What is a Business Strategy? – Importance, Strategies, Components, & More
A strong business strategy makes it simple to navigate competitive marketplaces and helps the business succeed in the complex world of commerce. All tech and e-commerce giants across the globe started with small plans, and eventually, achieved behemoth success. For instance, Apple had a humble beginning in 1976 as Apple Computers, Inc. by Steve Jobs, Steve Wozniak, and Ronald Wayne in a garage. Now, there are over 520 Apple stores worldwide. From commerce in ancient and medieval times to modern-day global marketing, the art of strategizing a trade or business has long been crucial.
With some examples in this blog, you’ll learn the importance and essential components of formulating a strategy.
What is a Business Strategy?
Every business has objectives and goals. To achieve each of them, an effective business tactic is the key. It is a well-developed and thought-out action plan and implementation tactic that companies use to achieve their goals and objectives. It is a roadmap for achieving a company’s profitability in the future. It essentially focuses on how a company will take its place and compete in the desired market. It takes care of everything from analyzing business needs to hiring employees and allocating resources to aligning different teams.
Understanding the Importance of Business Strategy
A well-designed study plan will lead us to achieve great results in the exams. When the study plan is thrown out of order because of unexpected interruptions, we tend to develop a new strategy to make up for the parts we missed. Similarly, a business plan strategy provides direction to achieve desired results and profits. Formulating the right strategy is important because:
- Effectiveness – It not only gives direction on what to do but also effectiveness in the direction to achieve the goals.
- Perspective and Planning – It gives perspective to each action plan and ways to reach where you intend to.
- Readiness – It provides readiness tactics to meet challenges and threats even if an action plan is not successful.
- Resource Management – It makes it easy to build and manage resources and enables effective resource mobilization.
- Inventory – An effective strategy for an organization provides a profitable and competitive inventory in the marketplace.
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Different Levels of Business Strategy
Enterprise vision is structured at different strategy levels. From defining the larger perspective to breaking it down into functional goals. There are three levels of strategy – corporate level, business level, and functional level. They are explained below:
Level 1 – Corporate-Level Strategy
It is created by the organization’s top management. The most senior management develops a comprehensive, long-term, actionable growth plan. This level offers a conceptual design, a plan, and a broader plan for the next 3 to 5 years. It determines the broader vision, objectives, and goals of the business lines. It also determines focus areas of investment and disinvestment, market expansion, merger plans, etc.
Level 2 – Business-Level Strategy
Corporations may have fewer or more business objectives. Each objective requires a distinct strategy. Executives and managers lead a business unit and formulate a strategy for the concerned business objective. Plans of action of business-level strategy align with the overall objectives and how to make a mark in the competitive market.
Level 3 – Functional-Level Strategy
Functional-level strategy is the basic unit of a larger business objective. Functional strategy manages the manner and approach of functional units like finance, marketing, IT, operations, human resources, etc. It involves the day-to-day actions taken by employees to achieve corporate and business-level objectives.
Key Components of a Business Strategy
In the face of tough competition, a well-researched and thought-out strategy of business can turn around the fortune of the enterprise. Developing a strategy involves several important steps. Here are a few components to consider with examples:
Vision and Core Values:
The vision represents the business’s future aspirations—where it wants to be and what goals it wants to accomplish. An organization’s core values are its fundamental beliefs that serve as the foundation upon which the strategy will be implemented.
Example:
- Vision – To be identified as the finest manufacturer of environmentally friendly and long-lasting home cleaning products.
- Core Values – Ensure environmental accountability, safe-to-use and sustainable products, and consumer happiness are our guiding principles.
Objectives and Goals:
The objectives refer to the outcomes set to achieve by the enterprise. As part of setting objectives, it is necessary to identify all gaps in the targeted market as well as new areas. Goals are the measurable results that a business seeks to achieve with the accomplishment of each objective.
Example:
- Objective – To capitalize and achieve a share of a particular area of the market by 20 percent and increase marketing to raise awareness of using sustainable cleaning products.
- Goal – To increase the revenue by ₹50 lakhs by the end of the fiscal year.
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SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis:
SWOT analysis is crucial to analyze both the current and potential future of the company. This research identifies the internal and external elements that present challenges and opportunities based on these four key criteria.
Example:
- Strength – Good brand image maintenance. High-quality product portfolio and a trusted customer base.
- Weakness – Limited product distribution lines in tier 2 cities. Expansion of online campaigns.
- Opportunity – Increasing demand for green products in Tier 1 and Tier 2 cities. Identify and expand potential partnerships.
- Threat – Competing companies becoming stronger to produce marginally cheaper products. Government changes to industry regulations and standards.
Target Market Analysis:
Starting a business is supported by a comprehensive analysis of the trends, gaps, and opportunities in the target market. Options for this analysis include surveys to determine potential demographics, primary research, competitive analysis, methods of approaching the market and customers, etc.
Example:
- Target Market – Capturing eco-friendly and environmentally conscious people who are looking for sustainable cleaning solutions for their homes and have the willingness to spend some money on high-quality goods.
Resources and Their Allocation:
This is the process of identifying and allocating business resources, including financial, human, and physical resources, to support its business strategy. Effective utilization of resources leads to achieving the objectives and goals of the business.
Example:
- Human Resources – Hiring new employees and upscaling the existing ones to expand the business and achieve the objectives, forming partnerships with potential retailers, etc. are some examples.
- Financial – It means the allocation of financial resources to meet the demands of various units of the business. For instance, allocate 15 percent of the revenue to the R&D unit to innovate more eco-friendly cleaning products.
- Physical resources – Purchase new manufacturing equipment to increase production by 30 percent.
Implementation Plan:
It is the roadmap to execute a strategy. It breaks down the overall strategy into specific objectives, manageable tasks, delegation of responsibilities, and a timeline.
Example:
- Launch Marketing Campaigns – A well-crafted marketing strategy to introduce the products and services of the business line. This may include online and offline marketing. Timeline the social media campaign, hiring marketing representatives, etc. are some actions to implement the marketing plan.
Performance Measurement:
It is essential to implement the performance monitoring method to determine how effective your business’s strategy is. Breaking down goals into manageable chunks that can be measured easily is the most effective strategy.
Example:
- Key Performance Indicators (KPIs) – The KPIs such as monthly revenue generation, sales, customer satisfaction ratings, repeat purchase rate, website or social media page visitor rate, demand, supply growth, etc. help to measure the performance of the strategy.
Examples of a Business Strategy
Every business has a unique set of strategies for planning, implementing, executing, and evaluating in place. Here are some business strategies examples:
- Product Distinction: The enterprise needs an action strategy to highlight the differentiators of its products and why they are better than the products of competitors in the market. The uniqueness of the products and services will enable you to gain loyal customers in the long run. For example, in 2007, Apple launched the iPhone having unique features such as a touch screen, a friendly user interface, etc. This made Apple’s iPhone a unique product in the smartphone market.
- Better Customer Experience: The success of a business depends on effective customer service, with high response rates and complaint resolution being critical factors for success. Amazon India, for example, has over 100 million registered users. This high customer base is due to this e-commerce giant’s ability to provide comprehensive customer service with improved delivery and logistics systems, a friendly user interface on its app and website, etc.
Conclusion
Understanding what a business strategy is and the elements that should go into its formulation are crucial if you want to pursue a career in business management. It should be evident how it acts as a waypoint for every business to attain commercial success and find its way through the dynamic and ever-changing world of commerce. Learn the fundamentals of developing a strategy from this blog.
