What is Business Strategy
Business strategy is the chosen decisions that guide a company towards its goal (usually greater profitability and success).
All companies need a strategy of some kind, and should reconsider it as the business environment changes.
But, there are two types of business strategy, as mentioned in my book, The GOSPEL of Strategy:
Winning Strategy that provides the impetus for a company's success; and
Losing Strategy that leads to a company going out of business.
Therefore, understanding what constitutes Winning Strategy is crucial if a company wants to succeed. Conversely, simply labeling every plan and decision 'strategic' is a sure way to fail. Many companies get into trouble due to a poor understanding of the concept called Strategy. They paralyze themselves by creating a strategy so complex that it clouds everything.
The most important characteristic of a Winning Strategy is its simplicity. Simple strategies are easy to communicate, understand, and implement. As a result, all stakeholders (CEO, shareholders, executives, factory- and shop-floor employees) would be clear about the company's strategy.
Let's repeat this point (due to its importance): the crux of Winning Strategy is that it must be as clear, simple, and compelling as possible.
Benefits of Business Strategy
Winning Strategy is helpful because it provides a lot of clarity, such as:
Clarity about the goal that the company wants to achieve.
Clarity about the company's future direction, its sense of purpose and meaning, and the progress made by the company.
Clarity about the company's available options.
Clarity about the company's strengths, i.e., areas where it can be successful.
Clarity about the company's weaknesses, i.e., areas where it is vulnerable or failing.
Clarity about who the competitors are and what are their strengths and weaknesses when compared to the company's.
Clarity about which customers to focus on and which customers to exit.
Clarity about how the company is going to achieve the goal.
Clarity about how the company is making money (i.e., the company's business model).
Clarity about where the company should concentrate its resources (e.g., people, effort, and money).
Clarity about who the target customers are and what products/services they want/need (or will want/need).
Clarity about which products /services (either existing or new) to offer to the customers and which produces/services to stop.
Clarity about what capabilities/skills the company needs to add/strengthen.
Clarity about the actions, systems, and culture that the company will take, build, or adopt.
Clarity about which latest technologies and trends to look out for.
The process of developing (and implementing) a strategy would clarify all of these things. Beware if your strategy doesn't give you these clarifications. It is likely to be a Losing Strategy.
Careful: These Ain't A Strategy
In the Pandemic of Losing Strategy, I laid out many things that are actually not a strategy but are often mistaken as a strategy. For the sake of a brief refresher, here are a few things most often mistaken as a strategy (remember: they are related to strategy but are not a strategy):
Vision /Mission statement. For example, "Our strategy is to be a leading player in our industry." While aspiring, this statement doesn't clarify where exactly the company is going, nor how it will realize the statement. As you can see, a vision/mission statement is not a strategy.
Goal statement. For example, "We will reach $100m in sales." Again, this is merely an aspiration. It doesn't tell the company how to achieve the $100m.
Budget/Business Plan/Balanced Scorecards. These are all detailed plans you make to implement a strategy. They are the implications of a chosen strategy but not a strategy.
Data and Analysis. While they are essential in formulating a strategy, they aren't a strategy (data needs to be turned into insights, while analysis needs to be turned into decisions). Furthermore, creating an effective decision requires creativity, i.e., beyond pure analysis and data.
How do you know if something is a strategy? As we mentioned before, a strategy should make clear the followings:
Which customers to target and to ignore.
Which produces/services to offer and to abandon.
Which activities to take and avoid.
Which options to pursue and let go of.
Which skills to develop and to kill.
Why is clarity so important? Because I have seen, far too many times, unclarity gets companies into trouble, especially when the environment changes.
Top Tips To Help You Make An Effective Strategy
Here are five useful tips that can help you make an effective strategy.
1. Create a unique, differentiating position for the business.
Be clear on: 1) who your customers are (cannot be everybody): the attractiveness of your offer to them (i.e., why will they buy); 3) how you will deliver the offer efficiently (this is how). If you do them correctly, you will have a unique offer, your own market, and you won't have to compete on prices. W Chan Kim and Renee Mauborgne called this concept the Blue Ocean strategy (i.e., not swimming in the bloody red ocean).
One famous example of this is CNN. Before CNN, for many years, the US TV networks used the same format for their news program (i.e., they were all aired at the same time, competed on the popularity of the presenters, and their analysis of the outdated event). This changed in 1980, when CNN launched real-time news as it happens (not outdated), 24-hour news (not at a specific time), and not using popular presenters (80% cheaper costs). As a result, the viewers liked CNN better as they could watch it at a time that suited them, not having to fit around a TV channel schedule.
2. Consider the availability of resources.
Resources (such as money, time, and people) are limited. Therefore, a sensible decision must be made about how to deploy them to the most significant benefit.
One famous example of this is British Leyland, one of the key players in the UK car industry during the 1970s and the 1980s. It tried to do too many things: trying to win all kinds of customers, it created so many different car types (without any clear differentiation between them). This spread the company's resources too thinly. Too many car types on offer led to poor designs from their product development team, diluted marketing efforts from their marketing team, and quality issues in their manufacturing sites. One simple decision led to a host of problems that eventually submerged the firm.
3. Ensure people understand the strategy and are committed to it.
Companies often forget that it is the people that deliver the strategy. If the people don't understand the strategy, they cannot work in a way that is consistent with the strategy, and progress will be haphazard. Therefore, explaining why the strategy is important to the company and the individual is crucial.
Furthermore, if people aren't committed to the strategy, they won't work hard to deliver it. As a company's leader, you must ensure all incentives (financial or not) are geared toward the strategy delivery. Once people understand and are committed to the strategy, progress will happen naturally.
4. Pay attention to the changes in the environment.
A strategy must be based on reality about the external and the internal settings, e.g., recent regulatory development, market trends, economic cycles, and political events. Indeed, strategies should not be changed often. But If these changes have made your strategy irrelevant, you need to change your strategy.
5. Be open to feedback wherever they originate.
It is a mistaken view to think that only the top executives can come out with ideas and feedback to improve the strategy. Good ideas and constructive feedback can come from anybody, anytime, anywhere. If you want to ensure your strategy retains its edge, be proactive in collecting feedback and ideas.
If you are interested to learn more about this, consider reading the guiding principles of winning strategy.
Continue to explore the secrets of winning strategy here.
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