Whether you want to start a business, successfully manage change in your organization, or you are just curious about finding out more about the best business strategies, this article is for you! This guide will equip you with all the information you need to formulate a winning business strategy.
What Is A Business Strategy?
Before digging any deeper into the subject, we must first ask ourselves: what is a business strategy? You might have heard this buzzword circulating for a while and wonder what it is.
A strategy is commonly described as a plan of action to achieve a clearly defined goal. Put differently; it represents “the creation of a unique and valuable position, involving a different set of activities.” Ask yourself: where do you want your business to go, and what do you need to get there? This will be your overall strategy. According to Michael Porter, a Harvard Business School professor, there are four generic strategies.
- Cost leadership
- Focused cost leadership
- Focused differentiation
Not having a clearly defined strategy can lead to a ‘stuck in the middle’ situation. This is where the chances of success as minimal as competition is the greatest.
Business Strategy and Business Plan
What distinguishes a business strategy from a plan is a competitive advantage. Without competitors, there would be no need to develop a strategy. Nevertheless, given the fierce competition and constant pressures of the external environment, you will need to achieve superiority over your competitor. This can only be achieved if you have a clearly defined strategy. The overall strategy can be determined at a corporate, business, and functional level.
So, What is the purpose of a business strategy??
Maybe you think there is no need for a business strategy for small businesses. Then you must see business as a competition, of course, that is what it is. Let’s look at it as a soccer championship. That a soccer team has got good players that know the game inside out does not mean they shouldn’t have a strategy. Every player must play according to a set game plan. The game plan will depend on the strength and weaknesses of your team. But your plan must also consider the ability of your opponents. In the same way, businesses need a strategy to make a plan. The plan must be based on business strengths and weaknesses. The best business strategies must be able to address the following effectively:
- Ensure proper planning.
- Help you identify your strengths and weaknesses.
- Make you more effective and efficient.
- Give you a competitive advantage.
- Put you in control. Levels of A Business Strategy
What are the three basic business strategies?
- The corporate level
- The business unit level
- The functional level.
Level 1: The Corporate Level
The corporate level refers to the creation of value by shaping corporate activities in multi-business markets (Collis and Montgomery, 2005). At this level, decision-making often concerns value creation, the scope of the company, and the allocation of various resources among different units of the firm.
Level 2: The Business Unit Level
The second level focuses on the business unit. The business unit level is also commonly referred to as a firm’s competitive strategy. Decisions made at this level often deal with the method of competition and the place of the company within a specific industry.
Level 3: The Functional Level
Finally, you will need a functional-level strategy to support your business-unit strategy. This refers to a range of decisions in each of the different areas of the firm to determine the role of the functional units. For example, marketing managers will have to make decisions regarding customer relationships and about the 4Ps (price, place, product, and promotion). The finance and accounting department will deal with sources of financing or internal auditing. Human resources might make decisions about compensation plans or work policies.
Steps to Formulate a Winning Business Strategy
Now that you know what a strategy is and the basics, here are six steps to formulate a winning business strategy.
- Define your mission and vision
- Set your goals clearly
- Identify your core values
- Do your SWOT Analysis
- Make operational strategy
- Have a measuring instrument
- Have a business strategy template
Step 1: Define Your Mission and Vision
When developing a strategy, the mission and vision statements are critical elements. These are aspects of the corporate-level strategy. They serve as foundational guides in establishing your business objectives.
Your mission refers to what your firm does and how it is different from your competitors. It is why your firm is in business. Take, for example, Google’s mission is to “organize the world’s information and make it universally accessible and useful.” Or Starbucks’ mission “to inspire and nurture the human spirit—one person, one cup and neighborhood at a time.”
Therefore, your mission statement highlights what you want to achieve in the broader environment. It should be outward-looking and match your company’s distinctive competencies, taking into account your customers, employees, products, and brand’s philosophy. Your mission is what you will do to achieve your vision. So let’s define the vision.
The vision of your company is broader and can be described as the desired state of the firm. This gives you a long-term direction. Stop for a second and ask yourself: Where do you see your company in 10 years? What does success look like?
For example, Walt Disney’s vision is to ‘Make people happy.’ This is realistic, inspiring, and unique. It also encourages long-term thinking.
Step 2: Set Your Goals
Having defined your mission and vision, you need to set your goals and objectives. These are the things that will help you to attain your mission and vision. They are the results you want to achieve and are quantifiable. You must ask yourself why you are in business and what you want to get out of it. It is a well-known fact that every entrepreneur aims to make a profit. But your goals should not just be to make a profit, but how much and how soon? Your vision may be to have branches all over the country, but your goals must state the exact number of branches you want to have at a set time.
As any goals, they should be SMART (simple, measurable, attainable, reasonable, and timely).
If you want to run a retail business and you have a vision of supplying the entire nation commodities of high quality at affordable prices. That is your vision. Then your mission is to open stores across the country. Get the commodities from the manufacturer and distribute them at affordable prices. That will not be enough. You must set a goal of achieving that mission step by step. But first, you must ask yourself if it is achievable? If yes, how soon do you want to achieve it? Let’s say ten years. How will you measure your progress? Then you must determine the exact number of stores you want to have to achieve the aim. And determine how many stores you must open each year to achieve this vision.
Step 3: Core Value
The core value of your business is the principles that govern the operational behavior of the business. It stated clearly what is right and what is wrong. The dos and the don’t. Both the management and the staff must know what the core values of the business are. And every decision and action must be such to protect the core values of the business. Also, the core values must be pronounced incorporate business strategy, such that the customers will be able to know what the business values are and what it stands for. Therefore a business planner must set its core values.
