What is a Business Strategy? And How to Develop One!

In essence, a business strategy is an organizational master plan. This plan is what the management of a company develops and implements to achieve their ... Strategy WhatisaBusinessStrategy?Andhowtodevelopone! 7minuteread⏱ Lastupdate:August2022 ABusinessStrategyinitssimplestformisatoolforhelpingyouachieveyourbusinessgoals Abusinessstrategyprovidestheguidingprinciplesformanyorganizationaldecisions,suchashiringnewemployees,ordevelopingnewproducts.Andhelpsyoutodefinethemethodsandtacticsyouneedtotakewithinyourcompany. Creatingabusinessstrategythat’sinlinewiththevisionyouhaveforyourorganizationisatimeconsumingexercise.Inthisarticle,we’lldiscusswhatabusinessstrategyisandwhyit’simportant,thedifferentcomponentsofabusinessstrategyandexploresomeexamplesofbusinessstrategiestohelpyougenerateideasforyourowncompany. Whilstabusinessstrategyissimpletounderstandintheory,developingagoodbusinessstrategy,andthenactuallyimplementingit,isnoeasytask. DiscoverthekeyelementstounderstandBusinessStrategy: Whatisabusinessstrategy?Howisstrategydifferentfromtactics?Whatarethekeycomponentsofabusinessstrategy?Whyisabusinessstrategyimportant?Howtobuildabusinessstrategy?Howtomeasurethesuccessofabusinessstrategy? Whatisabusinessstrategy? Inessence,abusinessstrategyisanorganizationalmasterplan.Thisplaniswhatthemanagementofacompanydevelopsandimplementstoachievetheirstrategicgoals.Essentially,abusinessplanisalong-termsketchofthedesiredstrategicdestinationforacompany. Thislong-termsketchwillcontainanoutlineofthestrategic,aswellastacticaldecisionsacompanymusttaketoreachitsoverallobjectives.Thisbusinessstrategywillthenactasacentralframeworkformanagement. Oncethisframeworkisdefined,managementmustliveandbreatheit.Ithelpsthedifferentdepartmentswithinabusinessworktogether,ensuringthatalldepartmentaldecisionssupporttheoveralldirectionoftheorganization.Thishelpstoavoidworkinginsilos,ordifferentteamspullinginoppositedirections. Atthispointitisimportanttohighlightthedifferencebetweenabusinessstrategy,andamissionstatement.OneexampleisAmazon’s“tobeEarth’smostcustomer-centriccompany”thisisnotastrategy,morethevisionthatthestrategywilldeliver,andcreatestheframeworkwithinwhichthestrategywillbedeveloped. Howisstrategydifferentfromtactics? Beforewegetintothedetailsofhowtobuildabusinessstrategy,itisimportanttounderstandhowstrategydiffersfromtactics.Bothofthesecontributetoeachother,yetareentirelydifferentthings. Strategyaswe’veidentifiedreferstothelong-termgoalorroadmapforanorganization,andhowitplanstoreachthem.Or,thepaththeorganizationwilltaketowardsitsgoals. Conversely,tacticsrefertothespecificsetofactionstakentoreachtheorganizationalgoals,orstrategy. Forexample, acompanymayhaveastrategicvisiontobecomethecheapestsupplierofaproductinthemarket.Thisrequirestheirmanagerstonegotiatewithsuppliers,reducingpurchasecosts.This,isatacticalmovetakentowardsachievingthesetstrategy. Whatarethekeycomponentsofabusinessstrategy? Businessstrategiescomeinallshapesandsizes(seesomeexamples/resourcesbelow)andcanvarysignificantlyintheirdepth.Mostbusinessstrategydocumentswillhowevercontainthefollowing: 1.Visionandobjectives Abusinessstrategyisintendedtohelpyoureachyourbusinessobjectives.Thevisionelementofthisprovidesacleardirectionforthebusiness.Thisenablesyoutodeveloptacticalinstructionswithinthebusinessstrategyforwhattasksneedtobecompleted,andwhichofyourresourcesareresponsibleforcompletingthem. 