What is Business Strategy?
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What is Business Strategy?
Business strategy is a planned approach toward a commercial activity. It involves the direction of the organization in achieving a short-term goal or long-term mission.
Strategy considers the use or configuration of resources within the business environment to achieve an intended goal. It is not specific actions, rather it is a general method of approaching the business activity in order to achieve an intended outcome or goal.
A strategy is largely mental and it entails approaching each business task (operations, marketing, sales, financing, etc.) from this strategic perspective.
A strategy employs tactics, which are the actual tasks or procedural maneuvers used to achieve a strategic objective.
Business Strategy As a Plan
Strategy is best understood as a plan of action that incorporates various other components, such as theory, development, and implementation.
Per the management theorist, Henry Mintzberg, strategy includes any “means by which and individual or organization achieves is objectives.” These means include:
• Plans - This is an informal or formal intended course of action.
• Patterns - Prior repeated behavior acts as a guide to our future behavior.
• Positions - Locating one’s self or resources with the intention of accomplishing a purpose.
• Perspectives - An outlook concerning how things are done and a vision as to where a company is going.
• Ploys - Ploys are synonymous with tactics. They are a specific actions intended to achieve a result.
See our article, Mintzberg’s Five Ps of Strategy
At the most basic level, strategy can be understood as a process or general orientation toward achieving an intended outcome. The strategy is drawn from a purpose and provides direction in carrying out that purpose. Perhaps the best way of defining strategy is by comparing it to tactics. If a person wants to achieve an objective, s/he will develop an approach for achieving that objective. The individual actions the individual takes in furtherance of achieving that objective are tactics. Here are some examples to illustrate the distinction between strategy and tactics:
• I am in a negotiation with you. I know that I will need to uncover specific information about your bargaining position. I then plan on using that uncovered information to persuade you to see my point of view. Uncovering information with the objective of persuading is a strategy. My tactic in the initial strategy may be to get you intoxicated and talking haphazardly.
• An alternative strategy would be to leverage your lack of information and attempt to coerce you against your will. In this scenario, my tactic may be to lie about information and threaten to expose that information if you do not comply with my demands.
In summary, strategy is a planned course of action that is general in nature, but the purpose of the course of action is clearly understood. A tactic is an individual action taken as part of that general plan.
Back To: BUSINESS STRATEGY
Concepts Central to Understanding Strategy
There are numerous concepts relevant to a companys strategy:
- Market - The market for a good or service is made up of two groups. The first group is made up of all of the potential users or purchasers of a good or service. The second group is made up of suppliers of the good or service.
- Competition - The market is full of companies seeking to supply the goods or services that customers will use or buy. These companies compete with other suppliers so that customers will use or purchase their goods or services rather than the goods or services of another company. This is known as market competition.
- Supply and Demand - Supply and demand is a concept in economics. It says that customers will purchase a certain number or amount of products or services at a given price. If the price is lower customers will purchase more of the goods/services. As the price rises, customers will purchase less of the goods/service. As customer demand for a product/service increase, more companies will enter the market and compete to provide those goods/services to customers. The increased number of competitors offering the goods/services means that companies will compete by lowering their prices compared to other competitors. This will attract more customers to that company. In turn, other companies will lower their prices to sell their products. The effect is to push down prices - which will increase demand for the product. Supply and demand will float back and forth and gravitate around a market equilibrium.
- Core Competency - A core competency is what an organization does best. It concerns its abilities based upon acquired knowledge, skill, resources, and relationships.
- Competitive Advantage - Companies that are competing with other suppliers in the market are always looking for a manner of attracting customers to purchase their products/services instead of the product/services of other companies. If a company figures out a way to compete better than other companies, this is known as a competitive advantage. There are many types of competitive advantage. Some examples might include: greater efficiency in production, lower-cost materials, higher-quality product/service, increased company recognition by potential customers, a better reputation with potential customers, legal rights that prevent others from competing (such as patent rights), etc. All of these provide a competitor with an advantage over other suppliers of the good/service.
- Stakeholders - A stakeholder is only with an interest in the organizations success. The mission and vision generally take into account the needs, preferences, and exceptions of those interested persons. When developing a strategy, managers will determine who are the stakeholders, how the strategy affects them, how will stakeholders react, and what will be the effect on the firm.
- Business Model - A business model is a method that a company uses to provide its value proposition to a customer and receives value in return. A simple business model is to buy a low-cost good and sell it to a customer at a higher price. A more complicated model might be to attract visitors to a free website, record the users demographic and preference information, and sell access to marketers seeking to advertise to this specific demographic of customers.
- Comparative Advantage - Comparative advantage is when individuals focus on their specific functions and become highly specialized. In turn, these individuals are less proficient in a wider variety of functions. They combine their efforts with those who specialize in other areas. The result is greater productivity by working together.
- Synergy - Synergy is when two or more elements of a companys operations (or two completely different companies) come together to produce more than could otherwise be accomplished individually. This is generally as a result of increased efficiency or lower costs of production. Synergies between individuals generally occur when individuals specialize in particular functions rather than be generalists. For example, a computer programmer and engineer may be able to produce greater value by working together than individually. The same applies to collaborations between companies. For example, a plastic production company and a steel company may be able to supply raw materials more effectively by combining their resources.
Each of these concepts is discussed in greater detail throughout the strategy material.