Business Strategy Explained – The success of any business is determined by the effectiveness of its bottom line strategy. A strategy describes how a company plans to compete in a market and how it intends to increase profits.
Businesses around the world sell goods and services in competitive markets that need to add value to owners and shareholders to ensure their future.
Business Strategy Explained
This requires a plan that helps managers guide their decisions and use resources effectively to achieve key goals. This plan is also known as business strategy.
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A business strategy outlines the plan of action to achieve the vision and sets an organization’s goals and guides decision-making processes to improve the company’s financial stability in a competitive environment.
For a better and more granular understanding, I will refer to the old definition in the following chapters.
Before going into the details of creating a strategy, it is important to understand how a strategy differs from a strategy.
A strategy describes an organization’s long-term goals and how it plans to achieve them. In other words, it shows the way to achieve the defined vision.
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A strategy refers to the specific actions taken to achieve the goals defined in accordance with the strategy.
The strategy can become the cheapest provider in the smartphone market. Their managers should negotiate with suppliers to reduce the cost of electronic components used in production. This is a trick to achieve a defined strategy.
The strategy is to buy a bottle of good wine when you take someone out to dinner. The trick is to get them to drink. Frank Muir Levels of Trading Strategies
1. Corporate Level: Corporate level strategies are the strategic plans of the top management of an organization. They create mission and vision statements and have a fundamental impact on the company’s long-term performance. They guide decisions about growth, acquisitions, diversification and investment.
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2. Business level: Business level strategies integrate the corporate vision, but focus on a specific business. At this level, vision and objectives are transformed into concrete strategies that inform how a business will compete in the marketplace.
3. Functional Level: Functional level strategies are designed to explore how functional departments such as marketing, HR or R&D can support an organization’s defined business and corporate strategies.
It is not uncommon for a company to have multiple strategies at each level. In fact, it is important to ensure that the different needs of each layer are accurately reflected.
Although many strategies carry the risk of conflicting priorities and goals, these risks can be minimized if properly managed. We’ll come back to this point in a second.
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Basically, it shows the company’s strengths and weaknesses and addresses how the company plans to respond to threats and opportunities in the market in which it operates.
A strategy considers available resources and how they can best be used to achieve set goals.
A strategy is therefore often called a lighthouse for managing a company: it unifies the efforts of all available departments and gives its employees a northstar that guides their daily decision-making.
To make this point even clearer, let’s say that a business does not have a strategy for how it will compete in a market:
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Absence of such a blueprint leads to poor operations in each department, which limits the effectiveness of the organization as a whole. This inconsistency often results in a loss of competitive power that can be exploited in the market.
How do you create a business strategy? A business strategy outlines the plan of action to achieve the vision and sets an organization’s goals and guides decision-making processes to improve the company’s financial stability in a competitive environment.
A strategy should outline a business’s vision, define its goals and how it will grow and compete in the long term.
Most online resources suggest that strategy formulation should begin by determining an organization’s goals. But it is very easy to reach, because it assumes that the offer, the market and the target customers have already been defined.
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For a strategy to be successful, it is necessary to first consider the company’s core values and the desired future position in the market. It is also known as the vision of the company.
“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 the most customer-centric company on Earth; to create a place where people can go to find and discover anything they want to buy online.” Amazon
This is an important step in the strategy formulation process as it ensures that the designed strategy reflects the actual needs of the relevant market.
The former outlines what goods and services are offered, while the value proposition explains why people should buy them in the first place.
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Note that the value proposition addresses why a company exists and how it differs from its competitors. In other words, it describes how a company plans to generate demand and compete in the market.
To illustrate this with an example, see Shopify. Their value proposition is to offer an e-commerce platform that allows its customers to sell across multiple channels.
Shopify’s value proposition states why business owners should use their platform and how it differs from others.
Another important step in creating an effective business strategy is defining the type of customer that a company serves.
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Both groups have different criteria, reasons and motivations for buying goods and services. Knowing them allows a company to respond to their specific needs and aspirations in their strategy.
I recommend reading this article from Annemarie Hanlon if you want to learn more about the characteristics of market segmentation.
After defining the vision, the next step in formulating a business strategy is to determine an organization’s high-level goals.
These goals are usually focused on increasing a company’s sales and profits, as they ensure its existence and increase shareholder value when publicly traded.
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So the purpose of a strategy is basically to answer the question of how a business can compete in the market to maximize its profits, while also improving its financial position.
This is because the sole objective of a typical business strategy is to increase the economic value of the company to the owners or shareholders.
Core values and mission are considered later when formulating lower-level strategies, such as marketing or operations strategy.
Once the vision and goals are defined, strategists need to know the strengths and weaknesses of their business and the opportunities and challenges in the market.
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The information obtained during a SWOT analysis serves as the basis for the formulation of a strategy that takes into account the internal characteristics of the company and the external conditions of the market segment.
These insights allow decision makers to ensure that the company’s strengths are taking advantage of market opportunities, while also addressing potential weaknesses and threats that may limit the organization’s long-term success. .
Companies selling in competitive industries need to explain how they want to compete in the market, create demand, and increase their sales and margins.
Harvard Business School Professor Michael E. Porter identified three types of general strategies that businesses can choose when defining their competitive advantage:
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However, companies may fail to effectively adopt one of these common strategies. Porter describes it as “stuck in the middle.”
In this case, a company does not offer a product or service that is unique enough to entice customers to buy. At the same time, the offer price is too high to compete effectively in the market.
Failure to gain competitive advantage will result in poor sales performance, threatening the company’s future existence.
Cost leadership refers to a company’s ability to produce products at the lowest cost in its industry.
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This cost advantage can be achieved through economies of scale, proprietary technologies or the ability to create and sustain cost advantages in the supply chain.
A cost leadership strategy requires a company to effectively reduce its cost structure while charging prices for its products that are in line with industry averages.
Example: Low-fare airline Ryanair is a typical example of a company implementing a cost leadership strategy. They compete successfully in the airline industry by reducing costs and using economies of scale. For this reason, Ryanair operates only one type of aircraft (Boeing 737-200) in its entire fleet. diversity
In a differentiation strategy, a company tries to create a unique offering that is valued by target customers. Buyers should consider the offer to be more valuable than other options in the industry. In turn, a company is able to demand a higher price for its products.
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Example: Starbucks is a good example of a company that has successfully implemented a differentiation strategy. Although it markets coffee as a widely available product, its well-designed stores, and exceptional number of flavor variations are why customers are willing to pay a premium. purpose
A simple focus strategy refers to a small number of target market segments. Porter’s Matrix defines the competitive scope