Competitive Strategies

 

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What is Business Strategy? Definition, Levels, and Elements

 

Business strategy key takeaways

Why is a business strategy important?: a successful business strategy incorporates your company’s vision, its most important goals, and the plan of execution for achieving those goals.

• Importance: business strategy brings your mission to life
• Components: business strategy has three levels — corporate (company-wide, overarching), business (department-wide, contextual), functional (team-wide, tactical)
• Questions: is our business strategy feasible, desirable, viable, strategic, and sensitive to the market?

How do we cover business strategy? 

Every business has a strategy — whether it’s well executed and intentionally crafted is another story. Business strategy is an ever-evolving topic, with an overwhelming depth and complexity worth hundreds of articles.

But in this article, we’ll stick to the most important concepts, covering:

1. The definition and importance of business strategy
2. The three levels of strategy — corporate, business, functional
3. Key elements of successful business strategies

Let’s get started by exploring the definition and importance of a good business strategy. 

What is a business strategy?

So where does it all begin with business strategy?

In short, it's the foundation for every method and tactic your business takes to accomplish its goals, business objectives, and mission.

Business strategy is the guiding principle and action plan for your organization. It’s built through a vision and mission, objectives, and a dedicated decision-making process.

The importance of business strategy

A business strategy isn’t just a plan for what you’re trying to achieve as a company — it reflects both your internal and external environment equally. It should position your goals and offerings against your competitors, market demand, and new opportunities.

Without a connected strategy at the corporate, business, and functional levels, your teams will:

• Operate in misalignment
• Lack engagement, motivation, and purpose
• Produce lackluster results, at best

A great business strategy is your market differentiator, your competitive advantage, and your edge in performance. 

The 3 levels of business strategy

An effective business strategy can be broken down into three distinct levels:

1. Corporate (company-wide, overarching)
2. Business (department-wide, contextual)
3. Functional (team-wide, tactical)

Corporate strategy

Corporate strategy is the “top-level” strategy that guides your organization. This is where strategy mapping, strategic planning, visualization, strategic management, and vision-mission development occurs. This foundational step ultimately determines the trajectory of your business.

To develop a thriving corporate strategy, a few simple, but important questions must be answered:

• What type of business are we? (Niche)
• What distinguishes us as a company? (Vision)
• What are our company's competitive advantages? (Strength) 

These questions help you understand your company’s identity and pursuits. That is:

• How the business is being run
• The goals and objectives of the business
• Which markets the business enters
• How success is defined
• Who is hired and why
• How the budget is being created/spent 

Business strategy

Business strategy is the middle ground between corporate and functional execution. It establishes and coordinates the positioning of your organization by applying the mission and vision to your competitive landscape.  

If corporate strategy focuses on the internal environment, business strategy focuses on the external. Business strategy explores the questions centered on value, like:

• Where is our primary area of focus?
• How will our customers benefit from this competitive focus?
• What about this focus ensures a unique value proposition?

With value creation at the core, investing in a sound business strategy is key to your team executing as effectively as possible. 

Improperly positioned firms encounter competitive difficulties and can fail to sustain competitive advantages. 

- Saylor.org

Functional strategy

With the second-tier business strategy created, functional strategy has a foundation. VPs and managers influence the key decisions in functional strategy. They have the responsibility of bridging functional strategy to the business and corporate strategy.

Functional strategy is then managed by the departments, teams, and initiatives in an organization where the work is done. 

Different functions require different strategies, each informed by the unique goals, aspirations, and needs of the department.

Without alignment between functional and business strategy, organizations experience an operational disconnect. While the functional strategy should meet the department's unique needs, it must also contribute to corporate and cross-departmental strategies. 

Functional strategy example

Let’s take this one step further by examining how marketing and sales teams may work together. At the strategic level, they may share and depend on information like:  

• The organization’s value proposition
• The ideal customer profile (ICP)  
• How the organization delivers value for the ICP

It makes sense for these departments to align their strategies, as they work with similar business goals in mind. When functional units align, their impact compounds.  

The collective functional strategy funnels up to the corporate strategy, forming a collaborative organizational strategy across multiple levels within the organization.  

Key elements of business strategy

With so many moving parts, contributors, and focus areas, ensuring a clear understanding of business strategy can be complicated.

