What are Business-Strategy Principles?
Strategy principles are the fundamental rules and guidelines that serve as a foundation for reasoning and decision making about the longer-term direction for an enterprise. When used properly, strategy principles help organizations grow and achieve competitive advantage in the marketplace. Business-strategy principles help executives decide where to compete (markets, geographies and products) and how to compete (cost leadership, customer service or product performance). The strategy principle of “differentiation,” for example, suggests that businesses that offer unique services or special product features that appeal to customer needs stand out in the marketplace and command a premium price. This strategic principle enables an organization to create more value and outmaneuver rivals and competitors.
Some business leaders believe in the “first mover” business-strategy principle. This principle suggests that if a firm can be innovative and introduce new solutions and services, they will achieve superior results. However, some business leaders believe that first movers usually fail and it is the fast followers who will ultimately gain a competitive advantage. Understanding fundamental business-strategy principles helps leaders formulate actions, initiative, and priorities that ensure long-term sustained success.
What do you mean by business strategy?
Business strategy is essentially a plan to win! It is the responsibility of business leaders to formulate a plan of action and define what winning means for their line of business. A more in-depth meaning of business strategy consists of additional elements. For example: Achieving long-term success by leveraging new sources of competitive advantage while anticipating shifts, opportunities, and disruptions in the economy as you shape the strategy of your business.” Business strategy also means developing innovative solutions that help customers solve problems and create value while enabling your own organization to grow and deliver a superior return on investment.
What are the Key Elements of a Strategic Plan?
A good strategic plan should incorporate the following elements:
1) An overarching mission, vision, and list of values of the enterprise.
Highly successful organizations have a “north star” to build a strategy around. This helps energize people and give them a sense of purpose and clarity about the overarching direction and principles that govern the enterprise.
2) Clear goals, objectives, and outcomes to achieve.
After they have identified the organization’s purpose and vision, the leaders of the enterprise or leaders of key functions need specific and clear goals to accomplish a strategic agenda.
3) Corresponding measures or indicators used to monitor progress.
Defining clear goals alone is not enough to ensure long term sustained success. It is essential that leaders are specific about the measures of effectiveness to track progress.
4) Clearly identified customers and market segments.
Good strategies focus on the customer. However too many organizations try to be all things to all people. Highly successful organizations focus on the customers or emerging customers that will be critical to future growth and opportunities.
5) A unique value proposition.
Strategic organizations are keenly aware of how they add value and contribute to the economic success of key customers and stakeholders. Organizations create a lasting bond and loyal customers when clients and customers believe in its promise to help them succeed.
6) A way to differentiate the business stand out in the market.
Differentiation goes to the very heart of strategy. Everyone associated with the business including suppliers, competitors, and customers (especially future customers) need to be aware of the things that set it apart. Differentiation reduces the perception of “sameness.” Sameness tends to make the business’ products and services a commodity which requires it to compete on cost alone. This makes it more challenging to achieve a superior return on investment.
7) Awareness of opportunities and threats in the external business environment.
Businesses operate in a dynamic and changing world. Organizations that recognize and adapt to the challenges and see new opportunities will be better equipped to maintain a competitive advantage over their rivals who are slow to see shifts in the environment.
8) A thorough assessment of strengths and competencies as well as vulnerabilities.
Changes in the environment combined with competition from rivals means that the enterprise must reinvent itself, develop new competencies, and restructure the way it operates. This means leaders must be open to change and ready to let go of practices that may have worked well in the past but won’t work in the future.
9) A roadmap or guide with corresponding actions, initiatives, and timelines that are communicated, understood, and accepted by organization members.
Ultimately strategy is everyone’s job. As such, everyone in the organization needs to understand the game plan. Then, having a clear line of sight, everyone needs to know how they can contribute and have a personal plan that is aligned with the direction the business is moving in.
10) A mechanism that enables leaders to meet periodically, discuss new insights, and amend the strategic plan.
Good strategy requires more than good tools, concepts, and skills. The heart of good strategy is conversation and the exchange of ideas. Strategy is a fluid process and leaders at all levels need opportunities to discuss modifications and additions to the strategy plan. Normally, leaders set aside time on a regular basis to check in and share their thoughts about the future and ensure that the enterprise will be vibrant and relevant in the future.
These ten elements define the essence of a highly effective business strategy.