why is strategy important to business essay

why is strategy important to business essay

The Importance of Strategy in Business

1. Introduction to Business Strategy

Value is interpreted as the worth of material items that participants and competitive bystanders activate to contribute to their own well-being or utility. Many economic resources that can contribute to value are currently idle or misallocated.

Although improved technical expertise, operational competence, and performance measurement systems can lead to significant improvements, these are simply part of the operational tools rather than strategic questions in themselves. The questions of “doing things better” are significant, but they should take their place alongside the broader long-term questions with which the classical strategic management field is concerned: as minor operators, not as the main strategic questions.

Without questions of this kind, resources can easily be misallocated by even the cleverest responses to administrative questions. Many years ago, Peter F. Drucker wrote that “There is surely nothing quite so useless as doing with great efficiency what should not be done at all”. Today’s focus on customer requirements, customer satisfaction, customer value, and a market-driven approach brings a new relevance to these remarks.

Strategic questions have a different character: a strategic question begins with “what”. What kind of product should we be selling? What is our business? Who is the customer? What is value? Who are the employees in the business? What should our competitive postures be? What is our business about? What should our management want it to be about?

Strategic management addresses the broad long-range questions. Typical questions usually asked in the management field are of a different kind, such as “how can we improve the quality of our products?”, “how can we produce more cheaply?”, and “which are the more profitable markets?” Such questions usually ask how to do things better with resources that the existing administrative apparatus has in hand.

Strategic analysis: Developing a shift in perspective

2. Key Components of Effective Business Strategy

Once strategy is developed, it is time to translate it into business objectives. Statement of the shorter term specific goals becomes the responsibility of management and will often include the following types of goal. All these goals, and the longer-term anticipatory ideas touching on resource utilization and asset leverage, are the building blocks for laying the land and tying down expansive behavior.

Allocate resources: Are you able and willing to provide what is necessary to make your business successful? If not, can you develop these resources? How do you provide a competitive edge now and in the future, considering the sources of competition and potential changes in these sources? If two products are a close match in most features, but one is cheaper to produce, should you focus on maximum volume, first-class differentiation, or a dual product strategy, targeting the cost-oriented segment with the cut-price product and other segments with more expensive, better performing goods? What strategies, cash payoffs, openness, core competences, brand image, demonstrating streaking profitability, quality, speed of service, or willingness to tailor will optimize market potential?

Objectives: What do you want to accomplish? Setting objectives that support decisions across a full spectrum can be the quickest and highest return of the strategy components. Done properly, they are also the most effective way to indicate adherence to principles 2 and 3. Balancing business and finance dimensions is rarely touched despite the clarity gained from doing so. Balancing different aspirations is rarely achieved as many business decisions are matters of either cash, reputation, or growth. Opportunistic acquisition bids usually focus on cash, organic growth seldom does, and reputation management does not, either.

Values: Why do you do what you do? What principle(s) guide, shape, and encourage your behavior? Are you tuned into creating economies of scope? This is useful in driving synergies from a single super brand (e.g., Nike) across multiple services. How important is product as against service quality? Should you develop your core competencies to help achieve a leadership position in terms of either value or cost leadership? On the cost front, will process re-engineering or downsizing be more effective? What competitor moves should you anticipate, and to what kind of market signals do you need to be tuned to help make that anticipation as effective as possible?

Mission: Who are you? What do you do? What benefit(s) do you bring to the market and your audience? For example, a mission to be the best farmers in the area creates different strategic imperatives to being the best pig farmers or the best organic pig farmers. One segment is higher margin but has a lower potential throughput than the other. A simultaneously held mission to be the top charity in helping people in need of all ages achieve improved self-reliance has different strategic implications again from either of the first two examples. In the financial services sector, awareness and admiration objectives are common, but not as widely used for many new market entry companies. If you are the only you in your target market, awareness and, particularly, consideration scores take on an increased urgency. Awareness is about being known and considered is about being worth spending time searching for.

Developing an effective strategy involves knowing what factors to consider. Your company’s specific answer(s) to the below points will form your business’ strategy.

