What Is the Importance of Strategy in Business? Essay Introduction
Corporations are founded by people as a means of achieving their goals as well as their visions of what the business ought to be. Thereafter, objectives and policies are set and put into practice. Combined, goals, visions and plans constitute strategies set forth to be achieved in the long or short term.
Strategic management process is based on the formulation, implementation and evaluation of an entire business organization (David, 2006). Strategy in business terms refers to the direction and scope which an organization has over a long-term period and which helps it in achieving the best using the available resources within a highly competitive environment (Lippmann & Rumelt, 2003). Strategies should be designed in such a way that the business meets the market needs as well as stakeholder satisfaction.
Different organizations develop and execute their strategies in unique ways motivated by the need to gain advantage over other businesses within the same environment. Applying mediocre strategy as well as the analysis of the industry environment by firms are definite preferences over ad-hoc or superb strategies and their evaluations. The essay seeks to provide an analysis of the application of strategy by different business organizations.
What Are the Strategies to Make a Business Successful?
The use of strategy can be found at different levels of any business organization which ranges from the business in general to particular individuals operating the business. Three levels where strategy operates have been identified (Lippmann & Rumelt, 2003). Corporate strategy seeks to meet the needs of all the stakeholders through the operations of the organization.
This level is central to the success of the business since it involves the great influence of investors. Corporate strategy serves to provide guidance in the decision-making process in the entire business. Most, if not all businesses have their corporate strategy clearly spelt out in the “mission statement” from which all other strategies emanate (Stalk & Evans, 2002).
The second is business unit strategy which is designed to guide how a given business survives the tough competition presented by similar operators within the same market environment (David, 2006). This strategy inspires important decisions ranging from the choice of appropriate products, customer satisfaction, overcoming competition, to the exploitation and creation of new business opportunities.
The last strategy employed in strategic management is the operational strategy which guides decisions on how the organization is structured in order to ensure that the business is operating at its maximum potential (Lippmann & Rumelt, 2003). The importance of this strategy is that it facilitates the implementation of the other two strategies mentioned earlier.
Operational strategy is concerned with decisions touching on the effective use of available resources, the various processes within the business, and human resource or labor. These three types of strategy are very beneficial to a business organization when it comes to making important decisions.
Many companies and organizations have realized the importance of formulating sound strategies. Strategies help organizations take key actions that facilitate the achievement of milestones and results which would not be easy to attain without strategy formulation (Stalk & Evans, 2002).
Strategic planning acts as a guide for all the stakeholders in the organization since it sets out clear vision of what the business seeks to achieve both in the short and long-term. Many theories have been used in the business sector to guide operations. For instance, the entrepreneurial decision process model describing opportunity recognition by organization managers has been very resourceful (Pech & Cameron, 2006).
Strategy formulation helps organizations to anticipate future business trends and to prepare adequately for the foreseeable market competition and opportunities. Guided by sound strategies, organizations will be able to invest their capital funds wisely and hence get maximum returns on investments (Stalk & Evans, 2002). It is evident, therefore, that an organization without strategy will not be able to withstand the challenge from its competitors causing a decline in their share of the market as well as in their sales.
Factors of an Effective Business Strategy
A sound strategy can be formulated by considering some key elements. The organization has to define the nature of the business that is to be pursued, state a clear mission of the business, set strategic goals and the expected performance, formulate a business strategy, implement the set strategy and finally evaluate the effectiveness of the strategy from time to time and making necessary improvements (Faulkner & Cliff, 2005).
Business Definition
Any business organization has to understand the type of customers being targeted and then defined from their perspective (Abell, 1980). Customers are the central pillars of all businesses since they are the source of revenue and hence determine how far the business would withstand the test of time (Rumelt, 1993).
The first step in designing a sound strategy is to put in place measures that will ensure a strong customer base. Developing products and enhancing their quality through efficient means of production may help some organizations to achieve success. However, maintaining a chain of committed customers is crucial in attaining prosperity since pricing may not be a major determinant of the number of customers (Porter, 2003).
Mission Statement
An organization’s mission statement should contain the strategic mission which states clearly how the business will be in future. This step involves the formulation of strategic mission which guides the organization in making important decisions. The mission statement should contain the elements that define the organization as a whole (Porter, 2003).
Strategic Objectives
This is the third step that facilitates the design of a successful strategy by outlining a clear position in the market environment that an organization desires to take. It involves the formulation of specific performance rates that will help in achieving the set objectives (Faulkner & Cliff, 2005).
Some examples of strategic objectives include the placing of goods and services in a highly competitive market environment and the general structural organization of a business (Abell, 1980). Moreover, organizations should be keen on increasing profitability without hurting their customer base, value of return on investments made, promoting innovativeness, and diversification of the businesses and their products (Porter, 2003).
Competitive Strategy
Developing a workable strategy involves the formulation of ways of guiding one business unit or a specific product. The major objective of this strategy is to attain a competitive edge in the market environment even in the presence of similar products or services (Faulkner & Cliff, 2005). The business should well aware of its strengths and weaknesses and capitalize on the strengths it has relative to the competitors.
According to Porter’s strategy theory, understanding the size of the market as well its growth rate is crucial in setting business strategies (Rumelt, 1993). Other factors to consider include the profitability of the business, the uniqueness of the products or services, the challenges to the business that may hinder performance, and to ensure that the organization is operating at maximum capacity (Abell, 1980).
Competitive analysis is a study of companies competing with your companies’ products or services for a market share (Dobni, 2010). It is way of scanning the environment in order to acquire information about trends, events, and relationships that may affect the organization (Choo, 1999).
