What is Strategy? Choose the Best Approach for Business Growth
A business strategy is typically the difference between success and failure for firms. They need an approach to navigate the complexities of a cutthroat economic landscape. Their survival depends on a sound strategy because they face numerous challenges daily. Given that it is an integral aspect of any business, exactly what is strategy? It is a plan that defines the direction taken by a business to generate growth. There are many types of strategy, so it is important to pick the right one. There is no one-size-fits-all approach. For example, a tech firm requires a strategy tailored to its concerns. It will, however, be counterintuitive to follow that same strategy for a manufacturing company. Hence, this article aims to answer the question, “what is strategy” and elaborate on different types of strategy that can help a firm unlock its true potential.
What is Strategy?
There are many answers to the question of what is strategy but it is largely a plan of action conceived to achieve a long-term goal amidst uncertainty. LIn other words, it is a rough outline of how an individual or an organization will act to attain its goals despite challenges.
Which brings us to the next question—what is strategic planning in the realm of business? It allows businesses to make decisions about which new markets to tap, how to differentiate products or services, compete with rivals, and sustain success in the long run.
A business can analyze internal weaknesses, sniff out external threats, and formulate plans to mitigate concerns and leverage growth opportunities. Here’s what an effective strategy requires:
- It comprises actions focused on achieving a desired outcome
- A strategy helps to deal with situations that do not unfold according to a plan
- Most strategies typically decide how to deploy limited resources toward their respective goals
- It is designed to fulfill targets over a long or short period
- Finally, a plan might need adjusting over time; hence businesses must constantly evaluate the performance of a strategy and make necessary adjustments if required
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What are the Main Types of Business Strategies?
Now that we know the answers to what is strategy and what is strategic planning, let’s take a look at the three main types of business strategies:
1. Corporate-Level Strategy
A company’s top management defines the overall direction of the company in this approach. It reflects on various aspects, such as the sectors in which the business should invest, whether it should rely on acquisitions or a growth strategy, and how it should deploy resources among different business units.
For instance, General Electric (GE) started as an electric lighting company that diversified into multiple industries. As a result, the company is involved in a wide range of businesses, such as appliances, health care, and financial services. This decision helped the company expand its revenue streams, allowing it to become a multinational behemoth.
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2. Business-Level Strategy
A company focuses on executing its plans within a particular sector or industry under this strategy. It explores problems such as:
- Identifying the company’s competitive advantage
- Targeting its customer base effectively
- Selecting the products or services on offer
A business-level strategy can be categorized into four groups:
A. Cost Leadership Strategy
It involves offering the lowest possible price to customers. To pursue this strategy, a company needs an efficient operation and a strong hold on cost control. For example, Walmart uses a cost leadership strategy because it offers low prices to customers. The company obtains an affordable price by negotiating with suppliers, using its massive logistics, and nurturing a large workforce.
B. Differentiation Strategy
Most companies opt for this strategy, which focuses on offering products or services that are unique and different from competitors. Through this strategy, a company can corner a bigger share of the market. However, it requires a sustained investment in research and development and marketing.
For example, Apple uses a differentiation strategy by launching products known for their innovative design and ease of use. The company can then command a premium price for its products consequently.
C. Focused Cost Leadership Strategy
In this approach, a company sets a lower price than competitors in a specific niche market. As a result, it can earn better profits and build strong customer relationships. It is also known as the growth strategy, as companies stand to expand their market presence, revenue, or profit.
Southwest Airlines is a classic example of how a company can earn millions by offering low fares to customers, flying point-to-point routes and running a tight ship.
D. Focused Differentiation Strategy
If they adopt this strategy, companies must offer unique products or services in a specific niche market. To do so, they can develop new products, services, processes, or business models.
Tesla and Rolex are two relevant examples of this category. Tesla offers electric vehicles that are perceived to be more luxurious and sustainable than those offered by competitors. It is also more expensive than its competitors. Rolex caters exclusively to the luxury watch market. It enables Rolex to earn huge profits and maintain its status.
3. Functional-Level Strategy
A company ascertains how its individual departments can support its business-level strategy. It deliberates on issues such as improving its marketing, product development, and customer service. These strategies are chiefly developed by middle managers.
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How Can Businesses Determine Which Strategy Type is Best for Their Operations?
A business needs a competitive strategy to sustain itself. It is not enough to know what is strategy, but also how to leverage the right one.
1. Define Goals
It is important to specify clear business objectives to truly understand what is strategy and execute the same, such as revenue growth or market share expansion. Furthermore, a firm needs to thoroughly analyze market trends, the competitive landscape, and regulatory factors.
2. Assess Resources
A company must know its Strengths, Weaknesses, Opportunities, and Threats (SWOT analysis). It should know its core competencies and deploy resources according to availability to ensure there are no shortages or disruptions to operations.
3. Learn Customer Needs
A company must identify cohorts that can be targeted based on demographics, preferences, or other criteria. Knowing the needs and pain points of target customers can help determine which strategy will help solve their problems.
4. Position Competitively
It is only possible to come up with a competitive strategy once you analyze the competition. A profile of existing and potential competitors gives businesses a chance to understand how to disrupt existing market dynamics.
5. Assess Risk
A firm must be aware of all the risks and potential outcomes. A good deal of understanding what is strategy means having to identify the risks associated with each strategy. It is, thus, crucial to map the company’s risk tolerance so the ability to mitigate risks is clear subsequently.
6. Consult Experts
It is prudent to reach out to industry experts, consultants, or advisors who can provide valuable insights and recommendations. They can help the firm benchmark against industry peers and best practices to gain perspective on adopting a successful strategy.
7. Iterate Consistently
A critical part of understanding what is strategy is acknowledging that it is not static. A firm has to evolve continuously to accommodate a changing market. Hence, it should monitor performance metrics and customer feedback to rank its strategy and make adjustments.
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What are the Key Components of Implementing a Successful Business Strategy?
1. Resources
Firms must use their financial, human, and technological resources to execute the strategy seamlessly.
2. Leadership
A firm needs a strong leader at the top, just like a ship needs a captain. It is essential for implementing the strategy because insightful leaders can make all the difference when it comes to choosing the right strategies.
3. Communication
The organization should communicate the strategy to everyone because it can only be effective if all stakeholders are on the same page.
4. Plans
A well-defined plan makes things seamless as it guides specific tasks, timelines, responsibilities, and performance metrics.
5. Accountability
The spirit of accountability must cut through the organization. Everyone, from individuals to teams, should take responsibility for their roles in executing the strategy.
6. Measurement
Every firm should define its Key Performance Indicators (KPIs) and metrics to track progress and evaluate a strategy’s efficacy.
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In conclusion, firms without a strategy must swim against the tide in a highly competitive business environment. Emeritus offers a range of strategy and innovation courses that are designed to shed light on what is strategy and its intricacies. These courses are curated by industry experts who do not compromise on practical insights relevant to the field, regardless of whether you are a newcomer or a veteran. Enroll in one of these courses and commence your journey to becoming a successful strategist today.
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