For many people, business strategy is a little bit of a mystery. Often, it is said that to know the true meaning of what business strategy is, you have to be super senior in the corporation. It requires a lot of job experience and looks pretty complicated. However, it’s not true, and business strategy is simple. It’s a plan to create value. It is how a business plans to create that value; that’s the company’s business strategy.
What is a business strategy? Business strategy is probably one of the most overused words in business. Most managers use it daily or even hourly, but if we look at the majority, quite a few people don’t even know what strategy is, or they make it way too complicated.
If you look closer at that choice, there are two building blocks that you have to focus on; the first one is who is my customer and the second important building block is to figure out how you are going to make your customer happy fancy word for this is called a value chain.
How is Business Strategy Important?
What is a business strategy importance? Any firm must have a competitive strategy in place to be successful and to have a competitive advantage. A strategy considers the available resources and how to best use them to accomplish its stated desired goals.
As a result, a strategy is frequently referred to as the lighthouse for a company’s management because it unifies the activities of all functional areas and provides its staff with a Northstar to help them make decisions on a daily basis.
Let’s use the example of a corporation that does not have a strategy as to how it will perform in a market to illustrate this idea even more clearly:
The lack of a strategy would result in disorganized operations in each department, which would restrict the effectiveness of the organization as a whole. This incoherence inevitably leads to a loss of competitive edge, which the market will take advantage of.
All organizations and their workforce need to be aware of their desired goals and the path they are following to achieve them.
What is a business strategy without a plan? It is comparable to putting its employees in the desert to follow mirages in quest of water. Your workers will haphazardly move from one activity to the next without a clear destination or focus, never knowing what to prioritize.
1. 6 Components of Business Strategy
1.1. Business Objectives and Vision
The primary purpose of a business strategy is to achieve the business objective. It provides the business with a vision and directions to help set targets, as well as clear instructions about what needs to be changed, how it should be done, and who is responsible for it.
1.2. SWOT Analysis
SWOT analysis is Strengths, Weakness, Opportunities, and Threats. Every good business strategy should include a SWOT analysis because it enables the company to do a rundown of the company’s strengths and opportunities as well as helps in highlighting the threats and weaknesses of the company so that there are no problems during the smooth running of the business.
1.3. Core Values
The core values of a business are significant, and different departments and executives working in the business should be aware of them. Core values are the “do’s” and “dont’s” of the company, and these help everyone be aware of the goals and mission of the company.
The business strategy also includes a method to monitor the business’s production, analyzing how everything is functioning concerning the goals that were established before the strategy’s implementation. This assists you in staying on track with deadlines, goals, and budgetary concerns.
Many business strategies define the operational details of how work should be completed to maximize efficiency. People in charge of tactics know what needs addressing, saving time and resources.
1.6. Resources Allocation Plan
A business strategy specifies where you will do the resource allocation needed to accomplish the strategy, how the resources should be allocated, and who will be in charge of doing so.
2. Levels of Business Strategy
What is a business strategy levels? The successful use of various business strategies results in the achievement of the corporate objective. The activities of each employee, client, and investor of the company are governed by different business strategies depending on their position within the organisation, even if they are all focused on achieving a similar corporate aim.
Three categories of business strategies exist:
2.1. Corporate Level Strategy
The highest and broadest level of the company strategy is the corporate level. The business plan is what lays out the parameters for what has to be accomplished and how the company is expected to do it. It establishes the organizational goals, mission, and vision for everyone.
2.2. Functional Level Strategies
The many departments of the units determine the functional level strategy. The departments include promotion, sales, operation, finance, and CRM, among others, but are not limited to those. These functional-level strategies are only intended to support day-to-day activities and choices required to implement unit- and corporate-level strategies, uphold relationships between various departments, and achieve functional objectives.
2.3. Business Level Strategies
Business level strategies are a unit-specific strategy that varies depending on the business unit in question. A unit may consist of various goods or channels that run in entirely distinct ways. These units develop methods to set themselves apart from the competition through competitive strategies and to match their goals with the overarching company mission.
3.Business Strategy Doesn’t Begin with Focusing on Profit
Of course, it’s natural to look at financials. What is a business strategy and the margins, what’s profitability, what’s the return on invested capital, and that, of course, shows the result of strategy. It’s an endpoint. It’s a consequence. It’s not actually where we start.
The strategy is about looking forward, seeing the future, and planning for the future. For starting part, we should consider how much value we have to create. Value for customers, value for employees, and value for suppliers.
3.1. Value Stick
Value is the difference between willingness to pay and willingness to sell. Value is the difference between willingness to pay and willingness to sell. Value for customers, value for employees, and value for suppliers.
Imagine there is a figure named as value stick, and literally imagine that at the top, we have the willingness to pay, and at the bottom, we have the willingness to sell, and the difference between the two is the value that the company creates.
Willingness to pay describes a customer-centric company mindset. It’s the extreme a customer will be willing to pay for the products or the services the company offers. Charge me once cent more, and I’m better off not buying.
Now, the company is not going to give away its products, of course, and so overcharging a particular price, the price has to be below the willingness to pay; otherwise, people will not buy.
