Last week, we discussed the importance of setting goals for your business. While goals provide a sense of direction for your business, true growth and success comes from implementing a well-planned business strategy.
What is a Business Strategy?
Business strategy is defined by Business Jargon as a set of competitive moves and actions that a business uses to attract customers, compete successfully, strengthening performance, and achieve organizational goals. It outlines how business should be carried out to reach the desired ends (Business Jargon). A business strategy asks the question,” How should we compete in this business?” It answers the question with strategic management of the business to create a competitive advantage in your industry.
I’m sure your business currently employs some form of a business strategy. All businesses follow a strategically thought out plan based on the vision and mission of the company, but not all businesses create a real business strategy. Business strategy focuses on competition. As we stated above, it asks the question, “How can we compete in this business?” A successfully implemented business strategy results in an established competitive advantage for your company. A business without a proper business strategy lacks direction and profitability. There are three general business strategies, differentiation, cost leadership, and focus.
Differentiation – A differentiation strategy emphasizes an inimitable difference or differences between you and your competitor and create brand loyalty. The inimitable difference increases consumers willingness to pay premium costs instead of looking for a cost leader. Apple exemplifies a differentiation strategy. They create visually appealing, innovative products that separate themselves from their competitors. They established themselves as high quality and the tech industry leaders in innovation. Although other companies continue to produce products that function as well, if not better than Apple products, Apple continues to hold a competitive advantage due to their differentiation strategy.
Cost Leadership – Cost leadership strategies attempt to create a competitive advantage through lowering costs. A cost leader meets the consumers’ needs while incurring minimal costs for the services or cost of goods sold. Cost leadership often relies on high volumes of sales to succeed. Walmart succeeds worldwide because of their cost leadership strategy. They use bulk selling to keep prices down and still make a profit. Generally, bigger businesses effectively use the cost leader strategy since they possess the capital needed to finance bulk sales.
Focus – A focus strategy requires a company to enter a niche market. Focus strategies depend on a specific product, audience segment, or geographical location. They own a miniscule portion of the market share but because of the specificity, they still profit. A local company, Quadratec, exemplifies the niche strategy. They exclusively sell Jeep parts and accessories. They own a sliver of the automotive market share, but they profit from selling to the Jeep users of the world.
Selecting the right strategy for My Company
A successful business requires the implementation of one of the three business strategies. Michael Porter, a Harvard professor best known for his Porter’s Five Forces, writes that many firms end up “stuck in the middle (Porter).” When stuck in the middle, Porter also states that you are, “guaranteed low profitability and possess no competitive advantage.”
Not possessing a competitive advantage leaves you vulnerable to new entrants or current competition stealing your business and low profitability. Selecting one of the three business strategies helps defend your company from these outcomes. Choosing the right strategy involves a complete analysis of your current resources, strategy, visions, and goals. It takes time to select the right strategy, identify the competitive advantage you want to pursue, and take the steps needed to implement the strategy.
This process may take a couple months but working through it to get “out of the middle” and focus on one strategy provides opportunity for massive success and growth. Don’t be discouraged at how long it takes! I quote the Philly famous phrase, “Trust the Process!”
If you have any questions about business strategy or need help taking the next step to establish yours, feel free to reach out to me at firstname.lastname@example.org. Next week, I will address competitive advantages and what qualifies as a competitive advantage. As always, follow the Origami Technology Facebook page for more content each week!