Business Strategy

Before discussing the process of developing sound business strategies, it is fair to ask what a business strategy is in the first place. A business strategy, sometimes termed competitive strategy or simply strategy, is here defined by six elements or dimensions. The first four apply to any business, even if it exists by itself. The remaining two are introduced when the business exists in an organization with other business units. A business strategy specification includes a determination of

1.     The product market in which the business is to compete. The scope of a business is defined by the products it offers and chooses not to offer, by the markets it seeks to serve and not serve, by the competitors it chooses to compete with and to avoid, and by its level of vertical integration. Sometimes the most important business scope decision is what products or segments to avoid because such a decision, if followed by discipline, can conserve resources needed to compete successfully elsewhere.

2. The level of investment. Although there are obvious variations and refinements, it is useful to conceptualize the alternatives as

* Invest to grow (or enter the product market).

* Invest only to maintain the existing position.

* Milk the business by minimizing investment.

* Recover as much of the assets as possible by liquidating or divesting the business.

3. The functional area strategies needed to compete in the selected product market. The specific way to compete will usually be characterized by one or more functional area strategies, such as a

           * Product line strategy.

* Positioning strategy.

* Pricing strategy.

* Distribution strategy.

* Manufacturing strategy.

* Information technology strategy.

* Segmentation strategy.

* Global strategy.

4. The strategic assets or competencies that underlie the strategy and provide the sustainable competitive advantage (SCA). A strategic competency is something a business unit does exceptionally well, such as manufacturing or promotion, that has strategic importance to that business. A strategic asset is a resource, such as a brand name or installed customer base, that is strong relative to that of competitors. Strategy formulation must consider the cost arid feasibility of generating or maintaining assets or competencies that will provide the basis for a sustainable competitive advantage.

The concept of a business strategy for a group of business units is introduced, and two additional components of strategy are needed:

5. The allocation of resources over the business units. Financial resources, generated either internally or externally, plus non-financial resources such as plant, equipment, and people, all need to be allocated. Even for a small organization, the allocation decision is key to strategy.

6. The development of synergistic effects across the businesses—the creation of value by having business units that support and complement each other. It is only logical that multiple business organizations that can achieve synergistic effects will have an advantage over those that ignore or fail to achieve synergy.

All six elements of the strategy concept can be capsuled into three core elements as shown in