Strategy: Why It Matters, How to Build It

Wikipedia.org defines strategy as a high-level plan for achieving goals under uncertainty. It includes a set of commitments and integrated and coordinated actions.

Before proceeding to the next paragraph, please note, the focus of our article is on business strategy. It does not cover strategies related to personal or other topics.

The company designs strategies to exploit core competencies and gain a competitive advantage. That is through a series of detailed strategic planning processes. The company documents it in a strategic plan. In a standard form, the central part of a strategic plan consists of:

• Mission and mission
• Company’s core value
• SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats)
• Strategy, tactics or action plan
• Measurement and monitor

Three strategy levels

In a company, strategies are relevant at three different levels. Each level requires a different approach. The three levels of strategy are:

1. Corporate level
2. Business level
3. Functional level

At the corporate level, companies design strategies for the organization as a whole. They must make decisions about the areas in which the company must operate and compete. Top management formulates a statement of vision and mission and the company’s future. In this case, senior management is responsible.

Corporate strategy is a guide for strategies at the business unit level. At the business level, the company decides what competitive position it wants to achieve. Two common approaches are cost leadership and differentiation. Both need to be in accordance with the target market, whether the company is targeting the broad market or focus on a niche market. Meanwhile, the decision on strategic responsibility lies with the head of the strategic business unit and their team.

As the name suggests, functional level strategies relate to business functions (departments) such as marketing, finance, production, and human resources. It involves setting short-term functional goals. Although each department has a different strategy, they must be aligned with the business unit’s strategy. So, there is a synergy between them.

Why does strategy matter?

Many companies fail to establish a competitive advantage. Failure arises because the environment changes, and they do not adapt to their strategies.

Meanwhile, other companies failed because they failed to implement the value creation strategy. They have a good strategy but are weak in implementation. That can happen, for example, because of the low awareness and commitment of executives and employees.

What’s worse is the company’s failure because it doesn’t have a strategy or has, but it’s terrible. Never mind achieving a competitive advantage, surviving in the market alone is a fortune.

The strategy provides direction and outlines measurable goals. It guides daily decisions and also to evaluate progress and change approaches as they move forward.

Two main reasons why companies need a strategy:

1. The strategy provides guidance on how the company must achieve its objectives. It describes what resources and capabilities a company needs and builds. Not only that, it tells about what the company does if the initial strategy fails.
2. A strategy allows the company to identify trends and opportunities in the future. When developing strategies, companies need to examine their business environment (as opportunities and threats) and their internal environment (as strengths and weaknesses). Sometimes, companies need to modify and develop different strategies to adapt to changing business environments.

Why do companies have different strategies?

Companies in an industry face a relatively similar business environment. They face the same political, economic, social demographic environment, natural environment, regulations (“PESTEL”). Thus, they face the same competitive pressures (stemming from barriers to entry, customers, suppliers, substitutions, the rivalry between existing companies). All of that raises relatively similar opportunities and threats.

However, not all companies have identical resources and capabilities. Both determine the strengths and weaknesses of each company.

Considering these four elements (opportunities and threats & strengths and weaknesses), each company faces a different strategic choice. They must make choices and decide how they will pursue strategic competitiveness. And, that results in a different strategy.

Choosing the right strategies is the first factor in realizing a competitive advantage. The next consideration is successful in implementing them. Companies need both to gain strategic competitiveness.

How to make an effective strategy

Designing a good strategy is difficult. Often, companies focus on competitors. And of course, that results in a bad strategy.

Mintzberg provides a valuable perspective on how you can build a strategy. He proposes five different perceptions about it (the five of us are familiar with Mintzberg’s 5Ps strategy).

Plan

Before starting an action, you need to make some detailed plans to achieve the goal. You have to choose between several alternatives because not all plans are effective and efficient.

Some tools that help you:

• PESTEL analysis to identify opportunities and threats, both present and potential in the future.
• SWOT analysis places opportunities and threats outside the company within the framework of the company’s internal weaknesses and strengths
• Brainstorming allows you to explore many alternative plans. You can then select alternatives according to your goals, resources, and capabilities.

Pattern

You can learn from past strategies, which have been successful and which have not. You can learn from past failures, learn about their weaknesses, and develop new strategies.

You can use tools such as mind maps to show how various strategies and past variables are related to company success.

Position

This is about how to position the company itself among the stakeholders. Who are the stakeholders? They are the parties who have an interest in the company. If they are happy, they appreciate the company.

Customer satisfaction means they will buy the company’s products and recommend it to their family or colleagues. Satisfied investors can provide affordable capital when the company needs it. The beneficiary community elevates the company’s reputation, and there is no negative campaign.

Of course, not all stakeholder satisfaction is good for the company. But to be successful, companies need to please them. Therefore, stakeholder analysis is an essential tool for determining the right strategy.

Some tools that help in identifying are:

• PESTEL Analysis
• Porter’s five forces

Perspective

This element is about how the corporate culture is aligned with the goals to be achieved. Both of them should strengthen each other so that a strong commitment to excellence should be reflected internally within the company.

Say, the company focuses on producing innovative products. To achieve this, companies should design strategies that encourage risk-taking and innovation. That way, employees are free and not afraid to explore bright ideas.

Ploy

To get a competitive advantage, you must be better than your competition. Usually, this is the focus of many companies and ignores the other four elements of Mintzberg’s strategy.

In this case, a company might need benchmarking about the strengths and weaknesses of a competitor’s strategy. Or, you can adopt some overseas company strategies that are relevant to yours.