What is a business strategy? Overview, examples and importance
- Definition of business strategy
- Reasons why you need a business strategy
- Elements of business strategy
- Examples of business strategies
What is a business strategy?
It is a set of planned actions, processes, and decisions that assist a business to attain its objectives. Strategies provide answers for eth question “how.”
What is a business objective?
Objectives are the results and outcomes that a business or management wants to achieve. For example
- Increase market share by 3% in the next 12 months.
- Reduce wastage by 5% in the next 12 months.
- Increase net profit by 3% in the next 12 months.
Why is it essential to have a strategy for your business?
Think about being in a pond full of crocodiles, and you have no idea about danger looming around. DEAD. Basically, you will keep on going deeper and deeper into the pond, thinking that you are having a good time. Instead, you are destroying your only chance of survival. That is why you need a strategy
1. Strategy teaches you about your competitor
Before creating a strategy, you will need to do a strategic analysis of your competitors to understand their strategies, business strength, and weaknesses. Such analysis will allow you to create strategies that are robust about the market condition and thus informing you about gaps that create opportunities for your business.
2. Strategies open your eyes to future uncertainties
By creating strategies and mechanisms to evaluate them occasionally, you learn to predict the future. Even though you may not have the capacity to be accurate all the time, you will be able to create a lock-system to manage unforeseen situations when they happen.
3. Strategies allow you to make quality decisions:
Strategies work with objectives. Apparently, the work of a strategy is to assist you in meeting objectives in the right way. With objective but no strategies, you are likely to make just any decision that seems to lead you towards your objectives
For example, you may just increase your spending on social media marketing to increase your market share. But that does not mean you will actually increase your market share. In many cases, marketing without a plan backfires horribly. Strategies sets limits, facts, and direction that you need to follow to meet your objective and thus protect your business from risks due to lack of information, ignorance, or poor judgment.
For instance, a strategy will tell you how to market on social media to increase your market share. Using proven techniques, it will guide your marketing team to follow the right procedure, spend the right amount, and focus on the right audience.
4. Allow you to measure success
Strategies are usually tailored to a specified duration. For example, you can have strategies for 12 months, 3 years, or 5 years. The fact that it is tailored on a specified duration allows you to measure the success rate of each action you take. The ability to measure success also allows you to set limits to each strategy, thus allowing you to make changes where necessary to keep on moving toward your objectives and goals.
5. Make your business relevant:
Having a strategy will inform you about the market need of tomorrow. It will tell you what the market wants and what it doesn’t want. It will also teach you ways to achieve what the market want. Therefore, having a strategy is relevant in making your business relevant and profitable.
Elements of business strategy
1.Mission and vision
A mission states the purpose of your business. Generally, It outlines the goals of your business and how you intend to achieve them. A vision is a desire that your business wants to achieve after a period, e.g., 5 years.
Why do your strategies need your vision and mission?
Both mission and vision set the boundaries for your strategies. A mission states what your strategy should do or not do.
For example, if you own an NGO, your mission may state that your main purpose is to help but not to make a profit. Therefore, the strategy should not focus on making a profit but on helping as much as possible. Vision, on the other hand, sets the standards for your business performance. If your vision states that you want to be the regional leader in the next 5 years, your strategy should mobilize resources to make the achievement of your vision possible. The mobilization of resources should include setting standards so that the operation can be aligned with the vision needs of your company.
2. Internal and external analysis
In the making of strategies, you need to understand the functioning of the business environment. Apparently, the external and internal environment are sources of useful information such as opportunities, weaknesses, threats, and strengths that exist in your organization as well as other organizations in the same industry. Such information is very important since it assists in creating boundaries and requirements for your strategies as well as make them realistic. Some of the strategic analysis tools that you can use for internal and external analysis include SWOT and PESTEL.
Objectives are short term aims that a business set with a goal to meet the vision of the company. Objectives usually run for 1 year. The purpose of strategies is to meet these short term aims with a goal of attaining the set vision of the company. Therefore, the objectives are like the skeleton of your strategies-you cannot have strategies without them.
Example of business strategy
Case: Let say you have a t-shirt business and you only have one outlet in NewYork city. Currently, you rely on referrals, Facebook ads, and Facebook organic leads to advertise. You have also started an Instagram account for it, but it is not doing well. Your conversion from Facebook ads is less than 10%, meaning that it is not doing well. However, you are struggling to make a profit, and you have just learned the importance of setting objectives and strategy for it.
Summary of objective and strategies based on the case provided
Objective example: increase net profit by 2% in the next 12 months
- Carry out market research to identify the right customers for your t-shirt business
- Create a page for your business and sign up for Facebook groups that are related to your niche
- Focus on contributing to those groups to create a name for your page
- Start posting t-shirt designs with no intention of selling but creating engagement
- Concurrently, retarget your ads based on market research findings
- Sign up of online selling platform such as eBay
- Avoid wastage by sourcing from affordable suppliers
- Only offer free delivery in bulk purchase
Clearly applying these strategies to your t-shirt business will go a long way in assisting you to earn a profit of 2% in the next 12 months. These strategies are designed with purpose, and they try to identify what you are not doing right to prompt you to make the right changes.
A strategy is not a stand-alone item; it is something that is developed through intuitive thinking.
To create the right strategies, you need to have a vision and objectives
Strategies should reflect internal and external factors that influence your business
Strategies should be simple to follow and understand