Business Strategy 101

What is Business Strategy

Business strategy is important for every single company, large or small. It allows the company to have a specific plan, picture or vision of not only want it would like to achieve, but how they’re going to do it. Strategy is the “how” of businesses. Having processes that are utilized with efficiency and efficacy, are quality-centered, result in an increase of customer satisfaction while increasing profit, are all benchmarks that companies want to get to. However, what good are those benchmarks if there is no plan on how to achieve them? This is the purpose of strategy in business.

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Leaders and managers can use business strategy to get to the next these next levels and gain competitive advantage. While planning is important, the companies that gain the most competitive advantage through business strategy link strategic planning to operational decision making (Gluck, Kaufman & Walleck, 2014). This may seem simple but it’s so important. If a company designs and implements a business strategy to streamline a business process, for example, but doesn’t talk to the employees carrying out this strategy? From experience, it creates quite a few problems that could have been avoided. Systems, processes, and workflow streams can look great on paper and perform horribly in production. This is exactly why the framework of connecting strategic planning to operational decision making is brilliant.

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The business strategy can be formulated through the use of three mechanisms: planning framework, planning process, and corporate value system.  Planning framework consists of multiple levels. These levels include product/market planning, business-unit planning, share-resource planning, shared concern planning, and corporate-level planning (Gluck, Kaufman & Walleck, 2014).  Product/market planning is the lowest level of strategic planning. This level of the planning framework is usually where product, price, sales and service are planned. The competitors are identified and the people who are planning typically accept a predetermined set of business economics. Business-unit planning can be complex and is where the majority of the strategy is planned. It’s essential that this stage of the strategy is accurate because the business-unit plans tend to become the platform in which the corporate strategic plan is based off of (Gluck, Kaufman & Walleck, 2014). Shared resource planning allows the company to overlap the resources being used for different departments. This can be seen between the R&D department and market research. A lot of the same resources will be used to plan for the business strategy, which cuts down on costs for the company (Gluck, Kaufman & Walleck, 2014). Shared concern planning is just another term meaning everyone is on the same page in regards to the strategy. Multiple departments can have the same concerns and these needs to be shared to ensure the end result is successful. Corporate-level planning takes the strategic plan global. Up until now in the process, everything has been segmented into certain business units. However, the company, as a whole, needs to align on business strategy as well. Corporate headquarters have a responsibility to meet the objectives of worldwide technical and market trends (Gluck, Kaufman & Walleck, 2014). The next step in developing and formulating business strategy is the planning process. We have the framework down, now what? As much as a framework is helpful, strategies need to be flexible and creative. That’s why the most successful companies in regards to strategic planning are always challenging the thinking of their employees. There are four components to this type of approach. These components include: stressing competitiveness, focusing on a theme, negotiating objectives, and demand strategic insights (Gluck, Kaufman & Walleck, 2014). Developing a successful strategy is not easy. It takes a lot of critical and big picture thinking. This is hard for a lot of people. Top management can have meetings to challenge employees involved with formulating the strategy. Knowing your competitors can make or break the company’s business strategy. You need to know their pipeline, how they think, what resources they have, and how your company can be a step ahead of them. Focusing on a theme allows the planning process to not get out of hand. Personally, when I start to think of a strategy I can use to tackle a task-my mind can go in a hundred different directions.

