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An introduction to business strategy

Spending some time to set the right strategy gives you clear goals for business success, and connects your people and activities to those goals.

This page will help you demystify strategy by breaking down what it is, why it's important, and how and when to focus on it.

Business strategy will focus you on success

Defining your business strategy helps you make the most of your resources so you can achieve your goals. A good business strategy can be the difference between surviving and thriving.

Many businesses expand to a point where the founder can no longer do everything themselves. This is a great time to start thinking about a strategy that will guide your business to achieve its objectives, eg by empowering others to make decisions. Having a clearly defined strategy to meet your business goals can also help you explain your business to your employees, networks, mentors, advisors, accountants, borrowers and investors. It’s critical for steps like seeking finance.

Overall, the result of a good strategy is that you stay profitable over the long run, avoid making common mistakes, and stay ahead of the competition. A strategy creates a shared sense of your mission, helping everyone in the business understand what you’re working towards. It can help you:

  • prioritise work
  • make the right decisions
  • say ‘no’ to distractions
  • make the most of your position in the market.

If you’re facing lots of competition, creating a strategy means identifying your advantage and your ideal position in the market. Then you can plan activities to get you there.

Working on your strategy will help you find your keys to success, and set a direction to take for achieving your goals. It can also help you expand into innovative products or services. Without a clear business strategy, you could make decisions that conflict with each other, or end up in a poor financial and competitive position.

Case study

Hinewai dips a toe into business strategy

Hinewai runs an independent gym in Tauranga. She recently opened a second branch in Hamilton and now employs 20 personal trainers as contractors. At first, she only hired contractors, to minimise HR tasks. But now she has more time and money to think about the look and feel of the business.

Hinewai wants her gyms to be known as community-focused fitness providers, appealing to more than just the stereotypical gym user. She’s heard customers talking about this as a reason they don’t like other gyms. Noticing this is a bit of a gap in the market, she uses social media to get the message out that her gyms are places where anyone can get fit without judgement. She wants to create welcoming spaces, with a free introductory session for any new starters.

Customers have said they felt intimidated by staff at other gyms, never building enough of a relationship to feel at home while exercising. Hinewai hires new staff with a strong community focus for her Hamilton branch, and lets go of temporary staff who don’t fit that focus. With support from the city council, she is working towards creating spaces for people facing mental health challenges as well. For example, she wants to offer regular sessions with low lighting and no music, for people sensitive to overstimulation.

Hiring staff who fit her community objectives helps her to have more control over the welcoming atmosphere of the business, as they are more engaged in achieving her strategy.

How does strategy fit with day-to-day business?

Business strategy is not the same thing as planning your resources or tweaking how your business operates. It’s about creating a plan that will help you make the best business decisions — taking control and ensuring that everything you do fits an overall plan.

Resource planning

Resources are everything you need to carry out the activities you plan — people, equipment, property and finance. Resource planning gets the right resources in the right place at the right time, so you can follow your plan. While good resource planning on its own should mean you do something very efficiently, you also need a business strategy that takes account of the rest of the business, competitors and your industry. Otherwise, you can’t be sure the thing you are doing well is even the right thing to do.

Operations

In everyday operations, you focus on improving detailed activities, such as reducing waste. The focus of your operations should be on converting inputs, like supplies and staff effort, into the products or services that are your outputs. You work on your operations to improve how your business operates.

Your business strategy sits above this, making sure that your outputs match your business goals and objectives, and that you are doing the right things. For example, part of your strategy might be to compete by becoming more trustworthy. In that case, your operations might need to focus on ensuring your product provides everything your customers want from it and making sure your delivery and customer support are also reliable.

These other activities aren’t a substitute for strategy

Business strategy isn’t the only way you step out of day-to-day tasks to work on your business strategically. Here are some related activities, each of which will interact with your business strategy.

Governance

Governance involves the checks and balances and expert advice that keep your business on track. This is an important topic, but doesn’t focus so much on shaping the business or developing a strategy. Governance can help you implement your strategy though, ensuring you’re following your plan and checking if anything has fundamentally changed since you set it.

Vision

Setting your vision involves describing what it will look and feel like to achieve what you want with your business. For example, an independent gym’s vision could be ‘We are seen as leaders of a community that enjoys getting fit and enjoys better health outcomes’. Vision statements are often used as a starting point when you start working on a strategy, to help you stay true to your motivations.

