Business Strategy

What is Business Strategy?


The business strategy is a document of key importance for any business. It sets specific long-term aims (three to five years) for the business and the means by which they are to be achieved. Strategy consists of three components:

- Corporate mission - a short text for employees and external business partners defining the field of business and the relationship to stakeholders;

- Corporate vision - numerical and verbal objectives for selected key performance criteria for the period of strategic planning;

- Corporate strategy - a set of necessary changes (projects) interlinked in timing and logic that must be implemented to achieve the corporate vision. 

You must periodically update such a business strategy to react to changes in external environment (legislation, customers, suppliers, etc.) and to competition.

Why is Business Strategy important?


General market trends in all manufacturing and servicing industries are fierce competition, the abolition of commercial barriers, fast technological development – and as a result - globalisation.  Successful companies must react to these trends through an ongoing, active search for competitive advantages and their effective exploitation.  Such a process, like any other business process, has to be formalized, including its output. A complete Business Strategy structured as stated above is a result of creative team effort, based on valid information on the relevant market.

Corporate strategy is an important document for the management of the company. To achieve its purpose, you must transform business objectives to the department level, and set up accountability for implementation of changes including links to the motivation of individuals. Business strategy is usually a basis for the design of partial strategies, such as sales and marketing strategy, manufacturing strategy, R&D strategy, or personal strategy. Corporate strategy becomes a template for each important decision by asking the question: does this decision support the achievement of our goals and is it compliant with our strategy?

Business strategy is to a limited extent designed also for stakeholders in the company, namely for creditors and investors that judge it by making a decision on the allocation their funds. Strategy is to an increasing extent the subject of review from customers looking for suppliers – long-term partners. Having a reasonable strategy, such a supplier represents a more stable business partner. Many companies, above all small ones managed by their owners, do not have a written strategy. They rely on the entrepreneurial skills and intuition of the owners, or managers, respectively. This approach is successful to some extent, but such a company is managed less effectively in the long run than a similar company with a written strategy.
How do you design a Business Strategy?
For business strategy design both process and the resulting document are important. You should set up the process in such a way that:

- The strategy is the result of team work; a combined effort on the part of all the key people in the company;
- The team must have available as much objective information on the relevant market as possible. This condition is usually achieved only if data on selected trends are collected in a systemic and structured way over a longer period;
- The team effort must the competition of ideas, not departments.

There are some proven techniques, which help in designing a business strategy. For instance, a SWOT analysis for assessment of the current position, strategic maps for competition analysis, analysis of strategic scenarios for selection of the best strategy. A written business strategy should have a clear structure that will be designed at the very beginning. The text must be comprehensible to those who will read it and extensive analysis should be in appendices.

The design of a business strategy is usually a senior management task; however because of its importance owners, Board of Directors or Supervisory Board, almost always must approve it. The senior management must present the proposed strategy to them.

The approved strategy has then to be consistently implemented in the company. To do it, you have to inform all employees of most important conclusions. It is useful to develop a communication plan that will determine the contant and channels of such communication to various groups of employees.
What is the result?

The result is a corporate document that should consist of the following sections:

The corporate mission as an as short as possible definition of business subject and market that the company will serve. Part of the mission should be a description of relationship of the company to its customers, suppliers, employees, the municipality, and even the protection of the environment. This text is preferably designed for employees and other stakeholders in the company.

Long-term objectives have to be set in such a way that they cover all important performance elements necessary for success. They are usually based on the selection of Critical Success Factors (CSF) by using a Balanced Business Scorecards approach. You have then to choose for each selected CSF one or more Key Performance Indicators (KPI). KPIs must always be quantifiable and can be either financial or non-financial. The long-term goals must be stretching and realistic at the same time. Corporate goals have also to be cascaded down to department level in companies with a more complicated structure.

Business strategy is in fact a selection of means of achieving corporate vision that are necessary for the company and the most efficient and effective. Each objective is achievable by more than one route; thus the strategy should be a result of the comparison of more alternatives and the selection of the best one. Strategy is then a list of changes (projects) and a timetable for their implementation. It is very important to assure and maintain the logical coherence of individual projects to prevent their conflicting, and to achieve synergy. Part of the strategy design should also be risk management. This is an analysis of possible failures and their causes in strategy implementation. The failures may arise from your internal resources or from unexpected and sudden changes in the business environment (legislation, competition). Risk analysis should identify key potential risks, their systematic minimisation or elimination and the design of a contingency plan. It sets a framework of actions that the company will take if the risk is realised.

What benefits can you expect?


Benefits of a reasonable business strategy are evident: the company goes in the direction best for it in terms of sustaining competitiveness. This means that its return on capital will in the long run be higher than the industry average. This benefit is realised mainly in that all employees know not only corporate objectives, but also the goals of their departments and their own goals. They can then do their jobs in a manner that helps to meet these objectives.

Not even the best strategy can generate these events automatically. Therefore, it depends on the overall management quality; how intentions are understood and implemented. Particularly in cases where the strategy is a great qualitative or quantitative leap in a company's market position, it is wise to expect some negative reactions from employees that are targets of changes. In such cases it is useful to apply change management to identify early resistance to change and to deal with them.

Why engage an external consultant?


Considering what I said above, the design of a business strategy is mainly the task of the senior management, or owners respectively. They know best the market position of the company, their resources and their capacity to improve it. Therefore they must contribute key ideas and thoughts on how to develop the company further. No external consultant is able to replace them fully in this role.

It is also clear that design of a corporate strategy is not an easy job, since it combines market analysis, project management, change management, risk management and other management techniques. Because of that, there is a large space for an experienced consultant to support the working team. He/she may also be an additional source of information on important market and industry trends.

My own experience


- Support of the senior management of a manufacturer of fireproof doors in design of their business strategy;
     
- Application of strategy design principles in improving the performance of the central maintenance department in Škoda Auto;

- Review of business strategy as part of several performance improvement projects in various industries.