If companies can stick a theme, the end result can be achieved much quicker because everyone involved in focused. The strategic theme can vary depending on the task at hand. Perhaps, it’s a focus on international business, new processes, quality control, or alternative channels of distribution (Gluck, Kaufman & Walleck, 2014). Using this approach does have its limitations and only works for thinking ahead, not getting a business unit out of a current predicament. Negotiating objectives between corporate headquarters and business-unit general management is another way to challenge the strategic thinking of individuals. This goes back to the beginning of this essay, strategic planning has to align with operational decision making. Let’s say a specific business unit wants to increase market shares but will, alternatively, not making any profit during that time. It’s corporate headquarters job to offer ideas that can make the objective for a particular business-unit possible (Gluck, Kaufman & Walleck, 2014). Demanding strategic insights is going to help the company as a whole gain competitive advantage. If each business unit manager can come up with goals, innovative ideas, and business advantages they wish to achieve, top management can look at this and review them. I have to direct quote this CEO within this article because I couldn’t of said it better myself. He states “If you can’t tell me something about your business I don’t already know, you probably aren’t going to surprise our competitors either” (Gluck, Kaufman & Walleck, 2014). I love this quote because it explains precisely the importance of formulating a business strategy to gain competitive advantage. The last mechanism used to formulate a business strategy is the corporate value system. There are four common themes that can be seen in a strategically managed company. One, there is a value of teamwork that leads to flexibility with task-oriented companies (Gluck, Kaufman & Walleck, 2014).. This could not be truer, in my opinion. Having a group of collaborative and open-minded individuals can lead to incredibly innovated strategic planning. Two, there is a commitment to get the job done (Gluck, Kaufman & Walleck, 2014). There has to be a drive from top management to get down to the bottom of the problem and strategically find their way to the top. I think it’s important for executives to get down to the ground level of businesses and really find out what’s going on. Relying on hearsay from other employees without substantial data and seeing it for their own eyes might lead them in the wrong direction. Three, as mentioned above, having open communication instead of confidentiality will make a difference (Gluck, Kaufman & Walleck, 2014).

Of course, there are certain topics within a business that do need to remain confidential. My old CEO used to say “Silence leads to negative speculation” and man, was he right. Having transparency within a company will lead to at ease employees and might even render increased participation from them if they know the end goal.  Four, there is a shared believe that the company in in charge of their own future (Gluck, Kaufman & Walleck, 2014). Having this line of thinking is going to fuel innovative ideas within the company and lead to a more success business strategy than the thinking of being cornered into a predetermined destiny.

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So far, we have discussed the purpose of business strategy, why and how leaders use it to gain competitive advantage, and the process of formulating a business strategy. Now, it’s time to move on to the purpose of the company’s vision, mission, purpose, philosophy, and goals. Every company should have a vision and mission statement, a general philosophy in which they run, and goals they would like to achieve. However, what purpose do they serve? Vision and mission statements directly relate to the purpose of the company. They generally express who the company is, what they value, and where they are headed (“Principles of Management”, 2015). For example, Starbucks has a mission statement that describes their principles and communicates the organization’s values. Toyota is aligned the same way. They all go hand in hand. It’s important for consumers to understand what’s important to the company. Often times, if consumers can align with values of a company, they’re more likely to become loyal consumers. This also leads to an increase in competitive advantages. Consumers need to know that companies are run by humans just like you and I. Being able to relate to the company on a personal level is going to drive sales and customer relations. A vision statement does differ slightly from a company’s mission statement. While the mission statement state’s the company’s purpose, the vision statement takes that mission and creates a forward-thinking vision (“Principles of Management”, 2015). A vision statement is generally future-oriented and declares the company’s purpose and aspirations. I think of it as a big picture statement. If consumers can relate to where the company wants to head, this puts the company in a positive light and, again, creates an opportunity to gain competitive advantage. Another purpose of the mission, vision, values and goals of a company is that the business strategy can come from them (“Principles of Management”, 2015). They all serve the purpose of relating the customer to the company but are also good for strategic development and competitive advantage.

There are different levels of management strategy that make up the hierarchy. All of them have been discussed above: corporate, business-unit (operational), and functional/departmental levels (Oakley, 2016). There were a couple of articles that included an additional level as the groundwork of the hierarchy: mission and vision. I have to agree with this. Without a relatable mission and vision, the company won’t be able to gain competitive advantage as successfully. Secondly, the business strategy is often leveraged off the mission and vision statements, making them an imperative part of the hierarchy. Let’s face it-the consumers run the economy. Without consumers purchasing-what’s the point of producing product? That’s why I feel that the fourth level to include the vision and mission is pertinent. The corporate level builds off of the mission and vision, too. It breaks down the vision statement into a plan of action with steps, processes, and an end goal of obtaining the correct company objective (Oakley, 2016). This is going to allow the company to be on top and gain competitive advantage in the broad sense. This is the big picture-thinking level. Goals to gain competitive advantage might include overall goals of the corporations, decisions centered around which types of businesses to be involved in and which ways the businesses will be managed (Oakley, 2016). The business-unit or operational level aligns with the objectives created in the corporate level. It’s the level that links the business units with corporate. These two units are connected both in objectives and functional strategies to create opportunity for optimization (Oakley, 2016). At this level, decision around production, marketing, finance, and operations will be discussed. All of these topics are crucial to gaining competitive advantage. Making a product at an affordable cost, with good quality, and selling it at a cost that makes the company money-all takes strategy. The operational level strategies are more specific, but similar to the operational level and can be catered to a produce a more focused outcome (Oakley, 2016). Examples such as target markets, pricing, distributions, product development and advertising. This level is nitty gritty and needs to be perfected as strategies produced at this level are going to directly affect the consumer. Again, creating a positive relationship with the consumer is going to help the company gain competitive advantage.

