Business Strategy Level Example – The success of any business depends on the effectiveness of the strategy it follows. Strategy explains how a company plans to compete in a market and how it plans 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 existence.
Business Strategy Level Example
This requires a plan that helps managers guide their decisions and use resources effectively to achieve key goals. This plan is also called a business strategy.
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The business strategy establishes the plan of action to achieve a vision and establishes the goals of an organization and guides the decision-making processes to improve the financial stability of the company in a competitive market.
To allow a better and more granular understanding, I will refer to the previous definition in the following chapters.
Before we get into the details of building a strategy, it is important to understand the difference between a strategy and a tactic.
Strategy refers to 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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The tactic refers to the specific actions taken to achieve the objectives set according to the strategy.
The strategy could be to be the cheapest supplier in the smartphone market. Their managers must then negotiate with suppliers to reduce the costs of the electronic components used in production. This is a tactic to achieve the established strategy.
The strategy is to buy a bottle of fine wine when you take someone out to dinner. Tactics that ask them to drink. Frank Muir Levels of business strategies
1. Corporate Level: The corporate level strategies are the strategic plans of the top management of an organization. They create the mission and vision statement and fundamentally influence the long-term performance of the firm. They guide decisions about growth, acquisitions, diversification and investments.
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2. Business Level: Business level strategies integrate into the corporate vision, but with a specific business focus. At this level, the vision and objectives are turned into concrete strategies that inform how a business will compete in the market.
3. Functional Level: Functional level strategies are designed to respond to how functional departments such as Marketing, Human Resources or R&D can support defined business and corporate strategies of an organization.
It is not uncommon for a firm to have multiple strategies at all levels. In fact, this is essential to ensure that the different needs of each layer are accurately reflected.
Although multiple strategies carry the risk of conflicting priorities and objectives, these risks can be mitigated if properly managed. We will return to this point in a second.
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Basically, it shows the strengths and weaknesses of the company and answers how the company plans to respond to the threats and opportunities in the market in which it operates.
The strategy takes into account the available resources and how to use them in the best way to achieve its established goals.
This is why the company’s management is often called the beacon of strategy: it aligns the efforts of all functional departments and gives its employees a Northstar that guides their daily decision-making.
To make this point even clearer, I say that a firm does not have a strategy on how it will compete in a market:
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Without such a plan there will be disordered actions in all departments, limiting the effectiveness of the organization as a whole. This incoherence will always result in a loss of competitive power that will be exploited in the market.
How do you formulate a business strategy? The business strategy establishes the plan of action to achieve a vision and establishes the goals of an organization and guides the decision-making processes to improve the financial stability of the company in a competitive market.
A strategy must establish the vision of the business, define its objectives and how it will grow and compete in the long term.
Most online sources suggest that strategy formulation should begin by defining the organization’s goals. But this reaches too quickly, because it is assumed that the offer, the market and the target customers are already defined.
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For a strategy to succeed, it must consider the core values of the company and its desired position in the market in the future. This 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 in the world; build a place where people can come find and discover anything they want to buy online.” Amazon
This is an important step in the strategy building process as it ensures that the designed strategy reflects the current needs of the relevant market.
The first sets out 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 answers why a firm exists and how it is different from its competitors. In other words, it explains how a firm plans to create demand and compete in the market.
To illustrate this with an example, look at Shopify. Their value proposition is to offer a single e-commerce platform that allows its customers to sell in multiple ways.
Shopify’s value proposition states why business owners should use their platform and how it differs from others.
Another critical step in building an effective business strategy is to define the type of customer a company serves.
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Both groups have different criteria, reasons and motivations for purchasing goods and services. By making them aware, a business can precisely address their specific needs and wants in their strategy.
I recommend reading this article by Annmarie Hanlon if you want to learn more about the details of market segmentation.
After the definition of the vision, the next step in the formulation of a business strategy is to establish the goals of the highest level of the organization.
These objectives are generally focused on increasing the sales and profits of a firm, as they ensure its existence and improve shareholder value if they are publicly traded.
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This is why the strategy basically aims to answer the question of how a business can compete in the market to increase its income, while improving its financial position at the same time.
This is because the sole purpose of a generic business strategy is to increase the economic value of the company for its owners or shareholders.
Core values and mission are considered later when lower-level strategies are drawn up, such as marketing or operations strategy.
Once the vision and objectives have been defined, the strategy builders must be aware of 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 a basis for the formulation of a strategy that takes into account the internal characteristics of the company and the external market situation.
These insights allow decision makers to ensure that a firm’s strengths take advantage of market opportunities, while addressing potential weaknesses and threats that may limit the organization’s long-term success.
Businesses selling in competitive industries need to define how they want to compete in the market, create demand and increase their sales and margins.
Professor Michael E. Porter of Harvard Business School has identified three types of generic strategies that businesses can choose from when defining their competitive advantage:
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However, businesses may fail to follow one of these generic strategies effectively. Porter refers to this 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 achieve competitive advantage leads to poor sales performance, jeopardizing the company’s future existence.
Cost leadership refers to a company’s ability to produce a product at the lowest cost in its industry.
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This cost advantage can be achieved through the use of economies of scale, proprietary technologies or the ability to create and maintain cost advantages throughout the supply chain.
The cost leadership strategy requires a firm to effectively reduce its cost structures while charging prices for its products that are in line with the industry average.
Example: Low cost airline Ryanair is a typical example of a firm implementing a cost leadership strategy. They succeed in competing in the airline industry by reducing costs and using economies of scale. For this reason, Ryanair only operates one type of aircraft (Boeing 737-200) in its entire fleet. Differentiate
In a differentiation strategy, a firm seeks to create a unique offering that is valued by its target customers. Buyers want to see that the offer is much more valuable compared to other options in the industry. In return, a company is able to charge higher prices for its products.
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Example: Starbucks is a great example of a firm that has successfully implemented a differentiation strategy. Although it sells coffee as a widely available commodity, its well-designed stores, and unrivaled number of flavor variations are the reason customers are willing to pay a premium. Focus
The generic focus strategy only focuses on a small number of target market segments. Porter’s matrix defines the competitive scope i