Business Strategy
From Entrepedia: The Entrepreneurship Wiki
Formulating a strategy is really about deciding what the objectives of the business are, and developing an overall strategy for how they should be achieved within the business environment. This should be done in a way that best takes advantage of the company's resources and core competencies (what it does best - its key competitive advantages). Strategy formulation then needs to follow a process that includes:
1) Understanding where the business is now: externally - in terms of its markets, customers, competitors and general business environment - and internally, in terms of its resources and competencies (SWOT Analysis).
2) Outlining objectives for the business in terms of where it wants to be - in order to continue towards (and hopefully also to thrive and grow in) the future (Vision Statement and Mission Statement).
3) Developing strategies and tactics for the business as a whole - and the different functions with in it in order to achieve these objectives (Planning Strategy).
Fig: Business Strategy
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Business Strategy in the Real World
In the real world a company's business strategy is not about business definitions and summary of relevant markets - it is instead a unique formula for success that forms the foundation of a business plan as well as governing day-to-day operations. To be effective it should cover one or two key factors that distinguish the firm from its competition and are most expected to contribute to the firm’s long-term success.
In its simplest form a company’s strategy should be no longer than one page. And even this should be reducible to one sentence - covering what is the business really there to do - what is its core value proposition. This then both adds focus to the business and allows it to be easily and frequently communicated to employees so that a cohesive business focus is always maintained.
Why Develop a Strategy?
Ok; 'Strategy' is one of those hugely hyped up words that makes most people cringe, but following a good, distinctive strategy will ensure that a business builds, maintains, and continually strengthens a specific identity - a 'core personality' or proposition of 'what the business is there for' in the marketplace. This is critical in business today and it applies equally from one-person start-ups to global conglomerates:
- A good simple well articulated strategy also serves as a starting point for annual business planning - where the strategy becomes the nucleus around which an annual business plan is developed.
- It will also then form a framework for helping to deal with the usual mid-term deviations from the plan - as the general once said: even with a good battle plan 90% of things change after contact begins - so without a good strategy and a good plan you are definitely in trouble.
- A clear strategy is also particularly important in ensuring that the different functional areas in the business have a consistent direction - helping to keep the business pulling in the same direction and also saving time by minimising
- A well done strategy also endures year after year meaning that it will tie together one year’s business plan to the next. This will enable the company to easily build upon the accomplishments of the previous year.
Without a clearly defined or closely followed strategy, however, companies of all sizes tend to lose sight of their direction - when they run into temporary difficulties, or when management starts to act purely tactically, with no thought for the rest of the business.
Ironically it is small businesses - where each person often handles more than one function - that are in the most danger here. They generally have limited time and resources and yet often waste them: e.g. when after having had a few moderately successful years they start to add completely unrelated product lines or services to their offering that only muddy their identity. This tactic shows customers that the management has no clue as to what the nature of the business really is.
Putting a Strategy in Place
Many business owners say that they don’t have time to develop a strategy. This is not true they already have objectives of what they would like the business to achieve and an idea of what needs to happen to make it happen. However if it is just in their head: not written down or shared with there team and employees then it is not as effective as if it has been explicitly laid out - on just one piece of paper.
Planning a Strategy
The main thing about putting an effective strategy in place is just starting it …now! If you can its great to be able to get the main members of the team together for a couple of days and break out the three main questions:
- Where are we?
- Where do we want to be?
- How are we going to get there?
If this is not possible to do in one go then set up a project team to get you going and just do four 3 hour sessions spaced out over a period of four weeks. Half of the benefits will be gained just from getting your team to think about these things explicitly and then discuss them and plan a way forward. Remember:
- SWOT Analysis: Understand your company's Strengths, Weaknesses Opportunities and Threats.
- Vision Statement: Where do you want to be?
- Mission Statement: What are we going to do to get there?
- Planning Strategy: Plan for Success.
Of course, once you have your business strategy essentially figured out, it is still important to remember to do an annual review!
