Creating a business strategy is hard work. And as a business owner myself, at some point I wondered if I actually needed a strategy and if it really mattered.
Business strategy is important because it provides guidelines on what to focus on. Strategy directs an organization’s actions and explains how to compete in the marketplace. Connect business objectives, market conditions (opportunities and threats), and competitive advantages (strengths and weaknesses).
Of course, behind this short answer there are several mechanisms at work that give companies a competitive advantage.
What is important in business?
When starting a business (or completely overhauling one), your options are endless when it comes to questions such as:
- What products/services do we want to offer?
- Who is our ideal customer?
- Which competitors would you like to compete against?
- How should I compete?
It is the leader’s job to decide what the answer will be. (Note: I did not say that leaders have to come up with answers, nor did I say how decisions should be made.) If this is not done, opinions, values, There will be an uncoordinated mixture of views, abilities, and abilities. preferred direction. (The same applies to private businesses.)
If you were to make a list of things to work on, it would look like this:
What matters most in business?
- You need to be clear about who your perfect customer is and what value you want to provide her. Nothing is more important than knowing (or discovering) because no company can and should not serve everyone.
- Everyone needs to know exactly what they need to do to create that value.
- All activities must be supported by a thought structure or frame of reference that assesses whether the value to the customer is actually worth it or whether the ideal customer is a good fit. in short, Businesses need feedback mechanisms to make sure they are on the right track.
How does strategy impact business success?
Business strategy chooses the direction of all activities and focuses them by committing resources to achieving key goals for long-term success. As a result, most choices about what to do and how to do it to make a big difference in your chosen area are ignored.
Because business resources are limited, it is necessary to focus on a few key activities and objectives in this way. Pursuing everything and “keeping your options open” means spreading your efforts thinly. In today’s competitive environment, with five goals being pursued simultaneously, no company can win with even half the effort, let alone 20%.
By the way, I also wrote an article called “What makes a strategy successful?” It explores the factors to consider when designing a strategy and helps you find the right strategic direction.
Apart from resource focus, there are several common ways strategy influences business success. These typically include (of course not applicable to all companies under all conditions):
- The selected activity has a steep learning curve
- Build brand equity by better giving customers what they want
- Insulating effect (but not complete insulating) on ββsome market forces by occupying a defensible strategic position
- If you win a βstrategic betβ you will get above average profits.
- Understanding what to do, how to do it, and why to do it increases employee motivation
- Long-term success by building competitive advantage
There are many other ways strategy can impact your business. In my view, in summary, the right strategy can give a company a competitive advantage and dramatically increase its chances of thriving under almost any market condition.
What strategy do you use?
The big question, of course, is what is the right strategy? And the answer must be something unique. If a strategy is not unique, it cannot provide companies with ideas on how to create competitive advantage. If a second company built the same thing, there could be no such advantage.
However, strategies can be generally categorized. It helps companies understand what direction they can choose. Perhaps the most well-known concept is Michael Porter’s, which consists of his three general strategies: cost leadership, differentiation, and focus (or niche strategy).
The effectiveness of each strategy type depends on market conditions (external factors) and the strengths and weaknesses the company brings (internal factors).
I’ve already written about when differentiation strategies work best, so I’ll discuss the other two types in a little more detail.
cost leadership strategy
This strategy is most useful when a company is competing in a mass market and has the means to consistently keep its production costs lower than its competitors. The measures mentioned are usually some kind of advantage in technology, process, or material that is difficult to imitate. However, it has vertically integrated business units that provide necessary materials that others do not have (less transportation costs) or forms of access (e.g., that others need to purchase externally). This may also be due to
Key strategies
Focus applies when targeting submarkets. Usually it involves a high degree of specialization. It often involves focusing on a very specific group of buyers.
This type of strategy is usually adopted by small and medium-sized businesses that cannot cover the mass market.
Depending on the competitive environment, there is also usually a trend towards cost leadership and differentiation within the focus strategy.
Personal view on the importance of strategy
Speaking anecdotally, I can say that since developing my “inner strategist,” my business development has become much clearer. I can’t say it will be easy. But now I can see more clearly what the right and wrong decisions are. (As I said, it’s still difficult to do the right thing… π)
If you want to start working on strategy in your small business, I highly recommend Good Strategy/Bad Strategy by Richard Rumelt.
It does not overload topics with buzzwords from global players and focuses on the business environment as well as strategy in general. In fact, it helped me make sense of all the other strategy books.