2.Corevalues Abusinessstrategyguidesleaders,aswellasdepartments,aboutwhatshouldandshouldnotbedone,accordingtotheorganization’scorevalues.Definingtheorganizationscorevalueshelpstoensurethatemployeesareonsamepage,andwiththesamegoals. 3.SWOT(strengths,weaknesses,opportunitiesandthreats) Foranybusiness,understandingitsstrengths,weaknesses,opportunitiesandthreatsiscritical.Thisisacorepartofanybusinessstrategy,andensuresthathumility,andself-awarenessarepresent.Understandingthishelpstodefinewheretheorganizationcanwin,andareasthatmustbeaddressedinthefuture. 4.Tacticsandoperationaldelivery Thetacticalelementofabusinessstrategywillsetouttheoperationaldetailsthatdefinehowtheworkshouldbedelivered.Tacticaldeliveryiscriticalforthesuccessofanybusinessstrategy,andmanagerswhohaveresponsibilityfortacticsunderstandwhatneedstobedone.Thisensuresthattime,andeffortisnotwasted. 5.Resourcesandresourceallocation Generallytheresourceelementofabusinessplanwillcovertheallocationofexistingresources,aswellaswhereadditionalresourceswillbefound.Mostbusinessesrelyonmanydifferentresources,people,technology,financial,andphysicalresources.Havingaclearpictureofthese,andfuturerequirementsenablesleaderstoseewheretoaddmoreresourcesinordertoachievetheirgoals. 6.Measurementandanalysis Theevaluationphaseplacesemphasisonhowabusinessisperforminginrelationtothebusinessstrategy.Measurement,helpsyoutostaycloselyalignedtothestrategy,definedeadlinesandgoalsandaddressthingssuchasbudgetconcerns.Nowadays,dataandbusinessintelligenceplatformsplayacrucialroleinthisphase. Haveyougotastrongbusinessstrategy?🚀 Whyisabusinessstrategyimportant? So,nowwe’vedefinedexactlywhatabusinessstrategyis,wecannowaskthequestionwhyisitimportanttohaveone? Virtuallyeverybusinessleaderhassomeformofvisionfortheirorganization.Generally,intheearlydays,suchasastart-upenvironment,thiscanbeveryfluid.However,astimegoesbyandbusinessgrow,orgetbusierthe“businessstrategy”maybecomelessdefined. Whenastrategyisnotwelldefined,abusinessmaystarttostruggle,withpersonnelchangethecoreofabusinessanditsvaluescanoftenbecomelessdefined.Thiscan,insomecasesleadorganizationstobecomevictimsoftheirownsuccess,theymaybeachievingshort-termresults,butthiscouldbeattheexpenseoftheirlong-termviability. Thisproblemcanbecomecompoundedwithinfluencingfactorssuchassalesdips,risingcostsorincreasedcompetition.Inthesecasesabusinesswillbegintosuffer.And,asemployeesworktirelesslyto“putoutfires”causedbysuchchanges,timeforstrategicthinkingbecomesapreciouscommodity. Thiscanofcoursebeavoided.Creatingabusinessstrategyisnotanoverlydifficulttask,butitdoestaketimeandfocus.Asaleaderyoushouldprioritizeyourbusinessstrategyandensurethatyoudedicatesometimeawayfromtheday-to-daytodefineyourbusinessroadmap. Creatingabusinessstrategydoesnotautomaticallymeanyourbusinesswillbesuccessful.Itdoeshoweverenableyoutoshareyourorganizationalvisionandgoalswithyouremployees.And,ifdonecorrectlycreatesacommonthreadacrossabusinesstostriveforsuccess.And,ifthegoinggetstough,beassuredthatyouremployeesareawareofthestrategicvisionoftheorganization,andcandouble-downonyourvision,ratherthansimplyfightingfires. Howtobuildabusinessstrategy Theabovegivesusapracticaldefinitionofstrategyandwhyitisimportant.Now,weneedtolookathowtosuccessfullybuildone.Thiscanbebrokendownintoafewkeysteps: 1.Definingyourvision Foranystrategytobesuccessful,thefistitemtoconsideristhecompany’svaluesanddesiredmarketposition.Or,inotherwordsacompany’svision. AswereferredtoearlierwithAmazon’svisionstatement: “Tobeearth’smostcustomer-centriccompany;tobuildaplacewherepeoplecancometofindanddiscoveranythingtheymightwanttobuyonline.” Thissetsthefoundationfordevelopingtherestofthebusinessstrategy.Avisionisnotjustthemissionstatement,andwillalsodefinethevalueproposition,idealcustomerprofileandcoremarket. 