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Business Strategy

"Would you tell me, please, which way I ought to go from here?"

"That depends a good deal on where you want to get to," said the Cat.

"I don’t much care where," said Alice.

"Then it doesn’t matter which way you go," said the Cat.

Lewis Carroll, Alice in Wonderland

Strategy is essentially a comprehensive plan to help an organization achieve its specific business objectives, such as growth, a stronger competitive position, or stronger financial performance. The choice of objective lies at the heart of the strategy. As a result, strategies reflect the company's strengths, vulnerabilities, resources, and opportunities. They also reflect the firm's competitors and its market.

The strategy matches internal resources to changing external demand. It determines how the firm differentiates itself from competitors and how it earns revenues and profits. Strategy formation is a dynamic process because the external environment is constantly changing.

Strategies focus on meeting objectives. We often hear of marketing strategies, when what is actually being described is the firm's competitive strategy. Furthermore, a firm's financial strategy is different from its pricing strategy or operational strategy. Most firms in fact have many strategies, which are likely to interact, but each has a different objective and different action plan.

A company may have different product lines and different businesses. To manage all facets and divisions of the company, the strategic framework is organized into a hierarchy. At the top sits the corporate strategy. The corporate strategy is concerned with top-level business objectives: earn, sustain, and grow profits. It answers the question, exactly how does the company achieve its profit objectives?

Typically we consider strategy at three levels, as shown in the list below. Click the topics on the left.

Hierarchical Framework of Strategy

· Corporate strategy Overall direction

· Business strategy Competitive and cooperative strategies

· Functional strategy Maximize resource productivity

Describes overall direction, portfolio management, and the parenting of various businesses

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Each company chooses a strategy that best differentiates it from the competition, defines its market, and creates customer demand. Different business strategies and business models are possible for companies even when they are in the same industry selling similar products or services. For example, Southwest Airlines in the United States has a strategy based on providing low-cost transportation. The strategy for Singapore Airlines focuses on luxury and quality service.

The development of a business strategy is based on six building blocks: activity system view, innovation, value chain, sustained advantage, core competencies, and resource-based view.

Building Blocks of Business Strategy

Activity System View 

Decisions about business activities must complement one another to yield a competitive advantage. A strategic fit among many activities is fundamental not only to competitive advantage but also to the sustainability of that advantage. An activity map connects the value proposition to the company’s assets, capabilities, and values.

Value Chain

A value chain consists of a series of activities that create value and culminate in the total value delivered by an organization. As seen in the figure below, a value chain depicts the way a product gains value (and costs) as it moves along the path of design, production, marketing, delivery, and service to the customer. Value is added by both direct and indirect departments or by both cost and profit centers. Value-chain analysis is a useful tool as a firm seeks to achieve competitive advantage.

Value Chain

Resource-Based View (RBV) 

A resource-based view (RBV) is an approach to achieving competitive advantage. This view suggests that organizations should look inside the company to find the sources of competitive advantage. It is grounded in the perspective that a firm's internal environment, in terms of its resources and capabilities, is more critical to the determination of strategic action than the external environment. Apple Inc. and Samsung Electronics are good examples of how two companies operating in the same industry achieve different organizational performance due to a difference in resources. Both companies have valuable resources that cannot be either imitated or substituted without great effort and risk.

To achieve a competitive advantage, the resource-based view defines characteristics as valuable, rare, inimitable, and nonsubstitutable (VRIN), as shown in the list below. Click on each characteristic on the left. 

VRIN Model of Resource-Based View

· Valuable

· Rare

· Inimitable

· Nonsubstitutable

Enables a firm to employ a value-creating strategy by either outperforming its competitors or reducing its own weaknesses.

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Core Competencies 

A core competency for a business is whatever it does best. It creates sustainable competitive advantage for a company and helps it branch into a wide variety of related markets. It is also hard for competitors to replicate.

Core competencies embody an organization’s collective learning, particularly of how to coordinate diverse production skills and integrate multiple technologies. They are the main strategic advantages of a business and include knowledge and technical capacities that allow a business to be competitive in the marketplace. Other examples of core competencies include brand recognition, marketing excellence, innovation, leadership, and customer service.

Sustaining Competitive Advantage 

Sustaining competitive advantage means staying in tune with not just customer needs, but also with emerging technologies, government regulations, and the competition. For example, Blockbuster didn’t foresee the arrival of Netflix or the movies-on-demand models. In this case, there was no change in customer needs, but the technological advancement of network bandwidth allowed new competition to emerge from cable companies that could stream movies to homes. Earlier, the major computer company Digital lost its competitive advantage by dismissing the personal computer revolution led by Dell, Compaq, and Hewlett Packard.

Innovation and New-Product Development 

Innovation and new-product development are integral parts of a business strategy aiming to build a sustained competitive advantage. Innovation and new-product development require a thorough knowledge of the target market, including its needs and wants. A systematic approach should answer several questions: What is the target market? What are the customer needs in this market? What is the customer value of my proposed new product? What sets this product apart from its competition?

The answers to these questions then need to be translated into the resources and internal capacity of the business and examined from the point of view of their alignment with the strategic mission. This process is shown in the figure below, Innovation and New Product Planning Framework for Business Strategy.

Innovation and New Product Planning Framework for Business Strategy

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