Introduction – Strategy for a Business:
- Business strategy became a regularly used concept, often with a focus on customers and competitors. Business strategy is more focused. It defines how the firm will deploy its resources in a given market or product area. Lets see the best strategy for a Business to be successful & profitable.
- Competitive or business strategy – Strategic Business Units (SBUs) are a part of an organization for which there is a distinct external market for goods or services how each business attempts to achieve its mission within its chosen area of activity.
- Here strategy is about which products or services should be developed and offered to which markets and also the extent to which the customer needs are met whilst achieving the objectives of the organization. A term that is often used in relation to business strategy is SBU, or strategic business unit. SBU means a unit within the overall corporate entity for which there is an external market for its goods and also services, which is distinct from that of another SBU.
Strategy for a Business
In business administration the term Strategy has a short history, approximately 30-40 years. In military organizations the term has an ancient history. When the term strategy was first used in business administration its foremost meaning was to use the company’s resources to reach the company’s goals. In today’s strategic literature the term strategy has several different definitions. According to Mintzberg many of these definitions can be adapted into one or several of the following four categorises.
- Strategy as a plan – is the classic perspective where a plan is developed and then implemented. Decisions and activities should be guided by clear and explicit strategies that should be analytically well constructed.
- Strategy as a pattern – where the patterns in the way of acting in organisations is the strategy.
- Strategy as a position – in this category the focus lies on market positions, competitive advantages, cost levels etcetera. i.e. the determination of particular products in particular markets.
- Strategy as a perspective – where researchers look at the organisation and also its way of doing things e.g. vision, organisational values, directions and norms.
The purpose of the business strategy is to achieve and also sustain a competitive advantage that is profitable. The business strategy consists of an integrated plan of action to achieve the set goals by coordinating the company’s resources. The functional strategy coordinates the different functions in the organisation so they correlate with the business strategy
Miles & Snow– Strategy for a Business
In 1978 Miles & Snow developed a strategy typology based on existing research and also studies from four different branches. The starting point of the typology is based on decisions made by top management. The decision is the foundation for what Miles & Snow call the adaptive cycle.
Miles & Snow Process:
The adaptive cycle contains three processes that are needed for the company to adapt to the demands of the environment; these are Entrepreneurial, Engineering and Administrative. The processes can be seen as problems, which top management need to consider. There is a mutual dependence between these processes and therefore the problems must be solved simultaneously. The Entrepreneurial problem has issues related to a specific product or service and the targeted market. The Engineering problem treats issues of operationalising the solution of the Entrepreneurial problem. The Administrative problem relates to the rationalisation and stabilisation of activities used to solve the entrepreneurial and engineering problem. From these three processes Miles & Snow presents four different types of strategies to move through the adaptive cycle.
There are three successful organisational types and strategies; Defenders, Analyzers, and Prospectors, as well as one “failure”, the Reactor that consists of companies that have failed to adapt to one of the successful strategy types
Porter- Strategy for a Business
The foundation of Porter’s strategy typology is the market and the five competitive forces that effect the competition in the industry. The five forces are:
- Threat of new entrants
- Bargaining power of buyers
- Bargaining power of suppliers
- Threat of substitute products or services
- Rivalry among existing firms
Companies need to take these five forces into consideration when deciding on business strategy. The strategies Porter present are all considered to provide a good defence against the five forces. Porter describes competitive strategy as:
”taking offensive or defensive actions to create a defendable position in an industry, to cope successfully with the five competitive forces and thereby yield a superior return on investments for the firm”
Porter Business Strategies
There are four business strategies.
Overall Cost Leadership: The company offers product(s) or service(s) that are similar or almost similar to a competitor’s product(s) or service(s), but the product(s) or service(s) costs less.
Differentiation: This strategy is characterized by the company’s product(s) or service(s), which are differentiated from the competitors’ product(s) or service(s) with specific preferences that are appreciated by the customers. Thus by using a differentiation strategy companies try to create a brand image and thereby decreases the customers’ price sensitivity
Cost Focus: This strategy is similar to the Overall Cost Leadership strategy. The difference here is that the company should focus on a specific segment on the market instead of the market as a whole.
Differentiation Focus: This strategy is the same as the above mentioned, however the belief is that the focus on only one market segment will lead to that differentiated products can be provided to fit the customers better than companies focusing on the whole market.
In brief, Porter says businesses – but not the Corporate level – must choose between ‘cost leadership’ and so compete on price, and ‘differentiation’ and so compete on quality
Profit = Volume × Margin so cost leaders need high volume.
For Example: Ford’s Motor Car division – an SBU – launched its Mondeo model, aimed at fleet car buyers, who had not favoured the Sierra, its predecessor.
Choice of Strategy Typology
The two most common strategy typologies in strategic management are the two above mentioned, presented by Porter and also Miles & Snow. One criticism towards these two typologies are that they were developed several years ago. Greve’s development of Porter’s two generic strategies is illustrated below
Greve’s development of Porter’s two generic strategies
Greve develops Porter’s two generic strategies by making a distinction between standardised products and also the need of flexibility in production. By this division, five strategies are reached; Mass production, Lean production, Product developing, Marketing and also Customisation strategy
Cost leader strategy: Here the company’s products are similar to the competitor’s products. The Cost leader company however produces its products to a lower cost and sell them at a lower price. The products are often standard products. Other characteristics for this strategy are that the company invests little recourses in R&D, marketing and also service.
Product developing strategy: This strategy is characterized by the large investments of resources in R&D. Miles & Snow call this strategy Prospectors.
Marketing strategy: The physical products sold by the company don’t differ in a decisive manner from the competitor’s products. By marketing actions (advertising, service etc.) the company aims to differentiate themselves from the competitors. This strategy shares some characteristics with Miles & Snow’s Defender and also Analyzer Strategies.
Customization strategy: Companies with a Customization strategy are very customer oriented. By a very flexible production they reach a high level of adaptation to each individual customer or a small group of customers
LIKE WHAT YOU’RE READING?
CHECK OUT SOME OF OUR OTHER GREAT CONTENT HERE:
- OBJECTIVE OF THE BUSINESS – EXPLAINED
- WHY ETHICS IMPORTANT IN BUSINESS?
- WHAT ARE THE ETHICS OF BUSINESS?
- WHAT IS A BUSINESS MANAGEMENT?
- EFFECTIVE BRANDING METHODS
- UNDERSTANDING CONSUMER BEHAVIOR
- HOW TO INCREASE SALES?
- WHAT IS THE CONCEPT OF BUSINESS ENTITY?