Mission

Setting your mission involves defining what you want to achieve, in a way that you can break down and measure. For example, the gym’s mission could be ‘giving people an individual fitness experience, where they can participate on their own terms and where exercise fits easily into their busy lives’.

Your mission and vision are different. Your vision focuses on tomorrow and what you want to ultimately become. Your mission focuses on today and what you do to head towards your vision. Your vision and mission both help set your direction, but your strategy considers everything that might affect your business and sets you on the path to achieving them.

When to focus on business strategy

If you don't have a strategy, it would be good to develop one. It’s also useful to think about strategy whenever you notice an opportunity in your market that your business could meet — not just when you’re setting up or planning for growth. These opportunities could include the need to keep up with a changing market. You might be facing a new competitor, interest rate changes, suppliers entering or leaving your industry, changes in customer preference, or new global trends. Once you have a strategy it’s a good idea to keep it up to date, in case things change.

It’s also useful to think about strategy when:

  • you need finance or a new business partner
  • you’re planning to sell the business, also called an exit strategy
  • you want to position your business differently
  • you’re investing money into improving the business
  • important staff members move on
  • you hire staff who offer knowledge, skills or opportunities in a new location or part of the market
  • you move to premises with different characteristics, such as more room, less customer traffic or better connection to transport.

Strategic models — the same, but different

Business strategy experts have come up with several different models that can help you gain insight into possible business strategies and decide which strategy is right for you. Some models look inwards, at your resources and strengths, while others look outwards, at how your competitors are different.

The most popular models for thinking about business strategy overlap and provide different perspectives — your business context determines the strategy models suitable for you. Some models are most relevant in specific situations, eg in a highly competitive market.

All models should help you to work out three key elements of your strategy:

  • the objective you’re aiming for
  • the scope you will stick to
  • the advantage that makes your business unique.

We’ll cover these three cornerstones of strategy in the rest of the strategy section.

Look inwards, outwards, or both?

Some strategic models focus on looking outwards at the market, while others focus on looking inwards at your business. After looking at both, you may find you can create your own space in the market.

Outwards: competition-based strategy

Competition-based strategy is about looking outwards at the market — determining where you fit in the market and where you want to be. These strategies identify your differences to competitors and highlight where you need to build your business to maintain that difference.

Inwards: business-based strategy

A business-centred strategy is more about making your own space in the market, looking inwards at your business to identify your strategic advantage. These strategies are based on your assets, capabilities, strengths and weaknesses.

Creating your own space: innovation-based strategy

As the market or your focus changes, you might need to switch between a strategic focus that looks inwards and one that looks outwards or use a mix of the two.

Some strategic models combine inwards-looking and outwards-looking elements to create your own space in the market instead of fighting over existing demand. These strategies can provide an opportunity for rapid and profitable growth.

Strategy planning worksheet

Here’s a worksheet to help you figure out which strategy is right for you at the moment. As you read about each approach, make some notes in the worksheet.

Find your strategic fit

Many business activities only work well with a certain overall strategy. For example, to customise your service better, you may need to hire highly skilled workers. On the other hand, if you need to reduce costs and increase volumes, it might make more sense to focus on unskilled workers and hire more of them for the same money.

Finding your strategic fit means pursuing goals that fit your business, making it difficult for others to copy you. It involves figuring out how different sections of your business can best complement each other to improve your competitive advantage. For example, if you have a central location with good transport links to your main customers, you might invest in your systems and staffing. This will allow you to process orders faster, improving your advantage in being able to get orders out to customers quicker than competitors.

Less than 50% of strategies succeed. You need plans that are practical enough to put into action.

Less than 50% of strategies succeed. You need plans that are practical enough to put into action.

Turn your strategy into action

You’ll need to turn your overall strategy into a series of more detailed initiatives and decide how you’ll track your progress to understand if they’re working. Check your strategy is clear about your objective, scope and advantage before trying to break it down into tasks.

You’ll also need to keep an eye on other factors that could get in the way of change. For example, getting some bad press could stop your relocation plans. Or a not-for-profit competitor entering your market could make your community goals less impressive in the eyes of your employees and customers.

Make sure any changes you make because of your new strategy don’t cause problems for your existing business, such as:

  • hiring skilled new staff without having the right structure or culture for them to fit into
  • increasing prices to introduce new features that your existing customers don’t need.
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