Why is Business Strategy so important?

The vast history of strategic management knowledge can be traced back to several centuries ago. In ancient China, the military strategist, writer and philosopher Sun Tzu left us through his book “The Art of War” one of the most valuable lessons about strategy:

“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat”.

Next to this important advice, he also pointed out the importance of knowing yourself before anything else. A possible translation of this statement into today’s terms can refer to the fact that in order for a leader to better manage a business, he/she must have a very good knowledge of his/her own skills and of the organization he/she is leading; a leader must be wise, intelligent, strict but caring. Through these skills, he/she must be able to share difficult tasks and be respected at the same time simply because people manifest happiness through following him/her.

In modern times, one of the first individuals acknowledged for reinforcing and using strategy in the business environment is the head of General Motors (1923 – 1955), Alfred Sloan. This period of time is characterized through important control and budgetary planning.

The popularization of corporate planning is acknowledged a few years later. During this period, various academic researchers, such as the pioneer Alfred Chandler Jr., highlighted through their works the importance of the correct procedure to follow within a company when it comes to its strategy: first determine the strategy and then develop the right framework to support it. In his view, by following its move to decentralization, a large business has a better chance to thrive.

Later on, at the end of the 1960s, the development of the corporate strategy concept was portrayed by the adoption of the portfolio planning. This period was marked by the creation of the Boston Consulting Group and their revolutionary matrices called the “Growth/Share Matrix”; a tool used internally by management to assess the market growth rate in relation to a company’s relative market share.

The previous mentioned period was followed by a focus on the analysis of competition and industry. That is, in the late 1970s to the early 1980s companies started to reconsider their choice of positioning within the different segments of the industries. “Competitive Strategy” written by Harvard Professor Michael Porter was perhaps one of the most distinguished books that was ever written on business strategy. Through his work, he created a framework which was meant to analyze a company’s competitive environment through different models such as the potential entrants into the market, the number and power of the competition, the customers, the suppliers and the threat of substitute services and products that could threat its profitability.

The next two important phases are placed at the end of the 20th century and are characterized by internal sourcing of competitive advantage and strategic innovation and implementation. The latest states that even the most interesting strategy loses all relevance if it is not correctly implemented.

Nevertheless, as from 2003 companies started asking themselves how is strategy created in the first place. As a result, the business world start giving emphasis on the simplification of strategic thinking through a simple set of rules and logical reasoning on how to use it on a regular basis. One of the benefits of these rules and lessons imply in the first place the enhancement of one’s abilities in the decision-making process.

What is business strategy defined as in today’s terms?

A business strategy is a long-term high-level plan designed to achieve a set of business objectives in order to enhance the company’s performance and market position. But why is the business strategy so important? The answer is quite simple: a company without a solid business strategy may as well be compared to a destination one wants to take but without any roadmap; we know where we want to arrive eventually, but we have no idea how are we going to do that and what alternatives we have in case we took the wrong path.

That being said, we can assume that a successful business strategy is build when various criteria such as the following are met:

  1. Create a vision

  2. Concentrate on the most important targets

  3. Plan on how to overcome the roadblocks and the course of the attack

  4. Undertake a reality check in order to compare the theoretical plan with the ongoing one

  5. Design the strategic framework

One of the most important aspects to be taken into account throughout the whole organizational process is the effective communication. The lack of it among the different departments, especially when it comes to large organizations, can lead to a misalignment of the company’s management plan and thus a disruption of the whole organizational culture.

Yet, findings support the hypothesis that strategic planning is not the most beloved process. Notwithstanding the fact that the benefits are straightforward, there is still room for uncertainty on how to impose a fresh strategic perspective at the different management levels. As a matter of fact, according to the BCG, most companies’ executives find the whole organizational process to be extremely bureaucratic, rigid and very little in line with the turbulent times we all live in. On the other hand, organizations must invest in strategy, otherwise they fall behind their competitors or simply go bankrupt.

That being said, in times of doubt businesses must rethink the defined process when it comes to operationalized strategy. By doing that, companies broaden the different process options available, explore the unpredicted adjustments brought to the strategic environment and complement the long-established strategy-setting process with more effective practices.

The importance of having the right people involved

There is no excellence in any field without the right people; strategic planning makes no exception. According to a McKinsey survey, most of the companies unfortunately focus more on the data-gathering and the superficial components of the strategic agenda than on the interconnective elements. More specifically, when a group of people develop a certain strategy, but does not have the power to implement it as well, there is a risk that the strategic conversations carried out by the strategic planners at corporate levels will have little to no impact.

The senior-management teams can indeed supervise the process and review it, but the team members are the ones that should challenge between each other in collaborative discussions which should result in effective implementation solutions to the planned strategies.

However, simply monitoring the execution is not enough as it depends on how the managers themselves are compensated and evaluated. A possible solution would be to link this compensation and evaluation with the development of new initiatives.

Constantly reinventing and adapting

In an important digital phase for the General Electric in 2011, its CEO Jeffrey R. Immelt at that time stated that:

“One of the hardest challenges in driving change is allowing new information to come in constantly and giving yourself the chance to adapt.”

According to the BCG, in order to adapt and reinvent itself, a company must take actions such as:

  • Asking the right questions as every question set the tone to different ways of strategic acting towards the chosen approach.

  • Building the right capabilities through hiring and cultivating the talent capable of adapting to different strategic environments and providing the necessary means to expand these strategies

  • Being the change representative and make sure that the organization does not adhere to maladapted protocols in a changing business environment.

  • Establishing the suitable mix of strategies and manage them accordingly through clear guidelines

In order to run a successful business, the most important step within the process is thus the development of a strong adaptability beyond the competitive environment. This can be achieved by creating an organizational pattern that will back up all the different levels of the company into the implementation of the appropriate changes in alignment with the strategic goals.

A particular strategic resilience and adaptability were noticed during the current crisis we are all facing. According to a McKinsey survey, the pandemic has led to an important acceleration of existent tendencies before the crisis. Moreover, among all businesses that went through methodical strategic- resilient assessments, there were some which have made headway during the crisis and embraced new business models such as new products and services, new partnerships or different sales-models. A dynamic planning process is therefore mandatory in order to ensure that an organization remains strategically resilient.

Creating strategic planning into such a turbulent and complex business environment it is not an easy task. However, by anticipating the future, one can assess that strategic management will become more valuable than ever. Executives will have to monitor and implement the perfect equilibrium between the scientific findings, the latest trends and the historical insights in order to generate solutions for continuous process improvement.

In order to survive, thrive and, when needed, change the performance and direction of their business, organizations must devote time to strategy and not focus on bureaucracy and budget targets but rather on planning, expertise and agility. It is not enough to measure a good strategic performance through financial objectives and output metrics, but rather through the quality of disposable talent, skills and innovative ideas at each stage of development. This kind of mindset will enable the creation of a successful system that will allow executives to intercede, control, correct, deviate or renounce at a strategy that fails to comply to the initial assumptions.

Andreea Schipor

Consultant AION Consulting

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