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What is a Business Strategy and Why Is It Important?

In fact, any business can be compared to a game of chess. In both, every move matters. But what if you don’t know which pieces to move and where? In both chess and business, you need a strategy. Without it, you risk getting lost in the sea of competition, won’t be prepared to face reality, and your business may be doomed to failure.

What is Business Strategy?

Business strategy (BS) is essentially just a plan for a company to reach its goals and stay competitive in the market. An interesting fact: Over 70% of companies that grow at an accelerated rate usually have strategic or business plans, or other tools for long-term planning in their arsenal. It provides an understanding of how the company will stand out among competitors, what resources and efforts are needed for success, and many other aspects.

Every BS has one main goal – to ensure the long-term development and prosperity of the company. It is an internal document of the company. It indicates the main directions of development, strategic goals, and, most practically, the methods of their achievement.

Unfortunately, only 68% of executives are confident that their company is good at developing strategy. So let’s discuss the components of a successful strategy in more detail.

So, when we do an external analysis, we’re checking out the competition, keeping an eye on industry trends, and even looking at things like laws and regulations that might affect how we do business.

Then, with internal analysis, we’re taking stock of what the firm brings to the table—its resources, what it’s good at, and any challenges it might face.

But there are several other important components of a successful BS:

AspectDescription
Goal SettingSeeking specific long-term goals that the company wants to achieve.
Competitor AnalysisStudying the strengths and weaknesses of competitors. Seeking opportunities for differentiation.
Risk ManagementIdentifying potential threats and risks that may affect the execution of the strategy. Developing methods to minimize them.
InnovationDeveloping new and improved products or services to meet customer needs and remain competitive in the market.
Monitoring and AdaptationTracking the implementation of the strategy. Also, it involves analyzing results and making adjustments to action plans based on market conditions and customer needs.

Let’s consider an example of how this can work. Suppose a hypothetical company “X” has decided to enter a new market and target a new consumer segment. They can follow the example of Amazon, which developed a strategy to expand its business by creating cloud computing and streaming services.

The Importance of Business Strategy: Key Aspects and Significance

A group of people in business suits are conversing.

As discussed earlier in the article, business strategy is a very important component of a company’s success. A strong strategy can also guide decisions about communication channels.

For instance, the company might decide to prioritize a user-friendly website with clear contact information, including a business phone number, to enhance customer experience. It determines its direction of development and its advantages in contrast to competitors. 

Furthermore, it helps business owners and managers optimize resources, make informed decisions, and have action plans in place to address risks in advance.

3 key aspects of a business strategy. 

Setting Goals and Priorities

First and foremost, it enables the company to clearly define its goals and priorities and create a framework for the entire organization. Setting how to write smart goals can help ensure that objectives are specific, measurable, achievable, relevant, and time-bound. It helps each employee understand what they are striving for and what steps each link needs to take to achieve the common goal.

In highly competitive niches, this is the only way to keep a finger on the pulse. Moreover, the strategy becomes the basis for making sensible decisions at all levels of the company.

For example, let’s imagine an automobile manufacturer that decides not to develop electric models and instead stick to traditional gasoline cars. They fail to develop a strategy and have no plan of where they are headed.

All this happens while their competitors are actively investing in electric vehicles and attracting the attention of environmentally conscious customers. The result? The manufacturer loses market share, and revenues begin to decline.

Effective Resource Utilization

BS also helps a company efficiently utilize its resources. This often involves cost management and identifying priority investments.

For example, there’s a retail chain that doesn’t analyze the effectiveness of its content marketing campaigns. They spend significant funds on advertising in traditional media. They completely overlook the fact that their target audience spends more time online and looks for information about products and services there. As a result, the advertising campaigns fail to bring the expected flow of customers. Such a company incurs losses and fails to recoup advertising expenses.

If the company had developed a more rational strategy, it could have directed its advertising efforts online. After all, that’s where its target audience is. This would have led to more effective results and increased profitability.