Both profitable and non-profit organizations can benefit from this study. It aims at achieving a better understanding of competitors’ performance and how to maintain your advantage over them. It is a strong factor contributing to strategy planning. It also aims at expanding the employees’ knowledge of the company by providing content and functionality information. It is likely that this process will benefit current as well as future projects.
Exploring competing firms will give you a chance to what is working well for them and what is commonly being offered which would eventually lead you to learn from their mistakes, not to reinvent what they’ve got and find a better way to implement from where they’ve left(Faulkner & Cliff, 2005).
Implementation of Strategies
Many business have failed to perform in the market not because they lack effective strategies but due to lack of or poor implementation strategies. An organization has to put in place meaningful tactics for implementing the strategies that have been formulated (Faulkner & Cliff, 2005). This element is crucial in that it informs the process of evaluating the strategies as well as the design of new ones.
Monitoring and Evaluation
Once the strategies have been implemented, it is advisable to monitor the progress and effectiveness of these strategies. This step is crucial and equally important since it ensures that necessary adjustments are made to the general running of the organization. Continued assessment of the progress ensures that the organization remains true to its mission statement and hence a successful future.
Application of Strategy
Having discussed what strategy is and the various components, it is also important to understand that different organizations have different ways of applying the strategies they formulate. Others would opt for mediocre strategies while some will seek to use specific or ad-hoc strategies with an aim of achieving the set goals.
It may not be of any significance to have great strategies which are poorly executed, instead, it would be more meaningful to an organization if it had mediocre strategies which are superbly implemented (Moreton, 2004). To illustrate, we will take a look at the Australian Telecommunication firm, Optus.
This corporation included the continuous need for innovation as part of its management strategy so that it remains ahead of its competitors. Its goals are incorporated into a strategy to be handled by its strategic personnel. These people would be responsible for analyzing and developing future profits and performance strategies.
What distinguishes Optus as a firm is that it has implemented strategies focused on specific goals, one of which is to achieving positive customer feedback. The focus was also on improving the management of its operations and on opting for growth opportunities in its sector while maintaining profits (Optus Annual Report, 2009).
Carrying out strategic analysis of the competing environment and emerging business opportunities are among other objectives that strategists work on.
They also work on emerging technologies and come up with other possible strategies to improve and achieve Optus’ sustainability. Thus by implementing correct strategies and expanding its share market, Optus was able to achieve a gradual growth reaching a net profit of $583 billion in 2009 and revenues of up to $8.321 billion.
Hence when one applies an efficient mediocre strategy and examines its implementation, then he would be choosing a really good strategy. Optus for instance has initialized and implemented strategies to achieve objectives and this has proved beneficial to the firm (Optus, 2009).
Many factors, according to the report, support the firm’s objectives. This include enhancing growth opportunities by driving operational performance (2009).It is my belief that a mediocre strategy is successful in terms of evaluation as you can review its objectives and make any alterations when necessary. Based on outcome evaluation, a strategy has to be a mediocre one rather than an ad-hoc one because it has proven its superiority.
For short-term deals, it would be better to look at a mediocre strategy beyond the obvious facts. Strategy evaluation is better conducted following successes or failures (Moreton, 2004).Selecting appropriate strategy and assessing how the business will perform accordingly and whether a given strategy will render higher profits or advantages are key missions for business managers as they contemplate strategies.
Rumelt (1993) thinks that a good strategy evaluation is more successful for short- term businesses rather than long- term ones; though mediocre strategies do not provide guarantees as to the success of the strategy. He also mentions four criteria to be kept in mind when applying the mediocre strategy which he believes would render the company profitable:
- Remaining constant as an internal assessment tool
- Applying consonance as external assessment tool
- Using feasibility as an internal assessment tool
- Making use of advantages as an external assessment tool
To select the proper strategy and assessment tool one faces a number of challenges and tough questions such as: Are the objectives really suitable for the firm? Are the plans suitable? Would the outcomes be achievable within the time limit?
It is important for managers to contemplate these questions to recognize the suitability and efficiency of the devised strategy. If the answers to the questions are positive then this means that the strategy is workable. But if it is negative, then alterations to the plan must be made in order to meet the objectives of the corporation (David, 2006).
Choosing either one of the strategies has proven to be tricky because of the unique nature of each of the strategies and the need to evaluate each.
Firms’ managers need to be aware of evaluation strategies (Moreton, 2004).For instance, it is a good idea for a firm to take into account the fact that strategies work differently in different situations. So, where a strategy fails and has negative impacts on a firm, it might be quite successful in another. Hence, efficient strategy relies on choosing the one that best caters for the firm’s circumstances and needs.
Conclusion: The Importance of Business Strategy
The essay has broadly discussed and analyzed the concept of strategy as used in business management. Strategy has been defined as the direction and scope which an organization has over a long-term period and which helps it in achieving the best using the available resources within a highly competitive environment without hurting its customer base.
The various levels in which strategy operates have been identified and they include corporate, business unit, and operational strategies. Six components of a successful strategy have also been explained.
The essay has further elaborated on the application of a given type of strategy, whether it is a mediocre or ad hoc strategy. It can be concluded that formulation of a successful strategy by an organization or company demands more than just having it in paper, instead superb implementation and evaluation determines the overall success of the strategy.
References
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Dobni, C.B. 2010. “Achieving synergy between strategy and innovation: The key to value creation”. International Journal of Business Science and Applied Management, 5 (1).
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