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HomeBusiness and AccountsHow the Business Strategy Provides a Competitive Edge to the Business?

How the Business Strategy Provides a Competitive Edge to the Business?

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The organizations need formulation of documents, policies, rules and regulations to run the businesses but to implement these is more important to fulfill the goals and objectives of the organizations. The formulation of policies, rules, regulations, their implementation, taking decisions and performing actions to achieve the goals of the organization is called business strategy. Adopting appropriate business strategy is crucial for the profitability and sustainability of the organization. In this post we will learn more about the business strategy and its components.

What is Business Strategy?

The business strategy is a set of decisions and actions performed to achieve the goals of the organization. Formulation of strategy is important but the most important part is to implement this strategy. The strategy is basically future course of actions to be performed for the sustainability and growth of the business. It provides a roadmap to the organization to achieve its goals and objectives.

Why the Business Strategy is Important?

Every business sets some goals, some of which are short term and some are long term goals. Without proper planning and strategy, it is very difficult to achieve these goals. In today’s competitive business environment, formulation and implementation of business strategy is very crucial. Below are given some reasons, why the business strategy is important for the organization:

Vision

Business strategy gives a vision which acts as a binding force for all the workforce working in the organization. The employees of the organization become motivated when they have clearly defined roles and responsibilities which is are in synchronization with the high level goals and objectives of the organization. A strategy provides a shared purpose for whole of the organization and ensures that everybody acts according to that purpose.

Trends

The business strategy requires identifying and analyzing future trends and opportunities for future growth. The decisions and actions of the organization must be adjusted according to the trend and business environment. Thus the strategy should be dynamic resource so that the businesses can modify it according to the changes in the market and industry environment. By doing this the businesses will remain competitive.

Competitive Advantage

Proper strategic planning enables organization to understand its strengths and weaknesses and ultimately helps creating competitive advantage for the organization.

Planning

Business strategy requires proper analysis and making informed decisions as per various factors. Proper planning is a prerequisite for formulation of an effective business strategy. Therefore, this is a benefit of business strategy that the organizations do planning for future actions to be taken.

Strengths and Weakness

Before finalization of any strategy, understanding of strengths and weaknesses of the organization is crucial and the future course of action depends upon this. Hence formulation and implementation of business strategy helps the organization in understanding its strengths and weaknesses.

Levels of Business Strategy

Although the high level objectives of any organization are same for all employees and units of the company but the strategy at different levels of the organization is different to achieve these objectives. The business strategy is basically classified in three levels.

Level 1: The Corporate Level

It is the highest level of strategy in the organization. It is basically a business plan which sets the high level objectives of the organization and ways to achieve these goals. Business strategy at this level provides the shared mission, vision and objectives for every employee of the organization.

Level 2: The Business Unit Level

An organization may have may business units and each business unit require different business strategy according to the business it is doing. Therefore, business strategy at this level is specific to a business unit and differs for different business units of the organization. The point to keep in mind is that although the strategies of different units may be different but they must be aligned according to the mission and vision of the organization.

Level 3: The Functional Level

Different departments within the business unit have different roles and responsibilities and therefore they make and implement their own strategies. These departments may include operations, sales, marketing, customer relationship management, supply chain, etc. and therefore business strategies at this level is specific to the department according to the function it is performing. The strategies of these departments are also aligned to the high level objectives of the organization but are mainly focused on fulfilling functional goals and to maintain relationships and coordination between different departments.

Main Components of Business Strategy

Business strategy is a complete roadmap to fulfil the long term goals of the organization. It encompasses the vision of the organization and action plan to implement the strategy.

The key components of the business strategy are as follows:

Vision, mission and values

Shared mission, vision and values are essential ingredients of a business strategy. The mission and vision of a company are typically in the form of written statements. A mission statement is a way for the company to communicate the purpose of its existence. It is usually a short paragraph explaining the company’s purpose, culture, values and ethics. The mission statement is used to motivate employees and to assure the investors for the future of the company.

Similar to the mission statement, the company must have some vision statement, usually in the written form. A vision statement is a business document which describes the current status and future objectives of the company. The vision statement should be aligned with the mission statement and core values of the organization. The vision statement of the company may change according to the changing business environment, long term objectives of the company, etc.