Now a days, there is competition all over the place. It seems as if every week, a new company is entering the marking, trying produce the latest and greatest product or service. Veteran companies are struggling to keep up with new and innovative “young” companies. How can companies be different? This is where differentiation strategies come into play. These strategies can help relay messages to consumers to keep their interest and let them know that your company is still the best. As with just about any decision in life, differentiation strategies come with pros and cons. A positive that comes out of differentiation strategies is that you put yourself in a niche (Leonard, 2018). Take the medication Cosentyx, manufactured by Novartis Pharmaceuticals. When first launched, their primary indication was for psoriasis. It took off at a wild speed, until-other manufacturers started producing medication for psoriatic arthritis. Sales dropped, customers found better pricing elsewhere, and this results in multiple layoffs from a company that never thought they would have to go down this round. However, they were then approved for an indication of rheumatoid arthritis. Boom-they’re back in the game. Instead of focusing their advertising towards psoriasis, they took the avenue of catering to psoriatic arthritis patients. Of course, the medication still helps people with psoriasis, but they found better success with psoriatic arthritis. By using this differentiation strategy, they are now back on top and a leader in the industry. This lead them to the next pro of differentiation strategy: creating a customer base that raves about your product (Leonard, 2018). By differentiating the product, they created a fan base that didn’t have a bad word to say about the medication. It solved their problems and they were very satisfied! Which means their word of mouth advertising rapidly increased and, in turn, their sales increased. Their customer service was exceptional and they were making more money then they knew what to do with. There are also cons with differentiation strategy, what goes up must come down, as they say. A company’s differentiation strategy might be “too over the edge”. These are strategies that are taken too far and consumers are buying it, literally and figuratively. Take weight-loss advertisements, or anything with a money-back guarantee. Sometimes, too good to be true is just that, false. Eat whatever you want and still lose weight, they say. Most consumers are going to know that you’re full of it and not buy the product or service. Another con to differentiation strategies is that the company is going to, inevitably, exclude some consumers (Leonard, 2018). Strategies that are different in nature, are going to be specific. Sometimes, being too specific can be detrimental to the company. You might gain some consumers in one aspect and lose consumers in another. Companies that focus on children might lose out on adults and vice versa. A company cannot make every person in the entire world happy, so it’s normal to not be able to please everyone. You just don’t want to get so specific that it hurts the company in the long run because you are missing out on valuable consumers to purchase your product.

References:

Gluck, F., Kaufman, S. & Walleck, A. (2014, August 01). Strategic Management for Competitive Advantage. Retrieved from: https://hbr.org/1980/07/strategic-management-for-competitive-advantage

Korsakiene, R. (2004) Determining competitive advantage: The analytic hierarchy process, Journal of Business Economics and Management, 5:4, 205-215

Leonard, K. (2018, June 29). Pros & Cons of Differentiation Strategy. Retrieved from: https://smallbusiness.chron.com/pros-cons-differentiation-strategy-21452.html

Oakley, S. (2016, September 24). Hierarchical Levels of Strategy. Retrieved from: https://www.linkedin.com/pulse/hierarchical-levels-strategy-stanley-j-oakley/

Principles of Management. (2015, October 27). Retrieved from: http://open.lib.umn.edu/principlesmanagement/chapter/4-3-the-roles-of-mission-vision-and-values/

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Daniel Fortune

Daniel Fortune is a successful business professional, entrepreneur, father, and lover of travel.

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