Different types of business strategy explained
A strong business strategy is the cornerstone of business success. Business strategy models can be broadly categorised into four distinct types, each playing a pivotal role in steering a company towards its vision. In this article, we delve into each of these strategies, unveiling their significance and how they collectively contribute to a company's success.
What is a business strategy?
A business strategy is a comprehensive blueprint that outlines how an organisation intends to achieve its objectives. It's a game plan that covers everything from where resources go to how to make smart decisions, all aimed at achieving the company's big-picture goals.
The best business strategies are crafted when the value proposition, target market, and competition are understood. If companies know that, they can set clear, achievable goals that fit within their overall mission.
In a nutshell, a business strategy is a roadmap to enable an organisation to reach its ultimate dream.
Why are business strategies important?
Business strategies are the compass that guides a company. They provide a structured approach to achieving goals, offering a clear vision and a roadmap for success. It's not just about setting goals, but about aligning every effort, resource, and initiative with the company's overarching mission.
These strategies also act as a beacon in times of change, ensuring the company remains agile and responsive to shifting market dynamics. Essentially, they are the foundation upon which businesses build their future, creating a framework for growth, adaptability, and sustained success.
What are the four types of business strategies?
There are many ways to group and define business strategies. From a top-level perspective, we can categorise business strategy models into four different camps. They are:
Organisational (corporate) strategy
An organisational strategy, often known as a corporate strategy, is the highest level of strategy that shapes the direction of the entire business. Elements considered include the company's vision, mission, values, and purpose.
At its core, a corporate strategy reveals what a business wants to do and hopes to achieve. It also includes details like how business units should be resourced and how the company should position itself in the market.
Business (competitive) strategy
Once a company has laid out its corporate strategy, it will likely transition into devising a business strategy, also known as a competitive strategy. A competitive strategy focuses on how a product line or business unit in the company will compete against competitors.
A competitive strategy's key factors include gaining a competitive advantage over other market leaders, which markets to pursue or exit, and how to position products or services to the target market.
A functional strategy is a strategy that is department-specific, for example, a strategy designed for marketing, HR, or product. They are often more specific and take influence from the broader organisational strategy.
Functional strategies are designed to outline how each function will support the business in achieving its goals. For example, a paid media department may devise a product-specific strategy to help the business's revenue targets.
An operating strategy is arguably the most detailed type of strategy, as it focuses on everyday operations. An operational strategy underpins all other strategies, as it is about effectively and efficiently getting things done to achieve broader business objectives.
Operational strategies place a significant emphasis on optimising processes and workflows, resource allocation, quality management, risk management, and continuous improvement.
Let's look at each type of strategy in a bit more depth.
1. Organisational (corporate) strategy
An organisational strategy is a plan that outlines how a company aims to achieve its long-term goals. Within the umbrella of “organisational strategy,” there are three sub-strategies, including:
Diversification strategies are implemented when a company wants to reduce its dependency on a single market or product line. The strategy may involve offering new products or services or entering new markets or industries. By diversifying, a company can reduce its vulnerability to economic downturns, stabilise its revenue streams, and capitalise on emerging trends.
Vertical integration strategy
Vertical integration strategies are all about expanding a company's involvement in different stages of a production or distribution process. The company may move closer to the source of raw materials, called “backward integration,” or closer to the end user, called “forward integration.”
A vertical integration strategy aims to enhance control over the chain of value and gain a more competitive advantage.
Market expansion strategy
Market expansion strategy is all about reaching new audiences to drive growth and market share. While it's about finding new customers, it's also about studying their preferences, needs, and cultural nuances and tailoring product offerings to suit them. A clear map and a good understanding of the terrain are essential, and that's what a market expansion strategy is.
2. Business (competitive) strategy
A competitive strategy is a company's specific approach to outperform rivals and gain a distinct advantage in the market. There are three main types of competitive strategy, including:
Cost leadership strategy
One competitive strategy is about reducing production costs or offering products and services at a lower price than competitors, so the business can capture a larger market share. By streamlining operations and diligently managing resources, companies employing a cost leadership strategy enhance their competitive edge and cater to price-conscious consumers seeking high value without compromising on quality.
Another way to gain a competitive advantage is to offer unique, distinctive products and services by driving product quality, innovation, branding, or other distinguishing features. A differentiation strategy aims to set a company apart from its competitors.
Focus or niche strategy
You could also incorporate a competitive strategy by employing a targeted approach. A focused or niche strategy states that a company serves a specific segment and tailors a product or service to meet its unique needs.
3. Functional strategy
A functional strategy is a plan of action for specific departments that will support the broader objectives. Here are a few examples of functional strategies:
A marketing strategy may involve market research, identifying customer segments, designing promotional campaigns, and allocating resources to maximise the impact of marketing efforts, to help the function achieve its goals. There will be specific KPIs to measure the effectiveness of marketing activities, to ensure alignment with overall business goals.
An operations strategy outlines how a company's operations department will support the overall business strategy by managing resources, processes, and activities to produce goods or deliver services efficiently and effectively.
Human resources strategy
Similarly, a human resources (HR) strategy delineates how the HR department will contribute to achieving the organisation's goals by managing its human capital. The strategy will likely encompass recruitment and talent acquisition, employee development, compensation and benefits, and employee planning.
4. Operating strategy
An operating strategy is a detailed roadmap designed to steer a company to success by orchestrating day-to-day operations that align with broader business objectives. Examples of operating strategies include:
A production strategy focuses on how a company manages its production processes to produce goods and services effectively. It involves decisions about production methods, workforce allocation, inventory management, and quality control. It's all about optimising resources, minimising waste, and improving productivity to align the output with expected standards.
Inventory management strategy
An inventory management strategy is effectively a balancing act of having just the right amount of product on hand. Not too much to tie up resources, but not too little to leave customers waiting. The strategy is focused on knowing when you need to order more, how much to order, and where to store it.
Supply chain strategy
A supply chain strategy is very similar to an inventory management strategy. The roadmap guides how a company sources, produces, and delivers its products or services. It covers everything from suppliers and logistics to inventory and cost management.
Integrating business strategy models for success
A successful business often lies at the intersection of these four business strategy approaches. Integrating a business strategy that spans the four umbrellas creates a powerful synergy to propel a company forward. This integration ensures high-level objectives align seamlessly with day-to-day operations, creating a cohesive and forward-moving momentum.
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