Business Strategy: Meaning, Types, and Importance

Business Strategy: Meaning, Types, and Importance

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Chanchal
Chanchal Aggarwal
Senior Executive Content
Updated on Apr 12, 2024 18:27 IST

Business strategy involves a set of planned actions and decisions that guide a company towards its goals. It encompasses competitive positioning, resource allocation, and long-term vision to achieve success in a dynamic market.

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Marico, the parent company of renowned brands such as Parachute, Saffola, Livon, etc., faced issues as it originated from traditional business. Let’s understand the challenge, the business strategy it has used to overcome it and the outcome derived from that strategy.  

Challenge:

Marico originated from Bombay Oil Industries, a traditional commodities business in Mumbai’s bustling Masjid Bunder market. The challenge was modernising and transforming this traditional business into a leading consumer goods company.

Check out: Online Strategy Courses and Certifications

Strategy for Challenge:

Recognizing the potential in the fast-moving consumer goods (FMCG) sector, Harsh Mariwala strategically separated the consumer products division from Bombay Oil, establishing Marico as an independent entity.

Outcome of Strategy:

Marico grew to become one of India’s leading FMCG companies. The company’s turnover reached INR 74,370 million (US$1 billion), showcasing its successful transformation from a traditional business.

Check out: Difference between Policy and Strategy

Let’s understand what is a business strategy, its types and components.

Table of Content

What is Business Strategy?

Business strategy refers to an organisation’s well-structured plan of action and decisions to achieve its long-term goals and competitive advantage in the market. It involves carefully analysing the company’s strengths, weaknesses, opportunities, and threats (SWOT) and allocating resources in a way that aligns with its objectives and adapts to changing market conditions. The ultimate aim of a business strategy is to create a unique position in the market that sets the company apart and ensures sustainable growth.

Explore: What are the Three Types of Strategy?

What are Types of Business Strategy?

Cost Leadership

This strategy focuses on becoming the industry’s lowest-cost producer while maintaining acceptable quality levels. By minimizing costs throughout the value chain, a company can offer products or services at lower prices than its competitors, thereby gaining a competitive advantage.

Example: Maruti Suzuki, an Indian automobile manufacturer, demonstrates cost leadership by producing various budget-friendly vehicles that cater to a wide range of consumers. Through streamlined manufacturing processes, optimized supply chains, and local sourcing, Maruti Suzuki has established itself as a leader in providing economical yet reliable transportation solutions in India’s competitive automotive market.

Check out: Objectives of Strategic Management

Cost Differentiation

Differentiation strategy involves creating unique and distinctive products or services that stand out in the market. Companies adopting this strategy aim to offer something customers perceive as valuable and different, allowing them to command premium prices and build strong brand loyalty.

Example: Titan Company, an Indian watchmaker, showcases cost differentiation by offering various timepieces that blend quality with innovative designs at various price points. Combining unique aesthetics and features with competitive pricing, Titan appeals to consumers seeking distinctive and affordable wristwear options in India’s watch market.

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Focused Cost Leadership Strategy 

In this approach, a company targets a narrow market segment and strives to be the lowest-cost player. The company can achieve cost efficiencies by catering to a specific audience, leading to a competitive advantage within its chosen niche.

Example: Bata India, a renowned footwear brand, adopts a focused cost leadership strategy by offering affordable, durable footwear targeted at budget-conscious consumers. By concentrating on a specific market segment and emphasizing cost efficiency, Bata India maintains a competitive edge in delivering value-driven footwear solutions to various Indian customers.

Focused Differentiation Strategy

This strategy involves targeting a specific market segment with uniquely differentiated products or services. The company aims to serve the needs of this focused group exceptionally well, often allowing them to command premium prices due to the specialized nature of their offerings.

Example: Amul, an Indian dairy cooperative, demonstrates a focused differentiation strategy by providing various dairy products to different customer segments. Through its innovative and diverse product offerings, including specialized dairy items for health-conscious individuals and premium dairy products for discerning consumers, Amul effectively caters to distinct market segments while maintaining its reputation for quality and reliability.

What are the Key Components of Business Strategy?

Here is the table explaining all the components of the business-level strategy. We have used the example of Coca-cola to explain all the business strategy components.

