a company achieve its goals.

What makes a strategy different from a tactic?

A strategy describes an organization’s long-term goals and how they plan to achieve them. In other words, it is the plan of action for achieving the defined goals. A tactic is a specific action taken to accomplish goals in line with the strategy.

Suppose company A’s strategy is to become the cheapest provider in the smartphone market. As a result, their managers must negotiate with suppliers to reduce the cost of the electronic components used in production. This is a tactic to reach the target.

Business strategy levels

Most strategies are used at three levels: the corporate, business, and functional levels.

The three levels of the strategic framework of an organization are:

  1. Corporate Level: Corporate level strategies are the strategic plans of an organization’s top management. In addition to forming the mission and vision statements, they play a fundamental role in the performance of the firm over time. Growth, acquisitions, diversification, and investment decisions are guided by them.
  2. Business Level: Strategy at the business level is integrated into a broader corporate vision, but focuses on a particular business. At this level, the company’s goals and vision are translated into concrete plans that determine how it will compete.
  3. Functional Level: In general, functional level strategies define how the defined business and corporate strategies of an organization can be supported by functional departments such as Marketing, HR, or R&D.

Firms often have multiple strategies at every level. This is crucial for ensuring the different needs of each layer are properly reflected. Although multiple strategies can lead to conflicting priorities and objectives, these risks can be minimized if managed properly.

What are the benefits of having a business strategy?

Any business that wants to succeed needs a strategy. The strategic plan indicates the strengths and weaknesses of the organization as well as how it intends to respond to threats and opportunities in the market where it operates.

When developing a strategy, the resources at hand are taken into account, as well as how to best utilize them. For this reason, a strategy is often called the lighthouse for a company’s management: It unites all functional departments and gives employees a compass to use to make daily decisions. This point can be illustrated by considering how a business might compete in the market without a strategy:

This lack of a blueprint could lead to disorderly actions in each department, limiting the organization’s effectiveness as a whole. Due to incoherence, there is a loss of competitive power, which can be exploited by the marketplace.

What is the process for formulating a business strategy?

The purpose of a strategy is to describe a business’s vision, define its goals, and plan how it plans to grow and compete over the long term. Here are five steps to take when developing a strategy:

Step 1: Define your vision

An organization’s objectives should be defined first, according to most online sources. The problem with this is that it assumes that the offering, the market, and the target customers have already been defined. A successful strategy must take into account the company’s core values and the company’s desired position in the market. This is sometimes called the company’s vision. Below are some examples from some of the largest companies:

“Apple strives to bring the best personal computing experience to students, educators, creative professionals, and consumers around the world through its innovative hardware, software, and internet offerings.”

Apple

 

“To be earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online.”

Amazon

 

Offer & Value Proposition

Creating a strategy that reflects the actual needs of the relevant market is a crucial step in the process of building a strategy. A company’s value proposition and offering form the foundation of its business strategy. In contrast to the former, the latter explains why people should buy the goods and services that are offered. The value proposition explains why a company exists and how it is different from its competitors. It explains how the firm intends to create demand and compete.

A good example of this is Shopify. One of their value propositions is offering a single commerce platform that lets customers sell across multiple channels.

Customers

Defining the type of customer, a company serves is another crucial element of an effective business strategy. There are two types of customers: consumers (B2C) and businesses (B2B). Both groups purchase goods and services for different reasons, criteria, and motivations. Identifying their needs and wants allows a company to tailor its strategy accordingly.

Target Market

In conclusion, strategy builders need to know which markets they are targeting with their offerings and value propositions. In a business-to-consumer environment, a market is defined by gender, age, occupation, education, income, wealth, and where someone lives, among other factors. When the offering is designed for other businesses (B2B), however, markets are usually defined by factors such as the industry, business model, and sales model of the target customers.

Step 2: Set your top-level objectives

Defining an organization’s top-level objectives is the next step in defining a business strategy. Most of these objectives are aimed at ensuring a firm’s existence and improving its value as a public company. The goal of a strategy is to help a business grow its revenue and improve its financial position by competing in the market. It is important to note that the formulation of high-level objectives does not include any goals aimed at achieving a company’s mission or reflecting its core values. A generic business strategy is only designed to increase the value of the company to its shareholders or owners. When designing the lower-level strategies, such as marketing or operational strategies, core values and mission are considered.

Step 3: Analyze your business and the market

The strategy builders should be aware of their business’s strengths and weaknesses, as well as opportunities and challenges in the marketplace, once the vision and objectives are clearly defined. The SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) can be used for this purpose.

As a result of a SWOT analysis, the company’s internal characteristics and the external situation of the market segment are considered during strategy formulation. By utilizing these insights, decision-makers can ensure that their firm’s strengths are exploiting market opportunities while addressing potential weaknesses and threats that may hinder their long-term success.

Step 4: Define how to gain a competitive advantage

During the fourth step in forming a strategy, you decide how you will accomplish the set objectives. For companies in competitive industries, they need to define their approach to competing in the market, creating demand, and increasing their sales.

Different types of business strategies

Professor Michael E. Porter from Harvard Business School identified three types of generic strategies businesses can use to define their competitive advantage:

  1. Cost Leadership,
  2. Differentiation, or
  3. Focus

It is also possible for firms to fail to effectively employ any of these generic strategies. This is known as being “stuck in the middle”. When a company doesn’t offer a unique product or service, customers will not be enticed to buy. Moreover, the price of the offering is too high for it to effectively compete in the market. The future company’s existence will be threatened if it is unable to gain a competitive advantage.

 

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