What is a Business Strategy? Definition, theories, examples | toolshero

A business strategy is explained as the course of action or a set of decisions or guiding principles that help managers achieve business goals. It is the means by which organizations try to realize their vision for the future. A simple definition of the word business strategy is long-term business planning. A business strategy usually spans at least a number of years.

What is a business strategy? The definition

A business strategy generates a desired pattern of decision-making, provided it is effectively communicated and adopted within the organization. It is therefore about enabling people throughout the organization to make decisions and allocate resources based on the guiding principles to actually achieve the objectives. A good business strategy then functions as a North Star and roadmap. It defines actions people should take and prioritizes activities.

Business strategy in practice

The roadmap of business intentions and actions is being designed in business for some other purposes as well. These goals reflect why good business strategy is so important to organizations. Firstly, the strategy serves the planning process. It helps identify steps required to achieve business goals. The process of preparing the business strategy furthermore leads to the identification of strengths and weaknesses. This insight helps in positioning the organization. In addition, having a good business strategy helps in controlling activities that are carried out to achieve the objectives as efficiently as possible.

There are different types of business strategies. Michael E. Porter defined three general business strategies in 1980. The first is Differentiation. Companies that use this strategy prove to the customer that they are different and better than the competition. Such a strategy is less focused on price than the other types of strategies. The long-term vision of companies with this strategy is to cut costs in the areas that do not contribute to the differentiation. The second type is Cost Leadership. The aim of this strategy is to be the cheapest provider of products or services. An example of this is Wal-Mart. They focus on supplying almost all products at affordable prices. Such a strategy works well for large companies that sell products on a large scale. The last type of strategy is Focus. A niche company then mainly focuses on a small share of the market. They fulfil the needs of fewer people than other companies, but enjoy less competition. Think of craft beer or paint brushes intended for a special type of material.

Every organization forms its own strategy, but not all companies are successful in executing it. Many companies in the technology sector differentiate themselves from the competition by creating the most advanced products. The overall strategy is therefore close to innovation orientation. Other companies focus on developing and selling new products and others focus on sustainability. A strategy can also be to contract out certain production or business processes. This is called outsourcing.

Whatever the strategy, it is important that the strategy is right. Tools used in developing and assessing a business strategy include Mintzberg’s 5 Ps of Strategy, the Rockefeller Habits, the EPRG Framework and the Ashridge Model.

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Strategy theories, methods and tips

The articles linked to business strategy are about the different types of strategies, the conditions in which each can be optimally used, methods of adapting strategies and general supportive methods and models. How do I know if I have chosen the right strategy? How can I learn from my competitors’ strategies? How can I optimize my strategy in order to achieve my objectives? How can I implement strategy theory in my field or position?