  1. Vision and Mission
  2. Goals and Objectives
  3. Core Values
  4. SWOT Analysis
  5. Target Audience
  6. Unique Value Proposition (UVP)
  7. Competitive Analysis
  8. Key Performance Indicators (KPI)
  9. Tactics and Action Plans
  10. Resource Allocation
Component Explanation Example (Coca-Cola)
Vision and Mission Overarching purpose and long-term aspirations. Vision: “To refresh the world.” Mission: “To inspire moments of optimism and happiness.”
Goals and Objectives Specific, measurable targets to achieve the vision. Goal: Increase market share by 10% in the next fiscal year.
Core Values Fundamental principles that guide company behavior. Value: “Leadership: The courage to shape a better future.”
SWOT Analysis Assessment of strengths, weaknesses, opportunities, and threats. Strength: Strong global brand recognition.
Target Audience Specific customer segments the company aims to serve. Target: Teenagers, young adults, and families seeking refreshing beverages.
Unique Value Proposition Distinctive offering that sets the brand apart. UVP: Iconic taste and brand experience recognized worldwide.
Competitive Analysis Evaluation of competitors’ strengths and weaknesses. Competitor Analysis: Pepsi – Intense rivalry in the cola market.
Key Performance Indicators (KPI) Measurable metrics to track progress. KPI: Increase customer engagement on social media by 20%.
Tactics and Action Plans Detailed steps and strategies to achieve objectives. Tactic: Launch a new line of healthier beverage options to align with changing consumer preferences.
Resource Allocation Allocating resources to initiatives aligned with strategy. Allocation: Allocate 30% of marketing budget to promote new product line

Importance of Strategic Management

Direction and Focus

A comprehensive business strategy sets a clear path for the organization to follow. It defines the company’s mission, vision, and core values, providing employees and stakeholders with a shared understanding of its purpose. This clarity of direction ensures that everyone is working towards the same overarching goals, reducing confusion and promoting unity.

Competitive Advantage

Business strategy helps a company identify its unique strengths and capabilities that set it apart from competitors. By focusing on these differentiating factors, the company can create a competitive advantage that allows it to offer something valuable to customers that others can’t replicate easily.

Resource Allocation

Strategy plays a pivotal role in allocating resources effectively. The organisation becomes more efficient when resources are directed towards activities aligned with the strategic objectives. Resources are utilized optimally, preventing wastage and enabling the company to achieve its goals more efficiently.

Adaptation to Change

In a rapidly changing business environment, having a well-defined strategy is crucial. It enables the company to anticipate shifts in the market, technology, and consumer behaviour. The organization can quickly adjust its course with a strategic framework, ensuring it remains relevant and responsive.

Risk Management

Business strategies involve a thorough analysis of potential risks and challenges. The organization can develop contingency plans and risk mitigation strategies by identifying these risks early on. This proactive approach minimizes the negative impact of unforeseen events and helps the company navigate uncertainties with resilience.

Informed Decision-Making

A solid strategy provides decision-makers with a framework for evaluating choices. When decisions are aligned with the strategic direction, they contribute directly to achieving the company’s long-term goals. This prevents decisions from being made in isolation and ensures a cohesive approach throughout the organization.

Resource Optimization

The strategy encourages organizations to focus on their core competencies and areas of strength. The company maximizes its efficiency and effectiveness by directing resources to these areas. Unnecessary diversions of resources are minimized, leading to better utilization and overall performance.

Employee Alignment

Communicating the business strategy to employees helps them understand their role in achieving the company’s objectives. Employees become more motivated and engaged when they see how their work contributes to the bigger picture. This alignment fosters a sense of purpose and collective effort.

Long-Term Sustainability

Strategic planning takes into account the long-term sustainability of the organization. It considers market trends, technological advancements, and changing customer preferences. This forward-looking approach ensures that the company remains relevant and viable over time.

Measurable Progress

A well-defined strategy includes specific goals and key performance indicators (KPIs) that enable the company to track progress. Regularly assessing performance against these benchmarks allows the organization to identify areas for improvement and make necessary adjustments.

FAQs

What is business strategy?

Business strategy refers to a plan of action designed by a company to achieve its long-term goals and objectives. It involves making choices on how to allocate resources, differentiate from competitors, and create value in the marketplace.

Why is business strategy important?

Business strategy provides direction and purpose, guiding a company's decisions and activities. It helps organizations adapt to changing environments, seize opportunities, and create a competitive advantage.

How do you formulate a business strategy?

Formulating a business strategy involves analyzing the industry, market trends, competitors, and internal strengths and weaknesses. It includes setting clear goals, identifying target customers, and outlining the steps to achieve them.

What are various types of business strategy?

Types of business strategy includes cost leadership, cost differentiation, focused cost leadership and focused differentiation strategy.

How does business strategy differ from business model?

Business strategy outlines the approach to achieving goals, while a business model defines how the company will generate revenue and sustain its operations. Strategy focuses on competitive positioning, while the model focuses on monetization.

About the Author
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Chanchal Aggarwal
Senior Executive Content

Chanchal is a creative and enthusiastic content creator who enjoys writing research-driven, audience-specific and engaging content. Her curiosity for learning and exploring makes her a suitable writer for a variety ... Read Full Bio