What is Business Strategy?
There are many different definitions of business strategy. Some are quite prescriptive, suggesting that a strategy will fall into a particular type. These include cost leadership, differentiation, innovation, market growth and more.
For us, a business strategy flows from the strategy creation process. It is based on the ambition and vision of the owner and senior management. Since every business is different and does not fit into a ‘box’, each has its own vision for the future, as well as its own strengths and challenges. Consequently, the strategy is unique to every business.
Our definition of a business strategy is as follows:
A business strategy is a long-term plan that defines the vision and strategic goals of the business. It also sets out the tactics the business will use to achieve its vision and goals. A well-crafted strategy is an essential part of a company’s success. As a result, it helps ensure that business resources and efforts are deployed to achieve its long term goals and vision. Moreover, it helps to improve decision-making in the business.
Put simply, it answers the question “where will we be in X years how will we get there and what might get in the way?”. The first part of this question sets the vision and strategic goals. The second part focuses on what tactics will be employed to attain the vision and goals. ‘X’ is the how far the business strategy looks into the future. This will normally be 4 or 5 years, although it will depend on the business and the market it operates in. A rule of thumb is the further it looks into the future, the more visionary the strategy will be.
Since strategy focuses on the future of the business, plans will be more fluid. Consequently, the strategy consists of fairly loosely defined tactics, rather than highly focused activities.
Who should develop the business strategy?
The senior management team should be heavily involved with developing the strategy for a business. In addition, where relevant, input should be sought from people with specialist knowledge or expertise.
A well-crafted business strategy will often include analyses of the company’s internal and external environment. This may mean bringing in other people from both inside and outside the business to work on specific elements of the strategy. These elements may, for example, include SWOT and PEST analysis. Ideally, these analyses are carried out once the overall vision for the future of the business has been agreed. This is means that each analysis is focused on helping the business realise its strategic goals and vision.
Giving people a voice in the strategy creation process has many benefits, including increased buy-in, greater motivation and commitment to the strategy. These factors help to ensure that the strategy is implemented. For more information, read our article on who to involve in creating business strategy.
The importance of causal relationships
An effective business strategy consists of a combination of many inter-connected elements. This means there is a cause-effect relationship among them.
Causal relationships are, therefore, important in business strategy. They allow companies to identify the tactics that are most likely to help achieve the business vision and goals. Consequently, understanding the cause-effect relationships between strategic tactics and their outcomes helps people make informed decisions.
For example, a business strategy includes a decision to invest in marketing efforts. This investment will cause an increase in brand awareness, which in turn leads to an increase in sales.
This demonstrates a causal relationship between the decision to invest in marketing and an increase in sales. Marketing efforts are the cause and the increase in sales is the effect.