What are the 4 business strategies?
The term "business strategy" is often used without being well defined. An important component of effective business strategy is creating value to address stakeholder needs. Business leaders need the skills to craft clearly defined strategies to communicate their organizations’ directions and achieve success. Show
Here's an overview of what business strategy is, along with four business strategy skills every professional should develop. Free E-Book: How to Formulate a Successful Business Strategy Access your free e-book today. DOWNLOAD NOWWhat Is Business Strategy?Business strategy is the alignment, organization, and integration of a company’s strategic initiatives to give it a competitive advantage in its current market. It's distinct from corporate strategy in that the latter determines which industries a corporation should operate in and where to allocate assets. For example, if streaming service Netflix decided to compete in the dishwasher market, it would involve drastically changing its corporate strategy because it would be entering a new market. Its business strategy, on the other hand, focuses on how it can succeed in its current market. While business strategy can be interpreted in several ways, it typically serves one of four primary functions, known as the four Ps of strategy.
An effective business strategy creates value for both internal and external stakeholders; the value stick is a visual representation of this process. The top of the stick represents the value created for customers, the middle represents the value the company captures, and the bottom represents the value created for suppliers. The stick has four categories:
To craft successful business strategies, professionals must leverage these factors to selectively pursue ideas that create value for customers, employees, and suppliers. Business Strategy Skills1. Creating Value for CustomersIt can be easy to think that charging the highest price consumers will pay is a good strategy. If customers are willing to pay more, it’s rational to charge that amount—especially if it leads to a higher profit margin. The problem is that it doesn't create value for customers. Creating value for customers requires increasing the gap between a product’s price and customers’ WTP to produce customer delight. There are two primary ways business leaders can do so:
WTP is difficult to pinpoint because it varies between customers. Consequently, increasing customers’ WTP isn't as simple as reducing price. Business leaders need a thorough understanding of customers' different demographics and values, which can be:
Each factor can impact a customer's decision to choose one company over another, regardless of price. 2. Increasing Employee SatisfactionEmployee turnover is costly for businesses. According to a 2019 Gallup study, the cost of replacing a single employee ranges from one-half to two times their salary. An effective business strategy should incorporate employee satisfaction to prevent voluntary turnover. The value stick framework can be applied to both employee and customer satisfaction. To create value for employees, managers should increase the gap between the minimum compensation employees will accept (or employees’ WTS) and the compensation they receive. There are two ways this can be accomplished:
Knowing what your employees value is crucial to increasing their satisfaction. Ask for feedback on what they want and strongly consider it. 3. Creating Value for SuppliersSuppliers are one of the most important stakeholders in business strategy. Yet, finding cost-effective suppliers willing to work with your business can be challenging. To address this, professionals responsible for hiring or working with suppliers must create value by increasing the gap between the minimum price a supplier will accept (their WTS) and the payment they receive. This is known as supplier surplus. A simple, but unsustainable, way for businesses to create value for suppliers is to pay them more. A successful business strategy creates value for suppliers without sacrificing the firm's bottom line. For example, if a supplier experiences issues with waste management and high internal costs, a business leader can consider helping them adopt lean manufacturing, a production process focused on maximizing productivity and minimizing waste. Through lean manufacturing, suppliers—and even customers—can reduce costs and save money. Consider your suppliers' goals and challenges and think of ways to create a partnership to address them. Finding mutually valuable solutions can increase supplier surplus without negatively impacting your profit margins. 4. Effectively Managing Your Firm’s MarginsWhile your business strategy should create value for stakeholders, you shouldn't neglect profit. Effectively managing your firm's margins is vital to building an effective strategy. Your strategy should ideally widen the gap between price and cost. There are two ways this can be accomplished using the value stick framework:
Developing Your Business Strategy SkillsThese four skills are crucial to crafting an effective business strategy. Developing them takes time, effort, and a thorough understanding of the competitive landscape. These skills aren't just for executives or top-level managers—they’re important for anyone who is or aspires to be a business leader. One way to develop your business strategy skills is by taking an online strategy course. Doing so can enable you to understand business strategy at every organizational level, learn the language of strategy to engage in meaningful conversations, and adopt a value-based mindset to recognize valuable opportunities that strengthen your firm's competitive advantage. Want to learn more about how to craft a successful strategy for your organization? Download our free e-book about formulating a successful business strategy and explore our online strategy courses. What are the 4 types of business strategies?What are the Types of Business Strategy?. Organizational (Corporate) Strategy.. Business (Competitive) Strategy.. Functional Strategy.. Operating Strategy.. What are the 5 business level strategies?What is Business Level Strategy? [+ 5 Examples]. Defining Business Level Strategies.. #1 Cost Leadership.. #2 Differentiation.. #3 Integrated Low-Cost Differentiation.. #4 Focused Differentiation.. #5 Focused Low-Cost.. What are the 3 main strategies in business?Key Points
According to Porter's Generic Strategies model, there are three basic strategic options available to organizations for gaining competitive advantage. These are: Cost Leadership, Differentiation and Focus.
What are the 4 major competitive strategies?4 Types of Competitive Strategies. Cost leadership strategy. It suits large businesses that can produce a big volume of products at a low cost, and that is why Walmart implemented this strategy. ... . Differentiation leadership strategy. ... . Cost focus strategy. ... . Differentiation focus strategy.. |