Why Business Strategy Always Wins
Business strategy is the firm’s plan for achieving its vision, prioritizing objectives, competing successfully, and optimizing financial performance with its business model. A business strategy is a set of guiding principles that, when communicated and adopted in the organization, generates a desired pattern of decision making.
Why is A Business Strategy Needed:
Strategy is fundamental to the success and sustainability of any organization for the following reasons:
Understanding your company and industry: Strategy allows organizations to develop a clearer understanding of their own organization and what’s required for them to succeed. It helps organizations understand their core capabilities, identify and address weaknesses and mitigate risks. It can help organizations better design themselves so that they are focusing on the right things that are the most likely to deliver the best performance, productivity and profit both now and in the future.
Growing in a changing world: Understanding what is taking place within the external environment is important to preparing a strategy that will ensure long-term profit and growth. Understanding changes that are taking place in your industry, or with your market place is important. Because if you don’t adapt you die. Even successful businesses need to realize that what made them successful today is not what will make them successful tomorrow.
Creating a vision and direction for the whole organization: All organizations and their staff need to understand their purpose, their destination and the course they’re taking to get there. Without a destination and focus in mind your staff will wander aimlessly from one activity to the other never knowing what to focus on or how to prioritize. Providing an organization with a common purpose, goals and a set of actions to reach the goal ensures that everyone is working for the same outcome (your organizations success) and that time and resources are being allocated to the same goals and objectives.
Motivation for Business Strategy:
Internally-Driven Organizations: Most organizations are internally driven, which means that their strategy is driven by what they have done in the past; their thinking is inside out. The weakness with this strategy is that organization members are not anticipating changes that are happening in the marketplace.
Customer-Driven Organizations: Customer-driven organizations are those who try to by close and ready to listen to the customer. The problem with approach is that these organizations end up trying to be “all things to all people.”
Market-Driven Organizations: Lastly, Market-driven organizations base their strategy on making conscious choices about which markets they will serve and how they will add value. High performance organizations not only participate in the strategy process, they also understand which strategy will propel their organizations forward.
Elements of Business Strategy :
The aim of every business is to be sustainable and to stand out from the crowd and attract customers. A coherent business strategy will help you understand the performance of a company, what drives that performance, how it can be increased, as well as protecting the company against future risks. All business is risky and no business plan can truly determine exactly what will happen in the future. Your market may seem safe now, but what about in five years? How will your business cope if competitors dramatically lower their prices? Or valuable employees lose morale therefore lower performance? Every business needs a safety net of protocol to help them make those tough decisions. What a documented strategy can do is give your business the extra support and guidance it needs if put to test. Here are some of the key elements for a good business strategy:
There are six key components of a business strategy. They include:
Vision and business objectives
Core values
SWOT analysis
Tactics
Resource allocation plan
Measurement
When laying out your business strategy, it should answer the following questions:
Why does the company exist?
What are the company’s key strengths?
What client base should the company focus on?
Which goods/services are worth selling and which ones are not?
Why were these strategic directions chosen?
Formulating a Business Strategy:
The 10 steps described here will guide you in formulating a strategy;
Clearly define your long-term objectives :
You should make sure that your business’s strategic plan is both realistic and applicable in the long-term. Think about the kinds of goods or services you want to offer, who will be interested in purchasing these, which market you should focus on, and what kinds of activities you want to be doing in order to achieve your goals and objectives.
Opportunity:
Make sure to carefully evaluate the different opportunities open to you and how these could evolve. Assemble facts, information, and data about these opportunities before making any final decisions. By making sure you take into account all the risks and challenges you might come across for each opportunity, you will be able to avoid or manage them a lot better.
Innovation :
When thinking about the products or services you want to offer, make sure to clearly identify what makes them different from the competition, but also that they fit in with your company.
Competition:
You need to make sure that your business strategy remains competitive. When evaluating what market you want to tap into, be sure to choose one which is either little or not at all served yet and where you have little to no competition. This is how you will be able to take up space in the market, develop your brand and make it trickier for other competitors to enter your space. There are always threats in the external environment: new entrants, pressures from suppliers e.g. single point of failure, substitute products your customers are drawn to, your customers purchasing power etc. The external world also presents opportunities: new technology, unexploited market and so forth.
Economies of scale :
When considering the pricing for your goods or services, make sure to decrease their cost as much as possible whilst remaining effective and innovative. It is always a lot better to offer good customer service and unique features.
Time to market :
Think about the different options to build as opposed to buying for the goods or services that you are thinking of putting out there to your clients. It is sometimes less expensive to buy a part of a product or services that are already on the market or to outsource the work to a third-party. This can sometimes save on the cost of producing the product or service in full and then putting it out on the market.
