According to Porter's generic strategy model, organizations have three basic strategic options at their disposal to gain a competitive advantage. A business strategy guides leaders, as well as departments, on what should and should not be done, in accordance with the organization's core values. Defining the organization's core values helps ensure that employees are on the same page and with the same goals. Okay, you've already defined your vision and goals.
The next thing on your strategy development list is to analyze your business, this is where your SWOT analysis is key. What are the types of business strategy? A functional strategy refers to how a functional division of a company will achieve its objectives. Implementing a functional strategy supports the competitive strategy of a business unit by maximizing resource productivity. It focuses on developing competition in search of a competitive advantage.
Key functional areas include marketing, accounting, finance, operations), research and development, and human resources. The functional strategy will revolve around the key people in the functional area and will focus on key operational aspects of the value chain, such as productivity, pricing, logistics, profitability, efficiency, product design, product image and brand, product life cycle, etc. Although often included within a functional strategy, an operational strategy refers to the way in which the components (operating divisions) of an organization effectively deliver strategies at the corporate, business and functional levels in terms of resources, processes and people. They are at the departmental level and set regular short-term compliance goals.
A cost leadership strategy works if the company can produce its products at the lowest cost in the industry. This strategy is commonly used in markets with products that are not clearly different from each other. They are standard products in a wide market, purchased frequently and universally accepted by most consumers. Walmart is one of the best-known companies with an effective cost leadership strategy.
Its focus is to market to the largest number of customers with the lowest prices on all of its products. A differentiation strategy requires the company to offer products with unique features that consumers consider valuable and are willing to pay more for them. If consumers perceive these unique properties to be worthwhile, the company may charge higher prices for its products. Having a unique product is not the end of the story.
Implementing a differentiation strategy requires a sales team that has the necessary skills to effectively communicate the unique properties of products and convince consumers that they are getting more value for their money. At the same time, marketing campaigns must promote and establish the company as a renowned company known for its innovative and high-quality products. A differentiation strategy involves several risks. Competitors won't stand idly by when they lose market share; they'll find ways to imitate products and start their own differentiation campaigns.
Companies that follow a cost-focused strategy are taking risks by leaving the mass market. While focusing on a specific demographic can generate a loyal customer base, the company bases its fortunes on a small group of buyers. Features that are attractive to this niche market may not be attractive to the overall market. Like a cost-focused strategy, the differentiation approach targets a narrow market niche.
In this case, the company finds unique features in its products that appeal to a particular group of customers. A successful differentiation strategy depends on developing strong brand loyalty from your customers and on constantly finding unique features to stay ahead of the competition. When a strategy is not well defined, a company may start to struggle, as staff changes the core of the company and its values can often become less defined. This is a fundamental part of any business strategy and ensures that humility and self-awareness are present.
It may now be easy to understand what strategies are at the business level, but it gets a little more complicated when you try to figure out what strategy to use. This analysis analyzes the company's competitive position and the factors that will negatively affect its profitability. The products and services of companies that follow this model are not as differentiated as those that follow the differentiation strategy, nor are the costs as low as those of low-cost leaders. There are many ways in which a company can stand out from the crowd and different business strategies that can be used: the trick is to find the right strategy for your business.
For elite brands such as Gucci or Apple, a cost leadership strategy is ruled out and is likely to backfire (read more about how small companies compete with large corporations). KPIs are usually defined by department, and each of them contributes to the company's overall performance. Using this business strategy could generate more business because it offers a much stronger value proposition to customers. Differentiation applies to companies simply taking a product or business and making it better or different from the competition.
A company could reduce the final cost of its product or service by reducing costs elsewhere in the company. SWOT and Five Forces analyses will help identify which of these generic business strategies will work best for your company. By working with the right partners, you can create a strong digital ecosystem that helps you reach new markets and grow your business. Ultimately, a business strategy aims to answer a series of questions about how a company can compete, grow, and thrive.