The Key Elements of Business Strategy
Strategy is a complex concept, and one that cannot easily be defined succinctly. At its simplest, strategy is a series of decisions. At its most complicated, it is a web of evolving and changing processes that involves managing multiple priorities both at the ideological and the operational levels.
In business, strategic management is the direction and scope of an organisation over a period of time, as it matches resources to the changing environment – in particular the marketplace and the customers within it.
Respected business historian and Harvard professor Alfred DuPont Chandler defined strategy as “the determination of the basic goals and objectives of an enterprise and the adoption of courses of action and allocation of resources necessary for carrying out these goals.”
Organised strategy was born in the military campaigns of Ancient Greece. In fact, the word strategy comes from the Greek “stratos,” meaning army, and “agein” meaning “to lead.” In battle, strategy was linked to long-range planning and methods for directing operations. The concept of military strategy has remained constant from Ancient Greece through to the present time. In contrast, business strategy is a relatively young discipline.
But business strategy involves the same long-range planning and concepts. As in Ancient Greece, strategy deals with the planning of campaigns, the management and deployment of personnel, and the vanquishing of opposition. Modern business strategy is at once both structured and flexible. Organisations that develop the capability to act strategically are those that will shape their own destiny.
Strategy cannot be understood by examining the component parts in isolation. It is better understood by looking at it as a series of steps that makes up an overall plan. Strategy consists of a number of steps, or layers.
Vision is the image of an organisation’s desired place in the future. Visions help companies to conceive strategic plans. A vision sets forth the purpose or mission, and defines an organisation’s place in the world.
Strategic goals are statements of what a company wants to achieve. Goals are often tied to a company’s competitive position in the marketplace.
Objectives are the tasks that need to be undertaken in order to realise the goals. Objectives set out implementation of actions, take advantage of opportunities, and deal with threats.
Methods are the measurable steps to take in order to achieve the objectives. Methods take into account a company’s strengths and weaknesses, and take advantage of its capabilities.
Tactics support methods. Tactics are the tools and actions that will be used in order to achieve the objectives. These tools include the use of policies and the actuation of key decisions.
Within each step of a business strategy there are a number of key elements:
- purpose or mission – The purpose or mission of a company is a statement of why the company exists. It is part of the vision.
- definition – In order to pursue business, business leaders need to make decisions about what kind of company they have, and what kind of business they are in. In other words, who they are, and what they do. This is also part of a company’s vision.
- achievements – A company’s goals are to achieve strategic objectives. Once a goal has been achieved, the company can move forward in its strategic plan.
- competitive advantage – A company’s business advantages depend on where it is situated in the marketplace. Companies set goals of reaching a competitive position in the market and achieving growth.
Other key elements in business strategy are:
- opportunities and threats – A company achieves its objectives by taking advantage of external opportunities in the marketplace. Potential threats to achieving objectives are also assessed and plans are made to combat these threats.
- implementation – Implementation is the beginning of taking action. It involves making decisions about how objectives will be achieved and often involves managing organisational change.
- capabilities – Capabilities, or competencies, are unique advantages that a company’s competitors would find difficult to emulate. These could include skills, technologies, or reputation.
- strengths and weaknesses – A company’s strengths are those assets or activities that add value. How a company uses its strengths to advantage is an important part of strategy. Weaknesses are vulnerable areas of the organisation that could be exploited.
- policies – Policies are guiding rules or principles that outline ways or methods for taking action. Policies provide general guidelines, but allow some initiative and interpretation.
- key decisions – Key decisions are strategic moves that are of fundamental importance to a company’s future. They are the actions necessary to realise any plans. Key decisions often involve expenditures and shifts in policy.
A well-wrought business strategy is the foundation of any successful organisation. The conception, implementation, and realisation of that strategy depend upon an understanding of the key steps – the vision, goals, objectives, methods, and tactics.
Corporate and Competitive Strategies
While all business strategy is aimed at creating value, in practice there are two distinct levels of strategy:
- Corporate strategy – Corporate strategy articulates the overall direction of the organisation. It involves high-level decisions about positioning and direction, and establishes a clear framework for subsequent decisions.
- Competitive strategy – Competitive strategy is concerned with how a company competes. It is formulated taking into account how a company can use its strengths to create value and achieve a sustainable competitive position in the marketplace.
Corporate strategy is typically decided in the context of the company’s mission, goals, and vision – what the company does, why it exists, and what it intends to become. Corporate strategy involves choices and commitments regarding the existence of the organisation.
Corporate strategy deals with the present and expected realisations of the organisation as a whole. Corporate strategic planning involves making decisions and establishing a pattern of action to bring plans to fruition.
Competitive strategy involves decision-making based on a company’s position in the marketplace, and on the capabilities, strengths, and weaknesses both of itself and its competitors. It involves using methods and tactics to gain competitive advantage.
Unique capabilities that are central to an organisation’s competitive strategy are called critical success factors, or CSFs. A CSF is a feature of an organisation that has a major influence on achieving that organisation’s goals and objectives. CSFs are the key areas where things must be right for the business to attain growth. In essence, CSFs are the essential building blocks of competitive strategy. They include what an organisation must maintain, and what it must achieve to meet its goals and objectives. Put simply, CSFs are those particular assets or practices that are solidly linked to performance improvement.
CSFs are often idiosyncratic to an organisation, and are the factors that are most vital to its success in achieving its goals. For example, a taxi company has a goal of increasing its profit margin. Critical success factors include retaining the convenient central location of its central dispatch, and reducing cost per passenger mile. To succeed in its goal of higher profits, the company must stay where it is located, and reduce costs. Both types of CSF are critical to success.
It is important for companies to know the key strategic businesses approaches. This knowledge will help them gain an understanding of their limiting and their enabling factors, and of their strategic capabilities.