Business Strategy: What You Should know about it
While it is important to have a well-defined and well-curated strategy, most of the organizations – especially the startups and even some big companies – get it wrong. So what is a strategy and how is it different from a business plan. This is what we will discuss in this article.
Let’s first understand the basics and then move on to the complex issues. Consider this: When a CEO is asked about their business strategy, the statements you might hear include –
‘Our business strategy is to help our customers do xyz.’ Or you might hear something like ‘our strategy is 100% growth this year,’ and you might also hear statements like ‘the strategy is to internationalize or to build the best product available.’
There is nothing wrong with these statements per se but none of these are in reality a business strategy.
If not business strategy, then what are they?
Well these are statements that define an organization’s goals, missions, tactics, and are descriptive statements.
So then what is a business strategy? What are its benefits and what do you infer by strategic thinking?
To put it mildly – the term ‘best’ becomes ambiguous for business strategy. For instance, you will never say that may the best man – well lose, right?
Right, because if you want the victory, you surely have to be the best from the rest. For example, the team who is best will win the championship or the army that is superior in strength, armory, and everything will win the battle.
Now the question is – what does ‘best’ mean?
What can be best for one customer may not be the best for another. So how do you decide what is best and what is not. Let’s take the example of Ferrari car. Is it a best car?
It is for some elite customers who can afford to not only buy it but also maintain it. Those customers will find Ferrari as the best car.
Now think of another set of customers – who look for fuel efficiency, mileage – for them Ferrari is just a luxury possession and not a best car. For these set of customers Toyota is the best car. Reason: It has got an excellent fuel efficiency.
So you see the perspective of ‘best’ is not objective and there are numerous ways companies compete with each other. Both Ferrari and Toyota have better economic performances as compared to their respective competitors, though with different strategies.
Understand this: A business strategy is not about how to be the best.
Then what is it? Keep reading to find out.
A business strategy, at its most basic level, is a set of long-term choices, which will differentiate one company from other. Remember that a business strategy is about the positon, and not the plan.
Strategy experts say there are four questions that will clarify your business strategy. Let’s have a look at those four questions and then see where do you stand in terms of successful business strategy.
But before that, it is important to note that: The business strategy’s success is measured in an organization’s ability to generate long-term profits. Usually it is the responsibility of the CEO for setting and communicating the business strategy to other employees.
Note: A strong business strategy will offer insightful answers to the below mentioned four tightly-coupled questions.
1. Where are we competing? The first rule of this question is to remember that you can’t please everyone. So you will have to select which customers you want to please with your business, which customer are you ready to lose because your strategy doesn’t suit them. The three sub questions to ask here include – which customer? which needs? and which/what price point? The answers to these questions define your unique business strategy, which can be different from your competitors.
2. What are the unique values do we bring? This is another important aspect of business strategy and you need to be clear on this. Remember that ‘better’ is not a strategy. Create an advantage with these two ways: Provide something that is different from your competitors and people are ready to pay more for it; have a lower cost-structure as compared to your competitors. Think about it: with no differentiation from your customer and at the same price there will be no economic returns for you. Differentiate from your competitors by improving the customer perception of your products and services. Remember: Marketing is equally important in business strategy as is innovation.
3. What are the resources as well as capabilities that we will need in order to succeed? The first thing to remember here is that ‘best practice’ is not a strategy. Business strategy is all about what you will do differently or uniquely that your competitors are not able to copy. A strong business strategy should be able to clarify what resources and capabilities will help you deliver your unique value proposition. Note that the essence of strategy is choosing what not to do.
4. Last but definitely not the least how are we planning to sustain our advantage? The most important step in business strategy and the important thing to remember here is that ‘denial’ is not a strategy. Consider this – if you have been able to crack the code and became profitable you will have competition. However, if you can defend yourself then you stay profitable.
So how do you plan your business strategy and how do sustain it depends on the business strategy professional you hire. Whether you yourself want to earn a strategy certification so as to successfully plan and execute a business strategy is purely up to you. So what are you waiting for take the next step right now.