While different models reflect different outlines or structures, business strategy focuses on six elements:

1. Feasibility: what your business can offer  
2. Desirability: what the market desires, aka, the desired value  
3. Viability: ROI on value proposition
4. Measurability: Clear and quantifiable metrics to assess strategic performance
5. Strategic playground: your organization's identity, in support of the value proposition
6. External environment: ebbs and flows of what's interesting or in-demand 

Feasibility of business strategy

• Resources & strengths: Highlighting the resources available, plus the unique skills and strengths of the organization
• Collaborators: Specifying the organizations and individuals you collaborate with, and how they enhance the value of your products and services

Desirability of business strategy

• Value provided: Outlining the products and services offered, the approach taken in delivering them, and the added benefits they bring to the customer
• Target audience & desires: Identifying the target audience and organizations served, and the specific needs that are being fulfilled
• Alternatives: The other entities that customers consider as alternatives when deciding to purchase your products or services

Viability of business strategy

• Financials: Explaining how you receive compensation for your offerings, from whom, the method of payment, and the timing
• Risk management: Outlining the risks and costs associated with the organization and how they are managed

Measurability of business strategy

• Data collection methods: Outlining the systematic approaches and tools utilized to gather the data necessary to measure strategic performance  
• Goal-setting & performance evaluation: Interpreting collected data for actionable insights, strategic implications, and ongoing performance measurements against benchmarks and objectives
• Always-on approach: Creating a culture of continuous improvement and strategic adaptation, where data drives ongoing optimization and agility in response to evolving internal and external factors

Strategic playground

• Outcomes & values: Stating the desired outcomes, long-term goals, and values that are important to the organization
• Culture & structure: Describing the culture and structure of the organization and what makes it unique

Environment external to the business strategy

• Analyzing the external factors and developments
• Potential uncertainties and out-of-control events 

How to build a business strategy?

1. Define your vision and mission

Start by clarifying your organization's vision and mission. These statements provide the foundation for your strategy and should be used as springboards for every decision, plan, and action.

2. Assess the market

Evaluate what your business can offer in relation to market demand. Identify your unique strengths and resources that set you apart from competitors, and see whether these align with your target audience’s needs, preferences, and pain points. As part of this, you should assess potential opportunities and risks in the market to see how you can best address or capitalize on these in time. 

3. Create a strategy aligned with market insights 

Develop a strategy that’s aligned with your assessment of the market. Incorporate additional insights gathered from market research and other internal data to best align your offerings and positioning to meet customer needs and stay competitive.

4. Ensure financial viability 

Assess the financial viability of your strategy by analyzing the potential return on investment and the costs associated with implementation. Develop clear financial projections and risk management strategies.

5. Align strategy across your business

Ensure your strategy is aligned across corporate, business, and functional levels. Define overarching company-wide goals, departmental strategies, and tactical plans that support the larger strategic vision.

6. Establish measurable goals

Set clear, measurable goals and objectives to track progress and performance. Define key performance indicators (KPIs) that reflect the success of your strategy and enable ongoing evaluation.

7. Implement and monitor 

Execute your strategy according to the established plan, and continuously monitor performance against set goals. Regularly review metrics and adjust tactics as needed to stay on course.

8. Adapt and innovate 

Embrace a culture of adaptation and innovation, remaining agile in response to changing market dynamics and emerging opportunities. For example, many companies are using AI for business strategy to simplify planning, evaluating, and implementing strategy. Continuously seek feedback and iterate on your strategy to stay competitive. 

How to track the success of a business strategy?

Tracking the success of your business strategy implementation is not just about hitting predetermined milestones. It involves aligning your actions with your overarching vision, ensuring they support your long-term goals. 

Here are a few best practices for effectively monitoring the impact of your business strategy and supporting strategic initiatives. 

Define clear OKRs and KPIs

While your business strategy outlines your goals and key objectives, the defined measurements and metrics measure your strategy's success.

Goal-setting methods such as objectives and key results (OKRs) and key performance indicators (KPIs) can track progress by directly reflecting the strategic outcomes you're trying to achieve as a business leader. These OKRs and KPIs can include financial metrics (e.g., revenue growth, resource allocation, profitability, ROI) and non-financial metrics (e.g., customer satisfaction, market share, brand awareness). 

Gather and analyze relevant data 

Collecting the correct data is the backbone of effective performance tracking, which helps senior executives make the right decisions. Dig into various sources (i.e., financial reports, customer feedback, market research, internal performance metrics) to ensure your KPIs and OKRs are constantly updated with the most relevant data, keeping your strategy in tip-top shape.

Assess progress against targets routinely 

Regular assessments are necessary when trying to keep your strategy on track.

By scheduling periodic reviews (such as weekly or bi-weekly OKR check-ins), you can consistently evaluate progress against predefined targets, identify potential deviations, and course-correct to keep your strategy relevant. 

Continuously adapt and iterate when necessary 

When developing a business strategy, what works today may not always work tomorrow. Stay vigilant, flexible, and agile, adapting your strategy (alongside its goals, benchmarks, and metrics) to account for market conditions, emerging trends, and new opportunities.

Next steps in business strategy

A well-crafted business strategy is a market differentiator and competitive advantage, vital to achieving sustained growth and success. By using the breakdowns and elements in this article, your organization can begin developing the best business strategies for your environment. 

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