What is business strategy?
Diving into a term we hear all too often
|5 minute read|
Businesses have long underpinned their goals with strategy aimed at achieving success in both their long-term and short-term objectives.
Planning and preparation enable small and large businesses to focus on their goals, and their role in strategy performs a vital function towards achieving success.
However, with the execution of many business strategies being unsuccessful, business owners need to understand business strategy and how it is best achieved.
What is business strategy?
According to The University of Western Australia Business School Professor and Master of Business Administration Director Dr Allan Trench, business strategy is an organisational masterplan designed to achieve a company’s strategic goals.
“I think the simplest definition of it is to link it to the vision and mission of a particular company and perhaps, in modern times, the purpose of the company as well,” he said.
“It’s the overarching goal of the company and the actions required to actually get to that goal.”
Minerals industry strategist John Sykes said business strategy supported businesses towards their goal.
“On a more meaningful level, it is there to provide overall guidance, including in decision-making, activities and planning – it has an encompassing purpose,” he said.
“It’s about having coherence to all those components and, sometimes, it’s associated with following a goal or an aim.”
Mr Sykes said each component in strategy development had a role in ensuring the success of both minor and major goals through understanding a business’s strengths and weaknesses.
“It does speak to this larger issue of making sure the organisation is pushing in the same direction in the areas where it needs to be,” he said.
“It also has to be able to manage those areas of conflict, particularly in innovation.”
The ultimate goal of business strategy is to improve the success of the company, including financially.
“Strategies are the actions you take that are effectively material in a for-profit business – material to your profit and loss statement,” Dr Trench said.
What does business strategy look like?
To reach success, a business strategy first needs to be planned.
Dr Trench said in his experience, there had been business strategy plans which were fit for purpose.
“The standard one looks a little bit too much like a business plan,” he said.
“One of the error types is that your strategy effectively becomes filling in a glorified budget document, which is not really a strategy, it’s a budget document.”
Mr Sykes said a strategic plan was still the most common strategy plan he had seen.
“This is usually a five-year plan with financial and performance targets, some incentives for employees based on them and goals and targets to be met at certain dates,” he said.
The strategic plan mitigates risk through its logical and planned nature.
“We like to have things written down, we like plans, targets, numbers and goals,” Mr Sykes said.
“We like a big document that can be produced at the end of the strategising period, which you can hold up and say ‘this is the strategy’.
“Stakeholders and shareholders also like it.”
Clear, logical strategy documents remain popular, but flexibility in a business strategy has become important.
“Good strategy work nowadays tends to be a lot more fluid and more in the head than on a piece of paper,” Mr Sykes said.
“It has an appreciation of the external environment and the market, including what is happening with the competition and potential collaborators, what your organisation is doing, and what its good at and what it’s not.”
Dr Trench agreed, saying strategy is really analysing and matching your own capabilities as an organisation with the opportunities that exist in a particular market you’re operating in.
“Then, it is about being cognisant of the right timing to do certain things, whether its timing throughout the cycle or if its timing by a particular disruptive event,” he said.
Mr Sykes said the two models could easily exist together.
Keeping an open mind
With both strategy plans able to co-exist, Dr Trench said businesses should prepare and plan its strategy but also keep an open mind to emergent strategy options.
By planning a strategy while remaining open to possibility, he said there were a number of potential outcomes for a business, pointing to a theory created by Canadian strategy academic Henry Mintzberg.
“There’s one you’ve planned as a strategy, then there’s what emerges separate to your plan that was unexpected,” he said.
“You put what’s emerged together with your plan and you actually get what the outcome was, which is your realised strategy.”
Dr Trench said the theory provided an opportunity for a business strategy to evolve but businesses needed to make decisions about what it wanted to achieve.
“Always have an open mind on things you can’t value but on things you can value – you have to make some decisions,” he said.
“Strategy is about what you don’t do as much as what you do.
“We all, as individuals, have options and we all love to keep all of our options open but that comes at a cost.”
Mr Sykes said businesses should consider all of their options.
“It’s a constant part of strategy work,” he said.
“This flexibility and then reactivity, as well as proactivity towards the world and external events, and even internal events, is just part of what strategy is.”
The best way to be prepared for unforeseen scenarios is by considering them in the strategy.
“There is a lot more emphasis on not being able to predict these things, but what you can do is set up systems and prepare for them so that you are a little better at dealing with either new challenges or new opportunities when they arise,” Mr Sykes said.
“Even if they are unforeseen, you are still able to deal with things that are unforeseen.”
Dr Trench said it was important to revise the strategy to ensure it was still relevant to the business and its goals.
“I think it just comes back to that; where to play, how to win, and whether the rules have changed,” he said.
“The constant refreshment of the strategy, even if you decide its fine, is an important process.”