Risk Assessment

Ultimately, business strategy allows a company to assess and be prepared for the risks it may face in the future. It’s insurance for the business: minimizing potential threats and making the company more resilient. For example, if a company doesn’t create a Plan B for economic crises or analyze potential changes in legislation, it becomes vulnerable to external risks.

Imagine a food manufacturer that relies solely on one supplier for certain raw materials. When this supplier encounters problems with production or transportation, significant issues arise. As a result, production is halted, and revenues start to decline.

Or consider a technology company that fails to protect its patents and intellectual property. When competitors start copying its products and selling them at lower prices, it’s forced to lower prices for its own products. This ultimately leads to a decrease in its revenues.

If a company operates without a strategy, it’s simply drifting without goals or direction. This can lead to losing its ability to compete and missing out on opportunities for market growth. Therefore, creating and implementing a good BS is providing the company with stability and long-term success. Utilizing a log management platform can be a part of this strategy, helping the company to monitor and analyze its data infrastructure for better decision-making and early detection of system issues.

Business Strategy VS Business Plan VS Business Model

Business strategy, business plan, and business model – three key concepts. Each of them is necessary for successful enterprise management, but they have different functions and objectives. Moreover, they are often confused with each other. Let’s break it all down.

AspectBusiness StrategyBusiness PlanBusiness Model
DescriptionDefines the overall direction of the company’s development: goals, competitive advantages, and company plansDetailed document. Includes the company’s structure, marketing strategies, financial forecasts, and operational plansIncludes value propositions, customer segments, distribution channels, revenue streams, and key resources
FunctionDescribes key decisions aimed at maintaining competitive advantageTool for planning and managing company resourcesDefines the basic logic of how the business operates
FrequencyLong-termShort-termLong-term

In conclusion, a business strategy determines the overall direction, a business plan specifies the methods of achieving goals, and a business model defines the logic of creating value for customers and capturing market share. Together, these concepts form the basic elements of a successful business.

Levels of Business Strategy

Notepad showing a bar chart showing growth. 

BS evolves and is implemented at several levels within an organization. Each of them has its own characteristics and objectives:

  • Corporate level;
  • Business level;
  • Functional level.

Now let’s take a closer look at each of them.

Corporate Level

At this level, the company considers where it wants to go in the future. Issues such as where to expand, how to increase profits, and diversify its business are discussed. It’s the strategy at the overall company level: it determines which areas the company will operate in and how to use resources to stand out from competitors.

For example, the hypothetical soft drink company Dr. Fizzy may consider entering new markets by acquiring local beverage producers or diversifying its product portfolio by launching new brands. They may also explore expanding into related industries, such as packaging or water resources. 

Business Level

At this level, managers develop strategies for each individual business unit or division of the company. They take into account all the nuances and peculiarities of the market in which the company operates, as well as the competition and the desires of our customers. Such a BS focuses on achieving specific goals related to particular business processes and operations.

For example, speaking of the department of our fictional enterprise Dr. Fizzy, which deals with soft drinks, their strategy may involve creating new flavors or packaging to attract more customers and increase their market share. They may also actively promote their products through product recommendations, advertising, and partnerships with major retailers.

Functional Level

Specialists define plans and strategies for specific functional areas. These include marketing, finance, operations, and human resources management. They also consider the details of implementing business plans and ensure consistency of actions at all levels of the organization.

The marketing strategy of the hypothetical company Dr. Fizzy may involve increasing consumer engagement through active use of social media. It may also include developing personalized marketing campaigns and collaborating with influential bloggers and media personalities.

The financial strategy can be quite diverse in this case. For example, they could improve the capital structure, reduce operating expenses, and invest resources in new research or innovative projects. 

Each level of strategy is interconnected, allowing the company to operate like clockwork. Managing strategies at different levels helps the organization better adapt to changes and build its success on a long-term basis.

