What is Business Strategy? Components, Levels, and Examples (2023)

A person hitting the gym for maintaining his/her fitness levels will have different ambitions than someone who is competing for Mr. Olympia. Both of them use the same resources and tools but have different objectives.

Similarly, different types of businesses have different preferences or objectives. That is why businesses use different business strategies to accomplish their objectives or goals. Business strategies may look simple theoretically, but when you are making one, it is more difficult than “submitting Mount Everest.”

However, in this article, we are going to have a really deeper look into the business strategy, its components, levels, and practical examples. If you are up to learning something new today, then fasten your seat belts.

Table of Contents

What Is Business Strategy?

To be honest, there is no specific definition for business strategy. Still, if we have to define it in simplest words, business strategy is a roadmap to conduct a business. That is, it is a combination of decisions, actions, evaluations, analyses, and readjustments to achieve the overall organizational goals.

Every business has different types of goals that may include creating a competitive advantage, market penetration, maximizing profitability, market growth, and so on. The most important thing is, a faulty or “brainless” business strategy will only lead to your business’s demise because you can easily disappear in a massive crowd of competitors.

Importance of Business Strategy

We have already established an understanding that business strategy has a decisive role in any organization’s success. Here is why;

  • Planning. Nothing is possible without PLANNING; it is as simple as that. A business strategy is always interlinked to a business plan. The business plan tells you what to do, and the strategy tells you how to do it. Most importantly, planning must address two things;
    • Short-term plans/goals (daily, monthly, semi-annually, yearly goals, etc.)
    • Long-term plans/goals (three years, five years, ten years goals, etc.) It is needless to say that short-term goals must be the stepping stones to achieve long-term goals.
  • Strengths and Weaknesses. Every business has strengths that it can leverage to create a competitive advantage, and no one knows your business strengths better than you. But, what about the weaknesses or gaps in your organizations? Do you have a plan in order to address those weaknesses or flaws? This is where business strategy becomes useful as it helps in creating awareness in the organization and provides a layout to overcome those flaws.
  • Skills and Knowledge. Setting business goals and making plans for them is one thing. But, you will need relevant skills and knowledge to get to where you want. You must know what skills and what type of knowledge/intel you need to achieve your goals. A business strategy helps you define the benchmarks and skills you need proactively to maximize the chances of organizational success.
  • Resource Allocation. Whether you are launching a small business or a mega enterprise, one thing is for sure- finite availability of resources. Your business strategy helps you divide those resources according to your business goals. That is, how much can you spend on marketing campaigns? Should you have your own HRM department, or will you rely on a third party? And so on.
  • Environmental Impact. There is no doubt that you must have done homework before launching your startup. That is, you would have done market research, competitor analysis, identified growth opportunities, and customers’ preferences, etc. However, the question is, how thorough is your research? Have you undertaken a detailed analysis of changing customer preferences? Have you thought about the evolving market trends, and how will you cope with them? A good business strategy always focuses on an in-depth environmental scan.

Levels of Business Strategy

Generally, we categorize business strategy into four different levels, including;

Corporate Level

The corporate level is the biggest and the broad level of any business strategy. This is the phase where the entrepreneurs decide what their business goals are and how they are going to achieve them. Moreover, in this phase, a business sets its vision, mission, and corporate objectives such as growth, stability, retrenchment, etc., which every employee will strive hard to achieve.

Business Unit Level

Alright, once the management decides its corporate goals, the next step is to set a layout for different business units. That is, how are you going to compete in the market? What will be your strength or competitive advantage? How will you differentiate your brand? Are you going for the cost leadership option? Or is it product leadership? All these strategies must be aligned with corporate-level strategies.

Functional/Operaional Level

A business consists of smaller units or departments which set their own functional-level strategies. For instance, the finance department will set its own business strategies, and so does the marketing, sales, or HRM department. Different departments must be able to maintain a strong inter-department relationship, fulfill their functional goals, and integrate with higher-level strategies.

Market Level

The market level strategy basically focuses on your market growth approach. There are different growth approaches. For instance, whether you want to follow the market penetration approach? Or is it diversification or product development?

6 Major Components of Business Strategy

Alright, we have discussed the different levels of business strategy; let’s have a look at its major components.

Vision, Mission, and Objectives

The core objective of any business strategy is to achieve organizational goals by using available resources. A business strategy sets a direction and gives a vision; what and how should you do it, and who will be accountable for the actions.

Core Values

Values define that what is allowed and what is prohibited. Organizational values define work ethics, communication codes, etc. Most importantly, these values are the same for all departments and employees.

SWOT Analysis

SWOT is the abbreviation of (Strengths, weaknesses, opportunities, threats). Conducting a SWOT analysis is an integral part of any business strategy. Why? Because SWOT analysis helps a business in identifying its strengths (e.g., competitive advantage) and weaknesses. Moreover, it gives in-depth information about the market opportunities a business can avail and the possible threats in the market (e.g., competitors, economic policies, state or national laws, etc.)

Operational Tactics

Operational tactics help businesses at the unit and functional levels to achieve their goals with maximum efficiency and effectiveness. That is, how to utilize the resources in an optimal way to save time and effort.

Resource Allocation

The most precious thing for any business is its resources. Inefficient allocation or usage of resources will only lead to one thing- failure. A business strategy defines how to allocate the resources to different departments and units and who will be responsible for handling them.

Measurement

Any business strategy will fail if it doesn’t have a measurement benchmark. That is, a business needs to keep evaluating its performance and compare it with the benchmarks/standards to achieve objectives or goals set by the organization.

Business Strategy Examples

So, we have discussed business strategy from different aspects, and now is the time to have a look at real-world examples where companies followed different types of business strategies. Let’s have a detailed look at these types of business strategies and their examples.

Cost Leadership

One of the world’s largest fast-food chains, McDonald’s follows the cost leadership strategy by practicing the division of labor option. The company hires inexperienced staff and trains them rather than hiring expert cooks who charge higher salaries for their skills. This way, the company cuts down its production costs.

Product Differentiation

Apple Inc. is a perfect example of a product differentiation strategy. Smartphones were a common product in global markets but what made Apple a different brand was their unparalleled features and unique designs. Apple still introduces unique features whenever it launches a newer version of their smartphone (iPhone), and the others follow later. In short, Apple is the TRENDSETTER.

Focus Strategy (Focusing on A Specific Niche)

For instance, Coca-Cola Company offers different types of beverages globally, but their diet-coke is a special product for health concious people. Apart from that, Porsche, the iconic car company, deals in sports cars while Nissan deals in mid-sized cars. Rolls Royce, another gigantic name in the automobile industry, deals explicitly in luxury cars.

Find New Market for your Product

A premium tissue brand in Pakistan, Rose Petals also launched a “party pack,” which proved to be very useful for events like weddings, parties, etc. These tissues are cheaper than the standard tissues from Rose Petals, but they were very effective in catering to the needs of a bigger audience.

Similarly, toilet paper, another classification of tissue paper, is a great example of finding a new market with the same product.

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Author: Nathanial Hackett

Last Updated: 01/05/2023

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