7 Essential Components of an Effective Business Strategy Revealed

by | Business Basics, strategy

So What’s In A Business Strategy?

A business strategy is a comprehensive plan of action that outlines how your business will achieve its long-term goals. It typically consists of several interconnected sections. There are many different versions and ideas to what should or shouldn’t be included. In today’s blog, I am just covering the sections I believe are a must for any business strategy.

The sections I will be covering are:

  • Vision
  • Mission
  • Values
  • Objectives
  • Strategy
  • Tactics
  • Metrics & KPI’s (Key Performance Indicators)

 

Vision

This section outlines the long-term aspirations of your business, including its ultimate goal or purpose. The vision statement is usually brief, catchy, and inspiring, and it captures the essence of what the organisation hopes to achieve.

Example: Tesla’s vision is to accelerate the world’s transition to sustainable energy.

Mission

This section explains the core purpose of your business, including what it does, who it serves, and how it does it. The mission statement provides a clear direction for the organisation and helps align its activities with its overarching goals.

Example: Starbucks’ mission is to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time.

Values

This section outlines the guiding principles and beliefs that shape your organisation’s culture, behaviour, and decision-making. Values help define the business identity, and they are an essential aspect of building a strong and positive culture.

Example: Google’s values include a focus on the user, a passion for innovation, and a commitment to doing the right thing.

Objectives

This section outlines the specific, measurable, and time-bound goals that your business hopes to achieve in the short-term. Objectives should be aligned with your vision and mission, and they should be challenging but achievable. Use SMART to create meaningful, actionable goals to keep you focused.

Example: Apple’s objective to increase its market share in the smartphone industry by 10% in the next quarter.

 

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Strategy

This section outlines the broad approaches that your business will use to achieve its objectives. Strategies are the high-level plans that guide decision-making and resource allocation. Here are some common strategies that businesses might consider:

  • Cost Leadership Strategy: This strategy involves offering products or services at a lower cost than competitors. Cost leadership can be achieved through economies of scale, efficient operations, and outsourcing.
  • Differentiation Strategy: This strategy involves offering unique products or services that are differentiated from those of competitors. Differentiation can be achieved through innovation, branding, design, or customer service.
  • Niche Strategy: This strategy involves targeting a specific, narrow segment of the market and offering specialised products or services. Niche strategies can be based on geography, demographics, or product features.
  • Diversification Strategy: This strategy involves expanding into new markets or industries that are different from your core business. Diversification can be achieved through mergers and acquisitions, partnerships, or internal development.
  • Blue Ocean Strategy: This strategy involves creating new markets or industries by offering unique and innovative products or services. Blue ocean strategies can be based on value innovation, which involves simultaneously reducing costs and increasing customer value.
  • Focus Strategy: This strategy involves targeting a narrow segment of the market and offering a focused set of products or services that meet the specific needs of that segment. Focus strategies can be based on geographic, demographic, or product features.

Tactics

This section outlines the specific actions and initiatives that your business will take to implement its strategies and achieve its objectives. Tactics are often more detailed and focused on short-term objectives compared to the broader and longer-term strategies. Tactics can include marketing campaigns, product development, sales promotions, pricing strategies, and distribution strategies. The tactics chosen must align with the strategies outlined in the business strategy, and they must be specific, measurable, achievable, relevant, and time-bound (SMART).

Example of tactics based on different strategies:

  • Cost Leadership Strategy: Tactics might include minimising expenses, streamlining operations, outsourcing non-core activities, and negotiating better prices from suppliers.
  • Differentiation Strategy: Tactics might include investing in research and development to create new and unique products, building a strong brand identity, developing a superior customer service experience, and using innovative marketing campaigns to showcase product features.
  • Niche Strategy: Tactics might include creating personalised products or services for a specific customer segment, building a strong reputation in the niche market, using targeted advertising and promotional campaigns, and offering exclusive products or services.
  • Diversification Strategy: Tactics might include acquiring complementary businesses or entering new markets, developing new products or services, creating strategic partnerships with other companies, and investing in research and development to explore new opportunities.
  • Blue Ocean Strategy: Tactics might include developing innovative products or services that offer a unique value proposition, creating a new market or industry, designing new distribution channels, and using creative pricing strategies.
  • Focus Strategy: Tactics might include customising products or services to meet the specific needs of the target segment, creating a strong brand image within the target segment, using targeted marketing and advertising campaigns, and building a strong relationship with customers within the target segment.

 

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Metrics & KPI’s

This section outlines the metrics and KPIs (Key Performance Indicators), refers to the specific metrics that will be used to track progress towards achieving the objectives outlined in the strategy. Metrics and KPIs should be specific, measurable, and relevant to the objectives and strategies outlined in the business strategy. They provide a way to monitor progress, identify areas of success and improvement, and make informed decisions based on data.

Example of metrics and KPIs based on different objectives:

  • Objective: Increase market share by 10% in the next quarter.
    • Metrics and KPIs: Market share percentage, number of new customers acquired, customer retention rate, customer satisfaction rating, revenue growth rate.
  • Objective: Improve product quality by reducing defects by 50%.
    • Metrics and KPIs: Defect rate percentage, customer complaints, customer feedback rating, production downtime, cost savings from defect reduction.
  • Objective: Increase revenue by 20% in the next year.
    • Metrics and KPIs: Revenue growth rate, customer acquisition cost, customer lifetime value, average order value, conversion rate, marketing ROI.
  • Objective: Improve employee satisfaction by increasing engagement by 20%.
    • Metrics and KPIs: Employee engagement survey results, employee turnover rate, absenteeism rate, productivity metrics, training and development metrics.
  • Objective: Improve supply chain efficiency by reducing lead time by 30%.
    • Metrics and KPIs: Lead time reduction percentage, on-time delivery rate, inventory turnover rate, cost savings from efficiency improvements, supplier performance metrics.

Overall, tactics, metrics and KPIs are important components of a business strategy as they provide a detailed plan for achieving objectives and tracking progress. By carefully selecting the right tactics and metrics/KPIs, businesses can stay on track towards achieving their goals and continuously improve their performance.

In conclusion, a business strategy is a comprehensive plan that outlines your business goals, objectives, and approaches for achieving them. A well-crafted business strategy can guide decision-making, resource allocation, and help your business achieve its desired outcomes. The different components of a business strategy, including the vision, mission, values, objectives, strategies, tactics, and metrics/KPIs, are all interconnected and must work together to ensure success. By carefully considering each component of the business strategy, organisations can create a roadmap for growth and success in an increasingly competitive business landscape.

 

A business strategy is the most important document you will ever create and maintain for your business. It keeps you focused, sets out what you want to achieve and by when, including measures for those short-term goals. Without one, you end up fumbling amount and not having and real focus. Yes, it takes a lot of time and effort to do your business strategy correctly but I promise you, it’s worth every second.

If you want to learn about business strategy and setting your business up right from the start, why not contact me today to see how I could help you. My business model gives you the opportunity to work with me in a number of different ways, from one-off sessions, group programs, 121 programs and more.