A business strategy contains a number of key principles that outlines how a company will go about attaining these goals.
It explains how to deal with your competitors, look at the needs and expectations of customers, and will examine the long term growth and sustainability of their organisation.
Not all businesses get it right straight away. There are natural weaknesses within all organisations for various reasons. What a business strategy does is try to remedy these weaknesses so that companies suffer their impact too greatly. Strategies look at these future risks and help develop ways in which they can overcome these obstacles
The reason why having a strategy is so important is because it gives businesses time to get a sense of how they are preforming, what their capabilities are, and if these capabilities are able to help them grow.
Strategy helps long term planning
Creating and tracking progress against an annual operating plan is an essential management tool for any company. What is often missing is the relationship these plans have to the future. Too often annual operating plans are created from the rear view mirror. What happened last year and where should we go in the coming year? These are all good intentions.
While you have to be prepared for short term tactics, the main job of Strategy is to prepare you for a 3 year or 5 year or even a 10-20 year plan in some cases. When you plan for so many years down the line, you become creative and also you stand on the toes of your feet because your competitors don’t look so strong 10 years down the line nor will you be insecure about your business. You have a plan and you are now confident.
Without a clear picture of what you want the future to look like, it will always be more reactive than proactive. A well-articulated 3 to 5 year long term view of the company should serve to inform the annual operating plan. The annual plan then becomes the stepping stone toward the achievement of the longer term goals.
Strengths and Weaknesses
At first glance this seems too obvious and you are saying to yourself, “Of course we know what our strengths and weaknesses are!” We cannot disagree. No one knows your business better than you. On the other hand, are you leveraging strengths (competitive advantages) and do you have plans to close capability gaps in your organization (weaknesses)? Strategy creates a higher level of awareness and provides greater focus on activities that will make the organization more successful.
Skills & Knowledge
If you know where you want to take your business over the long term, you will have a much better idea of the kinds of capabilities you will need to achieve your goals. Strategy defines and drives decisions in organizational design. Therefore by proactively pursuing new skills and knowledge, you prepare the organization for the intended future state and your odds of success increase.
Strategy helps with sustainability and competitive advantage
When you are making your strategy, you look at where you are standing in the market currently and you plan down the line. As a result, you are increasing the sustainability of your business. You are planning for anything that does not work out well for you and you are also planning in case anything works out too well.
Similarly, because you know your core strengths, your vision and mission and because you know your direction forward, you will have a tremendous competitive advantage which you can build over the years.
Strategy Optimizes and increases profits
One of the tasks assigned to the strategy department is to ensure price competitiveness while keeping an eye on margins. Besides doing that, Marketing strategy actually tightens up the complete process and operations of the organization, thereby contributing to a possibly increased profit and an increase revenue.
Strategy leads the organization with a single objective
Strategy always has an eye on the future and it guides the organization in moving forward in a planned manner. The business itself exists to make profits. So we can definitely understand that strategy actually optimizes the organization for an increase in revenue and hence an increase in overall profits.
The strategy for the organization is decided at the very top and then percolated down the line. The good thing about this is, that it aligns the complete organization with one objective. There is one hiccup here though. It is critical that after the strategy is made, the main points and the way forward be communicated down the line even to the executive levels.
You might filter the communication and you might give only selected information to the bottom most levels. But sharing such communications with internal employees is very important because it gives each of them an excellent vision of where the organization is heading. It also helps the decision making of each individual and even departments and groups collectively because they know what the organization wants from them.