I go to a cafe shop every day. The success for customers is just a difference between willingness to pay and price. Suppose a person has a lot of trouble waking up early in the morning. So, his willingness to pay for his first cup of coffee might easily be around $7, $8.
There is a lot of value created for customers. Customer delight, the difference between willingness to pay and higher prices, is significant.
Willingness to sell is a little less spontaneous than a willingness to pay. Willingness to sell is the lowest amount of compensation that an employee would accept and still work for this particular company. So imagine a person trying to sell.
A person could sell his work to company A. He could also sell his work to company B.
How does he choose between the two? How fabulous is the job? How interesting is it? Will he like his colleagues? Value for employees is the difference between compensation and their willingness to sell.
It’s a measure of the quality between what the person is looking for in work and what the company can offer.
So the total value that is made will be the difference between willingness to pay and willingness to sell, and then it gets split three ways. Some of it goes to customers. That’s the difference between willingness to pay in price. Some of it goes to employees; that’s the difference between willingness to sell and compensation and the middle wedge.
Ultimately, how profitable an organization is reflects the amount of overall value creation. That’s the margin of the company. That’s financial success.
4. How to Raise Willingness to Pay?
So one natural question is, how can we raise willingness to pay? And there are really three buckets.
The first is the product or service’s quality, which might imply very things differently to various people. However, people are willing to spend more the better the quality, the more effective the goods, and the more appealing the service.
Then there are two ways to increase willingness to pay that are a little less obvious. The first one is with the help of complements. A compliment is a product or a service that supports the willingness to pay for something else.
The third is network effects. For some products, in some situations, the more popular the product is, the more widespread its adoption, and the greater the willingness to pay. Social media is a great example. If everyone is using Snapchat, it’s much better to be on Snapchat. The willingness to pay will increase as the adoption of Snapchat increases. Here it showed what a business strategy for willingness to pay is and how to raise it.
5. How to Lower Willingness to Sell
There are really two ways to be more attractive in the market for talent. The first one is that the person should pay more money, and from the point of time someone pays more, of course, they will be much more competitive in the marketplace for talent. The second option that seems similar is to make the job a better job and create more attractive working conditions.
There’s no value created. Value is just redistributed between the company and the people who work for the company. Here it is shown What is a business strategy and how to lower the willingness to sell.
6. Key Steps to Uniqueness
So, the main goals are to determine what a business strategy is and what makes it unique, as well as to determine how the business is going to make their customer happy in a unique way so that this customer is willing to spend money and increase sales for what the company offers. The word unique is one of the keywords in this definition.
Most people have grown up in the world of sports. If it were asked who won the ICC fast last year or who became a world champion, probably, people would know the answer. Still, if it is asked who came in the second, it will become much more complex, the same way if we look at the world of business, it’s not about being the best, but it’s about being unique, and in most of the industries there is room for three to five players that can have a long-term healthy return.
When someone creates a business strategy, it lasts for a specific amount of time. Research indicates that, on average, across all industries, a business strategy lasts about seven years in some industries. It is the business owner’s responsibility to choose where you’re going to compete to find that unique spot, then don’t stay competitive to be the perfect aim to be unique.
Here it is answered that what is a business strategy without uniqueness. In industries such as software, they will be in difficulties after one and a half to two years, whereas in industries such as energy, the business will last longer. One of the critical factors that affect the length of the business strategy’s healthiness is the company and the way assets are deployed; if the person has to invest more, other people are less likely to move in.
6.1. Update Strategic Plan by Time
So, what is a business strategy if it will not last for some time, so the owner doesn’t have to do a business strategy exercise every year? It’s essential to update the business strategy.
We always like to say strategies are like yogurt; if we leave it out of the fridge for too long, the taste becomes quite bad.
If we look at the overall strategy execution framework, one of the building blocks is updating the strategy. The reason for that is that it’s healthy to check every year the choice we have made; it does not mean that we have entirely changed our whole strategy, but keeping minor checking is suggested.
It is always suggested to do it before the budget exercise, and in most organizations, if we have an annual cycle, it will be around July or August. Here is an answer to what is a business strategy way to get updated over time.
6.2. Business Strategy Example
What is the business strategy of Reckitt? The brand portfolio includes well-known household names like Dettol, Vanish, and Durex. Even though few customers are familiar with the company’s name. To get back on a path of steady growth, the company had to alter its business plan in 2012 due to sluggish sales and growing competition.
As part of the new business strategy Reckitt Benckiser:-
- Focused upon R&D for new product lines, which enabled it to accomplish its high-level goals to boost sales and margins;
- Increased its spending in markets with above-average growth to encourage additional expansion;
- Reckitt Benckiser revised its brand and marketing strategies and boosted spending in those areas; while not meeting all of its goals, and the company could outperform the market on sales and profit growth because of these changes.
6.3. Emotional Motivation
The second test is to see if people get emotionally motivated or not. Profit earned doesn’t motivate most people in an organization, so we need to fix an emotional motivation so that it triggers people to be involved.
A Business strategy is an essential part of the company’s output. It decides the growth and the revenue generation of the business. The lack of a strategy would result in disorganized operations in different departments, which would restrict the effectiveness of the organization as a whole. Therefore, a good business strategy is vital to keep up with the fast-paced corporate-level strategies.