What is strategy, and why is it important?
Most of us have heard the term 'strategy' in business and personal settings. But what exactly is ‘business strategy’, and why is it important? Also, what are the different types of strategy within an organisation, and why do they matter?
In this article, Dr Richard Dune discusses some standard definitions of strategy, noting their differences. He will examine the three types of strategy, namely corporate strategy, business unit strategy, and team strategy, along with some of the main tools and models associated with each.
Dr Dune argues that developing a strategy takes time and resources and is often seen as a distraction from the day-to-day demands of running a business. However, successful business owners and executives understand the importance of having a strategy and committing time and resources to manage its execution. The benefits accrue to them and their businesses as a result.
Let’s start by discussing the various definitions of strategy.
What is strategy?
Business leaders and theorists have studied strategy for years, but there is still no definitive answer as to what it is. Consequently, the concept of strategy remains ambiguous since there is no one-size-fits-all definition. The need for a standard definition of strategy is mainly because people perceive it differently. For example, one should analyse the present situation carefully, anticipate future changes in their market or industry, and then plan how they will succeed. Others believe predicting the future is too complex and prefer to evolve their strategies organically and cross bridges as they encounter them.
In their book, 'Exploring Corporate Strategy', Gerry Johnson and Kevan Scholes note that a company's strategy determines its long-term direction and scope (Johnson and Scholes, 2005). They argue that strategy should determine how organisations should configure resources to meet the needs of markets and stakeholders.
According to Michael Porter, a strategy expert and professor at Harvard Business School, a strategy must define and communicate an organisation's unique position (Porter, 1980). Porter argues that strategy should determine how to combine organisational resources, skills, and competencies to achieve a competitive advantage.
While it is understandable that some evolved elements will always be part of a strategy, planning for market success cannot be overlooked. Therefore, organisations must take full advantage of the opportunities available and anticipate and prepare for the future at all levels.
The next section will discuss why strategy is essential in any organisation.
Why is strategy important?
It is generally accepted that strategy is vital in business and forms the foundation upon which all executives and entrepreneurs build their enterprises. A strategy helps business leaders define their business, gives it a set of values and purpose. It helps them understand what success looks like, provides a roadmap for their business, shows them their destination, and identifies useful stopping points along the way. After all, who would set off on a journey without having some idea of where they were heading or how they would get there?
Here are five reasons why strategy plays such an essential part in any organisation’s success:
- Planning and forecasting
- Identifying strengths and weaknesses
- Building skills and knowledge
- Resource allocation
- Internal and external environmental scan.
In the next section, we will examine why strategy is often ignored, despite its benefits.
Why is strategy often ignored?
Despite the importance of strategy for any business, many small and medium-sized organisations do not have formal strategies to support their growth. Some organisations have formal business plans or strategies, while others have only verbal plans or none.
Is there a reason why a business strategy is often forgotten or ignored? Most business leaders and entrepreneurs have some vision in their heads, but it is often unstated and most likely sub-conscious. Their core belief in growth and achievement, coupled with boundless energy, enthusiasm, and hard work, can lead to some initial success. It is common for entrepreneurs to find that as time passes and their business grows busier, they do not have the time to think about long-term strategies. Planning and developing a business strategy becomes complex, a luxury they cannot afford.
If sales drop, operating costs rise, or competition increases, the problem becomes compounded. Every moment of free time is spent putting out fires, and time becomes the most precious of commodities. Entrepreneurs often experience the feeling of being on a ship without a rudder, blown by the winds of fortune with no control over where they may land.
We will discuss how all of this can be avoided in the next section and the three types of business strategies.
Three levels of business strategy
An organisation's strategy needs to be developed on three levels: the corporate level, the business unit level, and the team level.
The corporate strategy of an organisation determines how the organisation as a whole supports and enhances the value of its business units. Business unit strategy describes how individual business units compete and win in their respective markets. Business unit strategies must align with corporate strategy. To achieve an organisation's larger goals and objectives, each team within a business unit needs its strategy. Whatever your role may be, your work contributes to the team strategy, which contributes to the business unit and corporate strategy.
Each level of strategy is necessary for an organisation to succeed. Now, let’s expand on the three levels of organisational strategy.
Corporate strategy refers to an organisation's overall strategy consisting of multiple business units and/or operates in various markets. It determines how the business supports and enhances the value of the business units within it. Additionally, it facilitates an understanding of how the parts of the business can work together to generate greater value than they could individually.
