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What is Business Strategy and Why its Important

Posted by Glassdoor Team

Career Advice Experts

Last Updated June 29, 2021

Guide Overview

What is business strategy?The parts of a business strategyTypes of business strategyCharacteristics of a successful business strategy

Guide Overview

Business strategy matters

An effective business strategy serves as a blueprint for the different aspects of running your business, from hiring to organizational structure. When the strategy matches the company's long-term vision, it helps ensure that everyone is working toward the same goals. Here we discuss what a business strategy is, how it develops, and why it matters.

What is business strategy?

Business strategy is the collective term for all the steps a company takes to reach its goals and achieve its mission and vision. It involves understanding what the business does, what it needs to have, and what it needs to do to reach those goals. That information drives decisions about how to allocate resources, both human and material. The strategy also helps set priorities when resources aren’t available to do everything at once. When everyone within the organization understands the strategy, it creates a framework to keep everyone working in the same direction. Though it is critically important to any business that wants to survive and thrive, business strategy is just one component. The business strategy definition is different from the company’s mission. The mission is what management wants the business to accomplish, while strategy is how it will achieve that mission. The company strategy is also different from business relationships with customers, employees, vendors, and others that create value within the economy. A strategy is also not the vision, which is a picture of what the world would look like if it truly achieved the mission.

The parts of a business strategy

While the terminology may vary somewhat according to the type of business, most successful business strategies include six components:

Vision

The vision of the company and objectives for bringing that vision to life form the basis of the organization’s strategy. Many strategy planning processes begin by restating the founders’ vision for the company. By starting with this vision in mind, company managers can stay true to the intended direction.

Values

The values of the company describe what is acceptable and what is not in pursuit of the vision. The values encompass ethical standards, legal requirements, and codes of conduct. You can often find these values featured prominently in the company’s offices and other facilities.

SWOT analysis

A carefully developed analysis of strengths, weaknesses, opportunities, and threats (SWOT) is a critical part of the strategy. This exercise helps define the business landscape thoroughly and capture details that might otherwise be missed. As often as market factors change, the SWOT analysis may need to be revised and reconsidered.

Tactics

Planned business tactics define how the company will get the necessary work done most efficiently. Tactics are plans to save the organization time and money by achieving tasks using the least amount of time, energy, and funds. Tactics are usually the purview of the people closest to day-to-day tasks rather than higher management. However, they are still an essential part of the overall business strategy.

Resource allocation

A resource allocation plan describes the distribution of resources of all kinds, including people, money, equipment, and materials. Once this plan is in place, it can help drive staffing, plant organization, and other vital parts of its operation. Resource allocation can be one of the most challenging aspects of strategic planning when resources of any kind are scarce. However, in those times, it is even more critical to allocate resources wisely.

Measurable successes

The business needs a way to measure the strategy’s success so that management knows when and how to make adjustments. Your measurable data points should follow the principles of SMART goals, meaning they are specific, measurable, achievable, relevant, and time-bound. The data chosen will vary by industry, but the measurements will almost always include gauges of market share, profitability, and relative competitiveness.

Types of business strategy

The complete business strategy for a company is actually a framework built of some targeted types of strategies aimed at a particular business area of the business. For example,

  • The marketing strategy is a plan for achieving the company’s marketing goals.
  • The human resources strategy is a plan for hiring, training, paying, and evaluating the performance of the company’s workforce.
  • The financial strategy addresses how the company will use or invest the money it controls.
  • The operational strategy is a plan for the day to day operations of the business.

All of these sub-strategies fit together like pieces of a puzzle to form the overall business strategy for the company. Management must understand how each sub-strategy interacts with the others. For example, pricing strategy and financial strategy directly impact each other. As one area changes in response to market forces, other areas must change to keep the pieces in proper alignment with each other.

Characteristics of a successful business strategy

A business strategy is only valuable if it works, and management uses objective measures to monitor its success. That’s why the plan should include a clear definition of what success looks like. The data points may include indicators of growth, market position amid the competition, and profitability, to name a few. Each category may have multiple points of data to measure and track at varying intervals. For example, product demand, the volume of repeat business, customer retention, and average sale are some possible ways to measure growth. Market share, growth rate as compared to competitors, and brand awareness are ways to measure market position. Gross profits, gross margins, operating margins, and operating profits are a few measures of profitability, also known as financial performance. While indicators of success should be constantly monitored, they are especially important after management makes strategic adjustments to see if the modifications bring the sought-after results.

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