A Business Strategy is a master plan to achieve the vision, mission and set objectives of any organization while sustaining success over the long run in a dynamic business environment.
The world of business is characterized by its changing nature, risks and uncertainties which can be considered “challenges” for businessmen or business organizations to overcome and go forward. This is where business strategies come into play to help organizations to remain competitive and thrive throughout.
A Business Strategy is a master plan to achieve the vision, mission and set objectives of any organization. It guides the organization in making decisions at the correct time when carrying on its operations, in order to enable them to reach and sustain success over the long run.
A business strategy is not an isolated plan, but a plan that integrates each and every business function or department; Finance, Production, Marketing, Human resource etc. It provides the overall direction for the organization.
As a whole, a business strategy defines how a particular organization is going to compete in the market and how it plans to grow in a dynamic business world.
Being competitive is important for any organization since it is essential for it to create wealth for its owners, investors or the stakeholders in an increasingly competitive market place. In fact, the success in the performance of any organization would be determined by the strategies it follows to face this competition.
Let’s find out what is strategy and what is not.
| What is a Strategy ? | What is not a Strategy ? |
|---|---|
| Strategy is how you get there. It helps reach the business goals. | Strategy is not an aspiration. Strategy is not the same as the mission and values. (eg: - Microsoft vision statement then was “a computer on every desk and in every home.”) |
| Very Specific. | It is more than a particular action. (eg: cut costs) |
| A powerful tool. | |
| A guide to organizational decision making. | |
| Not only for one year or more but on sustaining basis. | |
| It is holistic. A whole set of actions that will be taken to position your organization in a unique place in the market. | |
| Involves all the functions – Production, Marketing, HR, Finance, etc. | |
| Strategy creates higher economic performance. | |
| Strategy helps establish a long term sustained Economic performance along with a sustainable growth in revenue, return on Investment and shareholder value. |
Most get confused in distinguishing the difference between the Business Strategy and Corporate Strategy.
Check out the following;
| What is a Business Strategy ? | What is a Corporate Strategy ? |
|---|---|
| Strategies define how an organization plans to compete differently. They are a set of long term choices made in order to distinguish an organization from its competitors. Supposedly if your organization is having different business lines, each segment of business will have a separate business strategy focusing on different market segments catering to different customers. | A corporate strategy is an overall strategy your organization would have for the diversified businesses you hold under the name of your Organization. |
Having a clear business strategy is very important for any business. Knowing how important it is, we also need to go for a deep analysis of our business before building a proper business strategy.
Developing a business strategy is a challenge for any business organization. Strategy really is the choices you are making about your organization.
Most business organizations are confused and unable to make correct choices. Therefore, it is important to distinguish between the following, to understand what a Strategy is.
Practitioners often confuse Strategy with Operational Excellence. A company attempting to do the things that their competitors do in the best way possible may reach operational excellence. A strategy is something beyond doing the same thing the best possible way.
However, opting to compete with rivals on the same dimensions does not amount to a successful strategy. On the other hand, there is no one best way to compete.
Reaching the position of the best player in the market will always depend on the type of customer to whom you are trying to serve. Your Strategy therefore depends on your customer. Therefore we should always question ourselves; How can this business create unique values to different customers it serves and become successful ?
Developing a successful business strategy starts at the point where you realize how you could meet your customer’s needs in a way that rivals can’t. As per the illustration given next, finding out the “Strategic Sweet Spot” for your business is essential in formulating your business strategy.
“ Strategic Sweet Spot "
Analyzing your business, market and industry plays a vital role in this process. Industries are different and how competition is involved is also different. You should be making decisions based on the nature of your industry and the current position of your industry. For example, If you are in an industry which is failing, it is not important how good your position is and how strong you are competing in the industry. At this juncture, your industry analysis becomes very important.
The analysis should be based on the following factors which defines “What are the industry drivers?” However, this requires time to time analysis, as and when things change. Bargaining power of each force is important to consider. There are different tools to help you in this. One such tool is Michael Porter’s Five Forces Analysis.
Michael Porter’s 5 forces Analysis: -
It is very important that we do not take a surface look at the industry. We need to go beyond what is available to be seen in the exterior. The businesses that thoroughly analyze and get into the depth of it can build successful strategies and gain competitive advantages.
One can basically think of two different paths to building competitiveness;
Once you have chosen your path, you can turn it into a strategy using a value chain which is mapping out what your business operations should look like. Micahel Porter’s three Generic Strategies Model is an available tool to choose among these different options.
A Leader in the process of developing and implementing strategies is a “Change Driver”. The leader should have the true strategic perspective and be able to articulate and communicate it effectively to all the interested parties.
The leader should be the key person to design and build the strategy process and get the teams involved to work for it. He should collect feedback and get the required information to further develop the strategy along with suitable corrective actions. However, the leader should be the final decision maker in finalizing the business strategy.
In order to direct the entire process towards success, the leader should make sure that the right people are engaged in the process and that the strategy is developed in total collaboration with Production, Marketing , HR, finance and operations all together. As a whole, the Strategy should mirror on the overall holistic perspective of the business.
The leader also should make sure that he or she directly involves where necessary and has access to information regarding the progress of the implementation stage so that he or she is able to monitor the process and take corrective actions where necessary without delay. Infact, the leader should lead the process effectively.
According to Michael Porter, Strategy is the set of choices you make across the value chain with clarity in all the choices you make. It is important to understand the difference between the Operational Excellence and Strategy in Value Chain. Operational Effectiveness is doing the same things better, assimilating and implementing best practices. eg:- your competitor has machines and you buy better ones before him. But Strategy is creating a unique competitive position.
Strategy is something that stands a few steps above operations excellence. But the strategy is building on operational effectiveness and further moves forward with uniqueness added to it.
However, it is also important to keep in mind that a business should have best practices even if it implements the best strategies. Otherwise, the company is going to lose due to failure in operations. On the other hand, if your company has operational excellence along with effective business strategies, you can have less cost while being unique simultaneously.
A business and its Strategy are closely linked to the society around us. Here, it is also important to note that, business can play a powerful role in shaping the society around us while the strong relationship between Strategy and Society therefore becomes inevitable. This idea is further emphasized since Social Progress is measured by assessing both Societal Improvement as well as Economic Development which is resulted by business development.
Michael Porter’s 3 Generic Strategies Model brings forward three basic strategic options or approaches available for any business organization to gain competitive advantage. They are; Cost Leadership Differentiation Focus