Tests :
Make sure to actually test your strategy once it has been established. Your strategy should be viable at all times and remain in line with your business’s goals and market needs. Make sure to try it through phases. It is better to fail when the stakes are not too high, rather than making a big mistake later down the line when it is a lot harder to recover.
Risks and failures :
Make sure to take into consideration the risks related to your business when thinking about your strategy and allow yourself and your employees to make mistakes and fail. This will give you valuable information and insight which you can then learn from to improve and succeed.
Create many alternatives. There is always more than one way of doing things.
Check all facts, and question all assumptions.
Assess what key information you are missing to better assess a particular strategy, and then get the information.
Execution : How the resources will be allocated and who is responsible for doing so. Doing the resource planning and assigning responsibilities is important in strategy planning.
Stakeholders :
When you have finished establishing your strategy, you should share it with your staff. This will give them guidance and a better understanding of the actions that will be carried out by the company in line with its strategy. Explain how your strategy relates to their work within the company. You should also inform your external stakeholders about your strategy. Investors, suppliers, industry analysts, and partners need to be made aware of how you are planning to generate revenue and influence shareholders’ value.
Measuring Success With Strategies :
A new strategy or a strategic change is successful when the strategic plan itself is undoubtedly responsible for one or more of the following measurable, tangible results:
Firstly, Business Growth. Growth Means Increasing:
Customer demand, Sales revenues ,Repeat business volume, Business volume, Customer retention rate, Accessible market size, Average sale value, RFP’s received, RFP quality and size
Secondly, Strong Competitive Position, Which Means Increasing:
Market share, Market position, Competitive win rate, Growth rate vs. competitors, Margins vs. competitors, Leading brand awareness
Thirdly, Strong Financial Performance, Which Means Increasing:
Gross profits, Gross margin, Operating profits, Operating margin, EBIT and EBITDA, Return on total assets (ROA)
10 business strategy examples :
Here are 10 examples of great business strategies:
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- Cross-sell more products
- Most innovative product or service
- Grow sales from new products
- Improve customer service
- Cornering a young market
- Product differentiation
- Pricing strategies
- Technological advantage
- Improve customer retention
- Sustainability
1. Cross-sell more products:
Some organizations focus on selling more products to the same customer. This strategy works well for office supply companies and banks, as well as online retailers. By increasing the amount of product sold per customer, you can increase the average cart size. Even a small increase in cart size can have a significant impact on profitability, without having to spend money to acquire more new customers.
2. Most innovative product or service:
Many companies, particularly in the technology or automotive space, are distinguishing themselves by creating the most cutting-edge products. In order to use this as your business strategy, you will need to define what “innovative” will mean for your organization or how you’re innovative.
3. Grow sales from new products:
Some companies like to invest in research and development in order to constantly innovate, even with your most successful products.
4. Improve customer service :
This can be a good business strategy if your business has had a problem delivering quality customer service. Some companies have even built a strong reputation for having exceptional customer service. Usually, companies have a problem in one specific area, so a business strategy that’s focused on improving customer service will usually focus its objectives on something like online support or a more effective call center.
5. Cornering a young market:
Some large companies are buying out or merging competitors to corner a young market. This is a common strategy used by Fortune 500 companies to gain an advantage in a new or rapidly growing market. Acquiring a new company allows a larger company to compete in a market where it didn’t previously have a strong presence while retaining the users of the product or service.
6. Product differentiation:
This is a common business strategy, especially for business-to-consumer (B2C) businesses. They can differentiate their products by highlighting the fact that they have superior technology, features, pricing or styling.
7. Pricing strategies:
When it comes to pricing, businesses can either keep their prices low to attract more customers or give their products aspirational value by pricing them beyond what most ordinary customers could afford. If companies plan to keep their prices low, they will need to sell a much higher volume of products, as the profit margins are usually very low. For companies who choose to price their products beyond the reach of ordinary customers, they are able to maintain the exclusivity of their product while retaining a large profit margin per product.
8. Technological advantage:
Obtaining a technological advantage, you can often achieve better sales, improved productivity or even market domination. This can mean investing in research and development, acquiring a smaller company to gain access to their technology or even acquiring employees with unique skills that will give the company a technological advantage.
9. Improve customer retention:
It’s generally far easier to retain a customer than spend money to attract a new one, which is why this is a great strategy if you see opportunities for improvement in customer retention. This strategy requires you to identify key tactics and projects to retain your customers.
10. Sustainability:
You could launch an entire business strategy aimed at increasing the sustainability of your business. For example, the objective could be to reduce energy costs or decrease the company’s footprint by implementing a recycling program.
