Importance of Business Strategy in Companies

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Table of Contents

Introduction
Main text
Why We Study Strategy as a Business Discipline
Summary
References

Introduction

A strategy is much more than a plan. It is a plan created from a reasoned analysis of the current market, competitors and the company plus an extrapolated vision of the future based upon current trends. This plan document will include a lot of alternatives based upon things that might change. Change is the reason strategy is so important today. Things change so fast now with instant transmission of data and fast transportation of goods that businesses must be flexible to make immediate adjustments to the changing environments. The accompanying reasoning and research are as important as the strategy itself, because knowing why can help when modifications must be made.

Main text

A good business strategy has been well thought out and the reasons for every decision are documented, so that nobody needs to remember them. When large sums of money are at stake, the business strategy provides a framework for making decisions in the future, because the strategy has already worked out all the possible scenarios and taken all the variables into consideration. When market forces change is not the time to begin researching possible alternative actions.

A strategy will already have considered every possible change in the market. If something happens which has not been foreseen as a possibility, the strategy is still useful as a guideline for considering alternatives and because it provides the reasoning for the other possibilities, and analysis of the market and future trends from which to work out a new addition to the strategy.

Locally, companies must compete and be good corporate citizens. With today’s communications networks, the news about whatever a company does at home may spread around the world via the very efficient electronic grapevine, so it isn’t just about making money in the local area, but about building the brand. A well-crafted business strategy will consider the two markets separately, and then consider how they will impact each other also. A good plan will also have worked out alternatives to consider for action should any part of the market change, including the supply chain, and it will map out changes in strategy and the alternatives presented by the change and the actions taken. A complete strategy plan will also include plans for implementation, because a plan is no good if it is not put into action.

One of the most important parts of creating a strategy is the analysis. There are a number of different tools easily available to use for analysis, depending upon the purpose of the analysis and factors such as company size, business model etc. Any of these will be useful, but some may provide more useful information than others.

PEST Analysis – this analyzes a company in the context of the “environment” in which it operates
Five Forces Analysis – this identifies the forces which impact the level of competition
Market Segmentation – this singles out similarities and differences customers or users
SWOT Analysis – this assesses the “internal” position and “external” environmental influences

There are more, but these are currently the most used.

A formalized business strategy may have several parts. The overall business strategy for the entire company may be expressed in a mission statement which encompasses the company’s goals and reason for being. However, there might be a business unit strategy for each segment of the business to create a framework for doing business. This strategy centers upon how each business segment competes in its market and adjusts to market changes. This strategy guides the unit managers to create new opportunities while maintaining current customers and adjusting to the competition. An operational strategy is concerned with how each part of the business operated to fulfill the overall business unit strategy. It focuses on how to make everything work together.

Why We Study Strategy as a Business Discipline

The previous two pages are just a very brief overview of what a strategy is and how it helps businesses succeed. There was not even enough space to include complete descriptions of the analysis tools mention and directions how to use them, and these are not the only tools available. Business today is a very complicated process and success does not happen because you’re a good guy. Even being very smart, while helpful, is not enough. Besides, learning all the lessons of strategic planning first-hand would require experiencing and surviving considerable failure. It is much better to learn from someone else’s mistakes. Many brilliant people with years of experience have contributed to the discipline of strategic planning. Guided use of these resources will make the student a better strategist and planner.

Business strategy as a discipline will help the student learn to create and implement business strategies and to make adjustments when necessary. It will help the student to learn to use the tools available and to manage the change that strategic planning may demand. Most important, disciplined study will make the student aware of all the available resources in order for him or her to continue learning.

This study is important when a manager moves up in the company, in order to help him acquire the skills needed for the upper management positions. It is also extremely important when any business contemplates change, such as mergers and acquisitions. Anyone who wants a career in business management needs to study strategy to help him create the strategy for the business and his own personal strategy as well.

Summary

Strategy is about learning to think creatively within the constraints of disciplined analysis and logic and then creating a plan for implementing that strategy. On-the-job learning can be very powerful, but it can also be quite costly to the business and to the learner. It is much better to learn from those who have gone before and then one does not have to reinvent the wheel.

References

Strategic Planning, 2008, Developing a Strategic Plan. Web.

Tutor2U, 2008, What is Business Strategy. Web.

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Importance of Business Strategy in Companies

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