To achieve these goals, businesses must:
- Establish robust internal competencies.
- Build strong relationships within and between teams.
- Create a set of robust values that all organisation members can embrace.
- Collaborate between departments and teams in the use of technologies and resources.
- Raise capital from shareholders and investors.
- Establish and nourish a solid corporate brand.
In corporate strategy, we consider how business units within an organisation should function together and how resources should be deployed to maximise value for the organisation. Various tools are available to assist in carrying out the necessary high-level analysis and planning.
Another critical consideration at this level is the organisation's design. Your business structure, people, and other resources contribute to your competitive advantage and can support your strategic objectives.
Business unit strategy
Business unit strategy focuses on how to compete successfully in individual markets by answering the question, "How do we win in this market?". A business unit's strategy should be aligned with the corporate level's objectives.
For developing a business unit strategy, a competitive analysis, including the collection of competitive intelligence, is a worthwhile starting point. Considering the required core competencies and how they can be utilised to meet customers' needs is imperative. Using the unique selling proposition (USP) analysis, business unit leaders can determine how to strengthen their competitive position.
Exploring your options for creating and exploiting new opportunities is critical. This process requires using tried and tested tools, such as Porter's Five Forces. Business leaders can identify and respond to opportunities and threats in their market by conducting a SWOT analysis.
The business unit strategy will likely be the most visible level of strategy within each business area. People working in each unit should be able to relate the strategy directly to their work. Business leaders have the basis for a highly productive and motivated workforce when employees are aware of how they can contribute to the success of their business unit. Consequently, the business unit's mission, vision, and values must be clearly defined.
There may be an overlap between corporate and business unit strategies in small businesses. It is critical to consider the strategic direction of each business unit if the organisation competes in different markets. It is critical, however, that each business unit's strategy is aligned with the organisation's overall strategy, mainly if the organisation's brand is crucial.
Teams must work together to implement corporate and business unit strategies successfully. It is vital that each of these teams has its team-level strategy, regardless of how simple it may be.
For this team strategy to be successful, it must be aligned with the business unit and corporate strategies, which means that all levels of strategy must support and enhance each other to ensure the organisation's success. As a result, it is essential to define the purpose and boundaries of the team using, for example, a team charter. The strategy's alignment, implementation and management will be facilitated by techniques, such as Management by Objectives (aligning objectives with the organisation's goals) and key performance indicators.
Team leaders must work efficiently to achieve the strategic objectives set at higher levels of the organisation. Thus, implementing best practices is an essential component of the team strategy to assist the team in meeting its goals. Creating and executing an effective team strategy requires activities that optimise supplier management, quality, and operational excellence.
Despite the lack of an agreed definition, strategy may be viewed as determining how we will succeed in the period ahead. Business strategy can be divided into three levels, each having a different focus and requiring various tools and skills. At each level, strategy can be defined as a means of preparing for and achieving success in the future.
An organisation must have a corporate strategy that supports its vision and mission and focuses on the organisation to be successful and productive. In an organisation, business units develop business unit strategies that their leaders use to determine how they will compete in their specific markets. In addition, each team should have a strategy to ensure that its daily activities contribute to the organisation's overall success.
Click here to see online courses and resources that will help you build a successful business strategy for your organisation.
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About Dr Richard Dune
Dr Richard Dune is a leading health and social care governance expert. Throughout his career, he has worked in various settings across the UK, including NHS Trusts, research and development, academic institutions, and private companies.
His work primarily focuses on developing, deploying and evaluating technologies, such as clinical decision support systems, educational technologies, workforce development and regulatory compliance solutions.
Dr Dune regularly writes about topical issues affecting the UK's health and social care sectors. Additionally, he speaks at conferences, stakeholder workshops, and professional forums. Dr Dune is also a research fellow at University Hospitals Coventry and Warwickshire in the Research, Development and Innovation department. His other passions include content development, education, and coaching. Click here to read more articles by Dr Dune.
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References and resources
Johnson, G. and Scholes, K. (2005). 'Exploring Corporate Strategy (7th edition),' Prentice Hall.
Magretta, J. (2020). 'What Is Strategy?: An Illustrated Guide to Michael Porter (Illustrated edition),' Harvard Business Review Press.
Porter, Michael E. (1980). Competitive Strategy. Free Press.
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