Implementation of a Successful Business Strategy

Wooden cubes with the letters that make up the word "Implement". 

Creating and implementing a cool BS is the key to success for any company. Due to poor execution, 67% of well-developed strategies have failed. So, for it to work to its full potential, it’s necessary not only to plan it perfectly but also to implement it consistently and systematically. In this section, we will look at the steps needed to achieve this desired successful strategy.

Here are the main steps of implementation:

  • Analysis of the internal and external environment;
  • Definition of goals and priorities;
  • Development of differentiated strategies;
  • Communication and involvement of employees;
  • Monitoring, evaluation, and adjustment.

Now let’s take a closer look at each one.

Analysis of Internal and External Environment

Let’s start by understanding the characteristics of your company – what your strengths are and what may be less successful. It’s also important to understand what opportunities exist in the market and what threats may lie ahead.

To do this, you can use tools such as SWOT analysis – this is when we evaluate our strengths and weaknesses, as well as opportunities and threats from external factors.

Or PESTLE analysis, where we analyze political, economic, social, technological, legal, and environmental aspects. And to conduct all this, you need real professionals: people who understand marketing, finance, and strategic management.

Definition of Goals and Priorities

Formulate clear and specific goals that you want to achieve with your strategy. Make sure your goals are SMART (Specific, Measurable, Achievable, Relevant, Time-bound) and, most importantly, derive from the company’s mission and strategic objectives.

To do this, you can use goal-setting methodologies such as OKR (Objectives and Key Results) or MBO (Management by Objectives). It is also useful to conduct strategic planning sessions. This is done with the participation of key stakeholders.

Development of Differentiated Strategies

Create different strategies for each aspect of your business. This includes marketing, operations, finance, and personnel management. Obviously, your strategies should be aligned with each other and support the company’s overall strategic goals. Therefore, it is also worth considering how one supports the other.

To develop strategies, you can use tools such as the Balanced Scorecard (BSC) to build strategic maps and determine key performance indicators (KPIs). It literally requires the involvement of specialists in strategic management, marketing, and finance. So, it is worth initially budgeting for the payment of the work of external or internal specialists.

Communication and Employee Engagement

Being a good leader, ensure understanding and support of your strategy among all employees of the company. Unfortunately, the vast majority – 95% of employees – do not understand their company’s strategy. They should clearly understand their role in achieving strategic goals. But the most difficult thing is to motivate employees to achieve them.

To do this, organize meetings, seminars, training, and presentations. During these events, the company’s strategy should be discussed. Involve employees in the process of developing the strategy and give them the opportunity to express their ideas and suggestions.

To ensure effective communication in the company and make employees feel engaged, you can turn to various tools. These are standard tools, but they work great. For example, use corporate portals, internal social networks, digital business cards for seamless networking and regular email newsletters.

Monitoring, Evaluation, and Adjustment

In 49% of organizations, managers spend only one day per month analyzing the implementation of strategies. This can be a sad sign for business success.

Regularly track and evaluate the execution of your strategy. It is easy to do when you compare the results with your expectations. But it’s even easier when you have a clear strategy and well-defined expectations.

Often, adjustments need to be made to the strategy to ensure its effectiveness and relevance. For this, monitoring and evaluating results are necessary. Business analytics systems such as Tableau, Power BI, or Google Analytics can be used to obtain data on key business performance indicators.

To properly analyze data and make informed decisions, it is often impossible without an analytics team. They know how to extract the maximum information from data. But most importantly, they offer recommendations for adjusting the strategy based on these analyses. So your decisions are always balanced and based on cold, clear data.

Conclusion

For your business strategy to work like clockwork, you need to follow certain steps. Start with a thorough analysis of the surrounding environment, and then follow each stage, including monitoring results. Transparent communication, employee motivation, and readiness to adapt are the keys to success. Only in this way can you achieve the desired results and stay at the top of the market.

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michaelrappa

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