2.Settingyourobjectives Thesecondstepofbuildingasuccessfulbusinessstrategyistosetouttop-levelobjectives. These,inmostcases,willfocusonitemssuchasrevenue,marketpenetration,growthorshareholdervaluecreation.Buttheseareuniquetoeachandeverybusiness.Whendevelopingyourstrategyitisimperativethatyouarerealisticwhenobjectivesetting. Abusinessstrategyisultimatelyaimingtoansweraseriesofquestionsofhowabusinesscancompete,growandprosper. High-levelobjectivesshouldnotfocusonachievingacompany’smission,orreflectingit’scorevalues.Instead,theseitemstendtobeconsideredatalower,moretacticallevelsuchasmarketingorcommunicationsstrategy. 3.Analyzingyourbusinessandyourmarketplace Ok,soyouhavenowdefinedyourvisionandobjectives.Nextonyourstrategydevelopmentlististoanalyzeyourbusiness,here’swhereyourSWOTanalysisiskey. Asaleader,knowingwhereyourbusinessisstrongisacriticalskillandhelpsyoudevelopyourbusinessstrategy. Similarly,itisimportantthatyouareawareofyourweaknesses.Understandingthisensuresthatyourstrategyisnotoverlygearedtowardsareaswhereyouhaveidentifiedweaknesses,ensuringgreaterchanceofsuccess. TheSWOTanalysisconsidersnotonlytheinternalsituationofacompany,butalsotheexternalsituation.Inotherwords,marketplace.Here’swhereyoudefineyourplayground. 4.Definingyourcompetitiveadvantage Thefourthkeystageofdevelopingabusinessstrategyanswersthequestionofhowtheobjectiveswillbeachieved.Inotherwords,howyouwillcompeteinyourdefinedmarket. ThiscanalsobedefiningtheUniqueSellingPoint(USP)thatsetsyouasidefromyourcompetition.Thisisparticularlyimportantincompetitiveindustrieswheretherearemanydefinedcompetitors. Atthisstageyouwillexploreitemssuchashowyoucreatedemandforyourproductsorservices,increasesales,utilizenewtechnologiesandgeneratehighermargins. Formanybusinessesthisisamakeorbreakstep.Failuretodefineandarticulateacompetitiveadvantagecanbefatalforbusinesses. 5.Buildingaframework Thefinalpieceofthestrategypuzzleistheformulationofaframework.Or,itcanbeconsideredtranslatingthestrategyintomoredepartmentspecifics. Forexample,individuallyacommunicationsdepartmentmaycontributeverylittletowardsanoverallstrategicdirection.Asthereareelementswithinthestrategythatare“outofscope”forthisdepartment. Hence,theframeworkconsidersthevisionandneedsofeachdepartmentwithinanorganizationandsubsequentlyalignsthesewiththeorganizationalgoals. Howtomeasurethesuccessofabusinessstrategy Wemayconsiderabusinessstrategytobesuccessfulwhenitisdirectlyresponsiblefororganizationalgrowthandsales. However,toreallyunderstandwhetherastrategyissuccessfulwemustdevelopamoregranularmeasurement.ItisherethatyouneedtodefineKeyPerformanceIndicators(KPIs). KPIsaretypicallydefinedbydepartment,witheachofthesecontributingtotheoverallperformanceofthebusiness.Someexamplesare: Financialperformance RevenueGrossprofitNetprofitOperatingprofitEBITDA(earningsbeforeinterest,taxes,depreciation,andamortization)Freecashflow Competitiveadvantage Marketshare%BrandrecognitionMediacoverageGrowthvscompetition