3. Benefits of Implementing a Strategic Plan

Strategic planning can, and should, assist in the stretch for business excellence at any level and in any situation. To be strategic is to be the best. Strategy is a different and better way of doing things – any things. It’s a superior approach. It is a perspective, a position, or an edge. It can be an individual product or service or an entire organization. Strategy is superior. It is preeminence. It is being established and visible. When planning isn’t performed, an organization is vulnerable to the dangers of being hijacked into an organization with no direction. In this article, an effective strategic plan is one that everyone works on. It is a dynamic process, and the continuous process is also critical.

Being strategic takes on a variety of forms, and being strategic also takes us to a new level of excellence. Most organizations strive to move from being tactical to being strategic – at some, if not all levels. Strategy can make a difference in any organization or field. To be strategic is to be first. To be less than strategic is to be merely tactical; to continually react to the problems and crises that occur daily. Strategic thinking and planning should not be problems. This exercise communicates everything to staff, and everyone can help in creating and implementing the business strategic plan.

4. Common Challenges in Developing and Executing Business Strategy

Developing and executing business strategy is a challenging process. Many companies, especially smaller businesses with limited experience or resources, simply ignore the problem and take a “ready, fire, ready, aim” approach. Without a plan, they don’t know where to aim their efforts, and too often they miss the target no matter how smart they are. Some are unable to dedicate the time necessary to think strategically, so they simply react to what is happening in the marketplace, allowing the strategic process to remain on the back burner. Another major challenge is the difficulty of reorganizing the enterprise in some fashion. Over time, organizations of all sizes tend to become more bureaucratic, more hierarchical, and more complex. Businesses add new products, services, offices, warehouses, and employees, but they often forget to eliminate underperforming personnel, shrink tempting long-term projects, or simplify increasingly complex processes. As a result, strategic goals to grow the bottom line are never translated into action. Coordination, cooperation, and competitive actions become stifled, and consequently, the interdepartmental elements of the business operate more as independent silos.

Regardless of the size of your organization, business strategy is an essential function that can catapult your firm to new levels of efficiency, productivity, and ultimately success. Crafting and implementing a strategy is a heavy responsibility for business leaders, especially in today’s rapidly changing society. Advancing technology, entrepreneurship, an increased level of national and global competition, and changing customer expectations necessitate a clear understanding of your competitive strengths, weaknesses, opportunities, and threats. Successful company owners and managers understand the importance of business strategy and invest significant time dedicated to identifying and defining what that strategy should look like. They hire professionals with strategic thinking skills to help them throughout the strategy cycle, not just during initial strategy development.

5. Conclusion and Future Trends in Business Strategy

First, there will of course be more changes in the way business is conducted and therefore in the tasks that face decision-makers. Second, whereas new business ideas and techniques once took centuries to diffuse, they can now be copied and adopted by competitors much faster. This ‘retaliation’ timescale – the time it takes for a superior return to a new practice or a new product or service to be eroded by the imitation of competitors – is now a key strategic variable. Third, as world trade and foreign direct investment grow faster than world output, so more businesses face rivals from overseas. Corporate and, indeed, national competence in today’s business world require long-term investing in capabilities of unequal precision, but in the short term, capabilities are a function of the specific actions and decisions of many interacting groups of people – investors and entrepreneurs, managers from senior executives to shop floor supervisors, the workforce, customers, suppliers, regulators, bankers, and interested lobby groups, and others.

In this global, ever-changing world, business strategy has become more important than ever. Businesses now have many more opportunities to exploit but also face far stiffer competition than ever before. For many businesses today, globalization is the key strategic issue. If globalization is managed effectively, it can drive standards of living higher, providing a way for the 100 or so middle-income countries in the world to make the transition to rich ones. But today’s global marketplace does not occur in the air, businesses have to make sense of all the different processes needed to take advantage of what the world has to offer. This is an absolute necessity, but it is also moving firms into uncharted territory. Firms which can anticipate and manage these turbulent, high-growth marketplaces will be the success stories of the future.