What is Business Strategy and How is it Useful?
Whether you’re considering an entrepreneurial venture or need to grow product line revenue for an established firm, Business Strategy can be your framework for success.
What is Business Strategy?
There are many definitions of business strategy, but this one from Kenneth Andrews has stood the test of time for over 40 years.
Strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers and communities.
—Kenneth Andrews, The Concept of Corporate Strategy (Homewood, IL: Richard D. Irwin, 1971).
This comprehensive definition is best considered when broken down into four key elements of business strategy:
- “objectives, purposes, or goals”—when everyone involved in an enterprise knows why their contribution matters, the whole organization moves in the same direction with a common purpose. That is why defining a vision and mission are so critical to success. A Vision Statement explains the values and aspirations of a firm, and the Mission Statement specifies the objectives.
- “policies and plans”—the vehicles for achieving the mission. The following are a small sample of the wealth of tools available today to help with business strategy.
- A SWOT analysis examines the interplay between an organization’s internal capabilities and external environment.
- Boston Consulting Group’s BCG Growth Share matrix provides a method to manage a portfolio of products in a disciplined and systematic way.
- The Ansoff Matrix helps select the optimal growth strategy by narrowing down choices in terms of opportunities and risks.
- “range of business”—the scope of business to pursue. Most businesses focus on offerings that will maximize profits using available resources and capabilities. A firm selling parts for appliances might not offer servicing if it detracts from their core competency. On the other hand, a business might decide to expand its scope to include products that show growth in demand.
- “contribution”—the value to be created for all stakeholders. Creating value is the essence of business. Companies now believe that they compete on value delivery. McDonald’s used to say that it is in the fast food business. Later it said that it is in the quick service business. Today it says that it is in the value business.
When you have vision it affects your attitude. Your attitude is optimistic rather than pessimistic.
—Charles R. Swindoll.
Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.
—Jack Welch, former Chairman and CEO of GE.
Why do I need Business Strategy?
Crafting and executing business strategy is central to managing an enterprise and winning in the marketplace. At the heart of strategic thinking is the ability to anticipate major shifts in the competitive landscape and identify emerging opportunities. Hence, business strategy typically evolves over time, as firms adapt to changing market conditions.
A company’s strategy is the game plan management uses to stake out a market position, compete successfully and achieve organizational objectives. Firms can deliver above-average profitability by strengthening their long-term competitive positions.
How do I get started?
Business Strategy involves intuition just as much as management science. There is no perfect way to design a winning strategic plan, but creativity and out-of-the-box thinking will go a long way. The more you understand your industry, your company, and your stakeholder “wish list,” the better your strategy will become.
A good guideline for establishing an appropriate time horizon is the full business cycle. It varies by industry, but for most businesses, a three-to-five-year time frame is optimal. Average profitability over the entire period is more important than profitability in any particular year.
Harvard’s Strategy Prowess
Dr. Michael E. Porter and Dr. Clayton Christensen, both from Harvard Business School, are leading experts in the field of business strategy. Their work is used by Fortune 500 companies and startups alike and provides an excellent place to begin your business strategy research.
Michael Porter asserts that strategy must define and communicate an organization’s unique position and that it should determine how organizational resources, skills, and competencies are combined to create competitive advantage.
Today’s most cited scholar in economics and business, Michael Porter is best known for his work on competitive strategy and the economic development of nations, states, and regions. A widely adopted strategy that bears his name is Porter’s Five Forces—a holistic way of looking at any industry and the underlying structural drivers of profitability.
Understanding the underlying causes of the five forces helps managers to identify an industry’s current profitability and anticipate the influence of competition over time.
Disruptive innovation describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves upmarket, eventually displacing established competitors.
The essential Business Strategy Books (disclosure)Suggested Resources
- On Competition, Updated and Expanded Edition — Michael E. Porter’s seminal work, capturing his unique ability to bridge theory and practice. For decades, Porter has shaped the thinking of industry practitioners and academia alike.
- Understanding Michael Porter: The Essential Guide to Competition and Strategy — a concise, accessible summary of Porter’s revolutionary thinking. Written with Porter’s full cooperation by Joan Magretta, his former editor at Harvard Business Review.
- Strategy and Competition: The Porter Collection (best value) — 3 books for one great deal, this collection highlights the most important ideas and concepts from Michael E. Porter.
- The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Management of Innovation and Change) — cited by visionary leaders like Steve Jobs and Malcolm Gladwell, this bestselling classic on disruptive innovation is a must read and a staple for business strategists.
- The Innovator’s Solution: Creating and Sustaining Successful Growth – expanding on the idea of disruption, this work shows just how timely and relevant these ideas continue to be in today’s hyper-accelerated business environment.
- The Innovative University: Changing the DNA of Higher Education from the Inside Out — for anyone interested in how MOOCs are disrupting higher education, this book is for you.
Three Recommended Business Strategy MOOCs
- Foundations in Business Strategy, run on Coursera by the University of Virginia, explores the underlying theory and frameworks that provide the foundations of a successful business strategy.
- Developing Innovative Ideas for New Companies from the University of Maryland on Coursera. This course uses proven content, methods, and models for new venture opportunity assessment and analysis.
- On Strategy : What Managers Can Learn from Philosophy from BCG Fellow Luc de Brabandere at École Centrale Paris. The course uses philosophical theories applied to business strategy to help managers think more creatively.
- My Analysis of US-based fast casual restaurant chain Chipotle Mexican Grill free download—an assignment for the Foundations of Business Strategy MOOC.
- Foundations in Business Strategy – University of Virginia
- The Five Competitive Forces that Shape Strategy – HBR
- Disruptive Innovation – Clayton Christensen
- Value: Kotler on Marketing