Corporate core values may include:
- Great customer relations
- Support for the community
- Commitment to environmentally friendly production methods
- Durable and reliable products and services
- Openness and honesty
- Staff development
Step 4: SWOT Analysis
SWOT is an acronym for Strength, Weaknesses, Opportunities, and Threats. SWOT-analysis helps you to identify these critical factors of your business. It is one of the essential tools that you will rely on to make the best business strategy.
Your strength is the positive aspect of your business. It is more about you than about your competitors. You look inward to discover your strengths. It would help if you analyzed areas where you have an advantage in the business. You must know things you do better than others. You should explore the different sections of your business and discover those that are bringing satisfying results. It would help if you analyzed your financial strength as well as your production strength. You also need to know the power of your staff, in number and inability, and also the size of your customer.
Your strength analysis will help you to understand where your business stands in the industry. It will also help you to know what you need to improve on. And show you the area to invest in to enjoy comparative advantages.
These are the things you are not getting right, or areas you cannot compete with others. It is also about you rather than about your competitors. It would help if you looked inward to discover your weaknesses. You must analyze those areas you are weak at and plan on how to improve or how to cope.
As stated earlier, Strengths and Weaknesses are internal factors. They may include the expertise of your staff, your financial capability, your staff strength, or your production techniques. What appears as a strength in a particular line of business may be a weakness in another line. What is essential is whether it is of advantage to the business, or it is limiting the progress of the business.
After analyzing strengths and weaknesses, then you can identify your opportunities. Identifying your opportunities will help you to set your goals and draw up a strategy to achieve it. Opportunity is an external thing. It is not what you can change. But you can take advantage of it or let it lay fallow. You must look outward to see the opportunities out there for you and make the best out of it.
Just like an opportunity, the threat is an external thing. You look outward to discover what may work against you. Not that you can change the situation, but you can prepare for it. And map out the best business strategies that will ensure you get the best out of the situation. You must identify your threats and make plans ahead.
Opportunities and Threats are external issues. They may be government policy, the economic situation of your country, weather conditions, an outbreak of a disease, change in the existing technology, or activities of your competitors.
Let us look at the innovation of electric cars. While it is an opportunity for industries producing electric components, and may also lead to the elimination of fuel costs in the transport industry, it is an excellent threat to oil-producing companies and refineries.
Step 5: Operational Tactics
Operational tactics are the ways you carry out your operations and the methods you use to achieve your set goals. Whether your business is just starting or you are running a big company, it is ideal to have a laid down principle to follow. Operational principles also include plans on how you source your materials and how your resources are distributed. It also includes your recruitment policy. Generally, the operating strategy may consist of:
- Allocation of roles and duties.
- Procurement of services.
- Development of products and services.
- Quality control.
- Distribution of products and services.
- Customers relation
- Managing the supply chain.
- Recruitment and training of staff.
- Cost minimizing techniques.
It is necessary to have a good plan in place on how to manage all these processes and not live each day as it comes. According to the CEO of Thinking Dimensions Global, Tim Lekwo: “Those Who get stuck on their paradigms perish.”
Step 6: Measurement
There must be a yardstick for measuring your success. And it must be part of your business strategy. It will help if you put in place a useful technique for measuring progress and achievement periodically. As you measure the progress of the business as a whole, you must also measure the progress of each department as well as of each staff. The best business strategies are the strategists that can be measured for effectiveness.
What makes a good business strategy?
It is easier to read this guide than to build your strategy. That is why you must have a business strategy template. The best business strategy you can have is to have a business strategy template. It does not need to be an elaborate book.
For a small business strategy, a page where you can get your plans organized is fine. It must contain your financial plans, sales strategy, production strategy, business development strategy, business growth strategy, business exit strategy, and every other thing that we have discussed in this guide.
For example, Pepsi decides to increase sales globally; they will work through their business strategy step by step. The company would start from the corporate level strategy, then the business strategy; after this, the company will set long term and short term goals. And after doing a SWOT analysis, they would implement the strategies accordingly.
Business Strategy Examples
Stop for a second and think of some of your favorite companies and their best business strategies.
Let’s consider Ryan’s air. Their strategy, similar to that of Southwest, is based on cost leadership. Everything they do is aimed at ensuring the lowest prices for their customers. They only fly to smaller airports, have a standardized fleet of Boeing 737s, and don’t offer any free meals.
In comparison, Qatar or Virgin Airlines have a completely different approach. They both target smaller segments of customers who want a premium flying experience. They have a focused differentiation based on the excellent customer experience and the provision of many perks.
Let’s look at another industry. UK based clothes store Primark targets a mass market and promises the lowest prices. They have a focused cost leadership strategy. On the other hand, Burberry has a focused differentiation strategy. Their approach is built around offering luxury merchandise and providing a high-end customer experience to a niche market.
The Final Word
Before going into a business, you must have a strategy, but it is not rocket science. The best business strategies for small businesses work perfectly for big companies as well. First, you must have visions and missions and set up SMART goals. Your goals must be your motivation factor. But you must ensure your goal is simple; it is measurable. It is achievable and realistic. And that it can be realized within a reasonable period. Also, define your core values. And do everything to commit to your core values.
You must also identify your strengths and weaknesses. These are the internal factors that may affect the success or failure of your business. And identify your opportunities and threats as well. They are the external factors that may affect your business chances.
Then design your operational strategy and make sure you measure your progress. A business strategy template will help you to organize all these.