The vision statement is a crucial part of the business strategy because it sets future targets of the company and provides the guidance to the strategy. A good vision statement acts as a motivational force for all the employees of the company.

Long term objectives of the organization

Long term objectives of the company are also a part of the business strategy as they detail what to be achieved by the company within a fixed timeframe. Unlike the vision statement, they describe the future goals of the company with timeframe to achieve these goals. The long term objectives of the company should also be in alignment with the mission and vision statement of the company. 

The long term objectives of the company may be divided into three categories:

Financial Objectives

There should be a roadmap of the organization which sets the targets of the company in financial terms. Setting clear goals for earnings, revenue and market capitalization are crucial for the progress of the organization. The financial goals of the company are tangible and visible. The financial goals may change as per the competitive environment and other factors.

Operational Objectives

Operational objectives give a clear- cut guidance to the organization that is crucial for the long term success of the organization. The operational objectives include the areas like material facilities, equipment, labor, processes, etc. and they should be aimed to give a competitive advantage to the company.

Market Objectives

Precise market objectives help company to secure a strong market position. This may have done by creating value for the customer, providing better quality, cost differentiation, etc. If you want to develop value based strategies, you must discover what your customer value and your strategy should be aimed to provide that value to the customer. Mission and vision statements are very helpful in creating these objectives for the organization.

The ultimate thing is that the core of business strategy adopted by the organization should be customer satisfaction. If the customer will get the desired value, then only the business of the organization should be sustainable.

SWOT Analysis

SWOT analysis is very useful in understanding the external and internal factors that might affect a business. SWOT analysis is the analysis of strengths, weaknesses, opportunities and threats of an organization. While the strengths and weaknesses are the internal factors, the opportunities and threats are external events which may be beyond the control of the organization. Strength analysis is the identification of internal capabilities of the company which can be transformed into competitive advantages. Understanding the weaknesses of the company can avoid you such situations which may harm your business. If you clearly recognize the opportunities, you can use them for the benefits of your business. Understanding the threats may warn you ahead of such situations and you make take necessary steps to avoid or mitigate harm to your organization.

Action Plan

Implementing the business strategy is as important as formulating a good strategy. The action plan, describing the step to step procedure for implementing the strategy must be a part of the business strategy.

The action plan may be classified into three parts:

Operational Plans

Operational plan depends upon the type of business your company is doing. Different businesses have different operational functions. If you are a software company, then the operation may include preparation of software, marketing and support. If you are into manufacturing of some product, then the operation may include supply, fabrication, production, marketing, customer support, etc. Therefore, the operational plans are prepared to smoothly run the operations of the company.

Management Plans

Management plan includes the planning of management functions like administration, human resources, etc.

Contingency Plans

There are some contingency plans which should be in place to deal with the unexpected situations. It may include the risk analysis, risk response and mitigation plans. Combining the SWOT analysis with the action plan should be very helpful to anticipate potential disruptions by correctly identifying internal and external factors.   

Conclusion

Business strategy is like a road map for sustainability and growth of the organization. Every organization should therefore formulate and implement an effective business strategy. A business strategy is beneficial for the organization since it provides a vision and competitive edge to the organization and keep every stakeholder aligned towards achieving high level goals of the organization by communicating share mission, vision and objectives to them. The business strategy is prepared and implemented at three levels, namely, corporate level, business unit level and the functional level. The main components of business strategy are mission, vision & value, long term objectives, SWOT analysis and action plan. The implementation of the business strategy is as crucial as its formulation. Remember that ‘the smallest of implementation is the greatest of intensions’. Therefore, the management should pay attention on incorporating an effective action plan to implement the strategy and make sure that it is actually being implemented as per the stipulated plan. A business strategy is a core to the organization and provides a competitive advantage to it, therefore utmost care should be taken by the management to formulate and implement it properly.

Also read: Blue Ocean Strategy: From Cut-Throat Competition to Creating New Market

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Rajesh Pant
Rajesh Panthttps://managemententhusiast.com
My name is Rajesh Pant. I am M. Tech. (Civil Engineering) and M. B. A. (Infrastructure Management). I have gained knowledge of contract management, procurement & project management while I handled various infrastructure projects as Executive Engineer/ Procurement & Contract Management Expert in Govt. Sector. I also have exposure of handling projects financed by multi-lateral organizations like the World Bank Projects. During my MBA studies I developed interest in management concepts.
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