Meaning of Strategy
Strategy refers to the plan of action designed by management for achieving the goals of the business. It can be defined as a general direction set for the organization and its related parts for reaching the desired future state in presence of uncertain events. A strategy is an outcome of a detailed strategic planning process that considers every aspect influencing the capability of the business to arrive at its goals. It is a blueprint of decisions within an organization directing the manner in which various activities need to be carried out. This specialized plan enables business in facing the challenging environment and outperforming the market competitors.
The strategy is a very crucial element for a business in order to achieve its long-term objectives. In absence of the right foresight, an organization cannot deal properly with uncertain events existing in a business environment. A strategy is a collective approach that acknowledges the objectives, uncertainty of events and also takes into consideration the likely and actual behavior of others. This way companies are well-prepared for dealing with future situations and move towards success in the face of difficulties.
Types of Strategy
There are basically four types of strategies which are discussed in points given below: –
- Corporate level strategy: Corporate level strategies are one which are decided by senior management at the top level of a diversified company. A diversified company refers to a group of companies that all are operating under its umbrella – like P&G, Square group, Partex, etc. The corporate level strategy defines the long-term objectives of the company and influences all business units working under it. It tells the overall direction of company with regards to its various businesses and product lines. These strategies are concerned with market and business in which a company will operate.
- Business level strategy: These strategies are framed at business unit level by senior managers of that unit. It defines the basis on which a firm will compete with others. Business strategies aims at building a good competitive position of company for its products and services. This includes competitive and cooperative strategies. Business strategies encompasses all approaches and tactics to compete with competitors, how to differentiate business from others and manner in which new market will be acquired. It is a plan of action adopted by strategic managers for utilizing company’s resources and gaining competitive advantages over rivals in market.
- Functional level strategy: Functional level strategy refer to strategies of various departments or division within the business enterprise. It is also called departmental strategy as every function of business is vested with its departments. This strategy focuses on a particular functional area of company such as production, marketing and finance and sales. Functional strategy is formulated in order to attain specific goals of business units via efficient utilization of resources.
- Operational level strategy: Operational level strategy is formed at operating units of company by operating managers or filed level managers. These strategies deal with translation of business strategies into an actionable implementation plan. Operating managers frame these strategies with assistance from mid-level managers for attaining immediate objectives. They are created in departments or divisions for each set of annual objectives.
Features of Strategy
Various features of strategy are as explained below: –
- Strategies are concerned with long-term objectives of business but not on the routine operations. It deals with probability of innovations, new methods of production and new markets to be created in future.
- It defines the general course of action which a business needs to follow for attaining their objectives.
- Strategies are dynamic in nature that changes or need to be modified in accordance with the changing times or conditions.
- A strategy provides the right combination of internal and external factors affecting the organization ability to perform its activities towards the established goals.
- These are formulated by management at top level and provide direction to middle as well as low-level managers for framing sub-strategies.
- Strategies are pervasive in nature which are needed at each and every level of organization.
- It enables business in outperforming its competitors by efficient allocation of scare resources over distinct areas resulting in optimum utilization.
- Strategies are forward looking as they are formulated and implemented for attaining firm’s objectives in future.
Importance of Strategy
Importance of strategy to business organization can be well-understood from points given below: –
- Provide Direction and Action Plans: A strategy provides an organization with right direction which need to be followed for attaining the targets. It given clear cut and detailed plan of action for reaching the desired position in future. Business gets a complete guide on how things will be done and goals will be accomplished.
- Identify Trends and Opportunities: It identifies various market trends and future opportunities available to a business organization. Strategy examines the variations in market such as social, political and technological changes as well as the customer changes. Once the market changes are identified, it develops tactics accordingly so that a business can adjust itself to the future changes.
- Define Accountabilities: Strategy clearly defines the line of accountability within the business enterprise. It also set the timelines for attaining desired results on agreed strategic initiatives.
- Improve Communication and Commitment: It enhances the overall level of communication and commitment within the organization by clarifying the vision and accountabilities. Proper strategic plan aligns all activities of business and fosters commitment at each level.
- Allocation of Resources: Right allocation of resources is must for every organization be it a large or a small organization. Resources are limited and strategy decides what all products, services or market will be the part of company’s future and what will not be. This way it ensures that resources are deployed efficiently providing maximum output for the organization.
- Provide Framework for Decision Making: The strategy provides a well-defined framework for decision making to business enterprise. It gives a reference point for decisions as each of them need to support the strategy. Business needs to plan on daily basis for its routine activities on a regular basis. In presence of right framework by strategies, these plans are made in a timely manner ensuring business growth.
- Competitive Advantage: Companies are able to achieve competitive advantage over the competitors by forming strategies. Business is able to understand more about themselves and clearly know where they are going. This way resources are utilized efficiently and everything goes in right way thereby providing maximum output to business.