LETS TALK ABOUT…BUSINESS STARTEGY.
Business strategy refers to the actions and decisions that a company takes to reach its business goals and be competitive in its industry. It defines what the business needs to do to reach its goals, which can help guide the decision-making process for hiring and resource allocation.
A businessman has to mod iffy his plans and actions in the light of the moves made by his competitors. Every business has a strategy, whether expressed or implied…
NEED
In almost every case, it is ideal to retain customers than to constantly chase new ones. And this is one major area where business strategy is extremely necessary. In the absence of a sound business plan, you will find it hard to generate customer loyalty. Businesses that have no specific guidelines on how to cater to existing customers risk alienating the later, and a competitor can easily snatch them out of your hand just by emphasizing on customer service. So, what you need to do is develop a robust system of follow-up where calls are made and emails are sent to repeat customers not only to ensure that their products are operating properly, but also to let them know that your business cares for them.
The Three Types of Business Strategy
In his 1980 book “Competitive Strategy”, Harvard professor Michael E. Porter laid out three different types of strategies in business: differentiation, overall cost leadership, and focus. Any of these business strategies can be effective in the long term, but each has its own priorities for resource allocation. Which fits your business growth model?Differentiation: Companies undertaking this strategy must prove to the customer that they are different (and better) than the competition. A differentiation business strategy is less concerned with price. Your company can command higher prices for products or services because they stand out in some way; they are worth the extra money. Your long-term strategy is to cut costs in the areas that don’t contribute to your differentiation, so you can remain cost competitive. Starbucks, for example, charges more for its coffee than Dunkin’ Donuts. But it differentiates itself by focusing on high-quality products and sustainability, and by cultivating a brand image as the coffee of choice for the busy professional (while ‘America runs on Dunkin doesn’t have that same exclusivity).
Cost Leadership: This is an easy business strategy to implement. The whole goal here is to be the cheapest provider of your product or service. Wal-Mart is the perfect example of cost leadership. They focus on providing a wide range of goods — — you can buy almost anything there, from Easter baskets to caskets — at rock-bottom prices. For most small business professionals, this strategy is out of reach. It works for large companies because they are selling on a massive scale. But you don’t want to reduce your profit margins when you have fewer customers.
The Three Types of Business Strategy[4]
In his 1980 book “Competitive Strategy”, Harvard professor Michael E. Porter laid out three different types of strategies in business: differentiation, overall cost leadership, and focus. Any of these business strategies can be effective in the long term, but each has its own priorities for resource allocation. Which fits your business growth model?Differentiation: Companies undertaking this strategy must prove to the customer that they are different (and better) than the competition. A differentiation business strategy is less concerned with price. Your company can command higher prices for products or services because they stand out in some way; they are worth the extra money. Your long-term strategy is to cut costs in the areas that don’t contribute to your differentiation, so you can remain cost competitive.
Cost Leadership: This is an easy business strategy to explain, but it’s difficult to implement. The whole goal here is to be the cheapest provider of your product or service. Wal-Mart is the perfect example of cost leadership. They focus on providing a wide range of goods — — you can buy almost anything there, from Easter baskets to caskets — at rock-bottom prices. For most small business professionals, this strategy is out of reach.
Focus: Unlike differentiation and cost leadership strategies, a niche business strategy focuses on one small portion of the market. You’re fulfilling a need that perhaps fewer people have, but there’s less competition from other businesses. Think about craft beers, or nursing scrubs. Your marketing efforts are targeted, which can make them easier to hit. If you’re advertising your dog food in Dog Fancy magazine, you’re definitely reaching people who own or are interested in dogs.
Formulating a Business Strategy
The 6 steps described here will guide you in formulating a strategy; they involve looking outside and inside your organisation, thinking about how you will deal with threats and opportunities as they present themselves, building a good fit with strategy supporting activities, aligning resources with goals and organising for execution.1. Look outside to identify threats and opportunities: There are always threats in the external environment: new entrants, pressures from suppliers e.g. single point of failure, substitute products your customers are drawn to, your customers purchasing power etc. The external world also presents opportunities: new technology, unexploited market and so forth. So ask yourself these questions:
What is the economic environment in which we must operate and how is it changing?
What opportunities for profit lie before us?
What are the risks associated with various opportunities?
2. Look inside, at your resources, capabilities and practices: Resources and internal capabilities can be a constraint on your choice of strategy, especially if you are start-up with few employees and fixed-assets. A strategy can succeed only if it has the backing of the right set of people and other resources. So ask yourself these questions:
What are our competencies? How do these give us an advantage over the competition?
What resources constrain or support our actions?
3. Consider strategies for addressing threats and opportunities:
Create many alternatives. There is always more than one way of doing things.
- Assess what key information you are missing to better assess a particular strategy, and then get the information.
Vet the leading strategy choices among the wisest heads you know (this does not need to be your team).
4. Build a good fit among strategy-supporting activities: Strategy is more than just winning customer; it is also about combining activities into a chain whose links are mutually supporting and effective in locking out your competitors. Your competitive advantage comes from the way the activities fit and reinforce one another. For example, if you are an airline company and your strategy is based on a rapid gate turnaround, so you can make frequent departures and better utilize your aircraft assets, this will support the low-cost, high convenience proposition you offer to customers. Each of these activities supports the others and the higher goal.
5. Create alignment: Developing strategy is half the job. The other half is creating alignment between the strategy and the people and activities of the company. In other words every employee at every level must
1) understand the strategy and
2) understand his or her role in making the strategy work.
Alignment also involves other resources: marketing must be focused on the right customers, bonuses must be aligned with behaviors and performance that advance the strategy, and physical assets must be deployed — aligned with the highest goals of the organisation.6 Be prepared to implement: After you have a strategy you have a free hand in organizing around it: hiring people with the necessary competencies, acquiring the right equipment, structuring resources, and so forth. As UCLA’s Alfred E.Osborne Jr has put it, “I think of the 4 S’s: structure follows strategy, and staffing follows structure, and you hold the strategy together with systems.”
If your strategy is disappointing you must be willing to
1) recognize the bad news and
2) respond quickly with a revised strategy.
A start-up business should be viewed as an experiment. If the experiment fails to produce the desired results, be prepared to change — and quickly.
