Strategy

What is Strategy? Definition, Characteristics, Levels, and Need

What is Strategy?

Strategy is the means to achieve long-term goals and objectives that best utilize resources and aims at a sustainable competitive advantage. It is a long-term or potential action plan that includes top management decisions and a significant amount of organizational resources.

A strategy gives a clear direction to the organization on how to achieve desired goals and objectives efficiently and effectively. It integrates reasonably organizational scarce resources with an action plan by a thorough analysis of the internal and external forces of the organization and future potentialities.

The term “Strategy” is derived from the Greek word “Strategos” meaning “General Art”. It influences the organization’s long-term prosperity, typically for 5 years. It is multifunctional and requires close consideration of internal and external factors an organization is facing. A strategy may include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, and joint venture.

An effective strategy is vital for the organization to efficiently use scarce resources, increase productivity, be different from others, and achieve objectives competitively. So it is said that “Without a strategy, an organization is like a ship moving around in a circle without radar”.

Strategies Definition:

  • “A strategy is a unified, comprehensive, and integrated plan that relates the strategic advantage of a firm to the challenges of the environment. It is designed to ensure that basic objectives of the enterprises are achieved through proper execution of the organization.” – Jauch and Glueck
  • “Strategy is the direction and scope of an organization over long-term which achieves advantage for the organization through its configuration of resources within a changing environment and to fulfill stakeholders’ expectations.” – Johnson and Scholes
  • “Strategies are the means by which long-term objectives will be achieved.” – David
  • “A strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.” – Hitt, Ireland, and Hoskisson

In this sense, strategy is a combination of commitments and activities that work together to leverage core competencies and generate a competitive advantage. In this sense, the firm’s selected strategy reveals what it will and will not undertake.

The strategy of a company also shows how it differs from its competitors. In today’s competitive company world, effective strategic management processes lower the likelihood of business failure.

Characteristics of Strategy

Strategies are the long-term action plans which are formulated and implemented considering potential consequences and potentialities of external and internal environmental factors in order to achieve goals in the best possible way.

Some major characteristics/features of strategy are mentioned below:

Future-Oriented

Strategy is future-oriented, it always considers the future businesses of the organization, and less consideration is given to current affairs. Typically strategies are formulated and implemented to utilize of 5 years goals.

Strategic Means

It is a strategic means that strategically handles the organizational performance – structures, policies, functions, plans – and goes for proper implementation of plans reducing the likely failures while implementing. It creates a straightforward roadmap for the organization, stating “where is the organization now” and “where it will be in the future”.

Goal-Oriented

Strategies are goal-oriented, they are typically built to achieve organizational goals and objectives. Their main motive is to accomplish desired goals.

General Means Not A Tactic

Strategy is general means, not a tactic as its epistemological concept says. Tactics and strategies both talk about how to achieve a certain goal. Strategies talk about how to generally achieve goals and tactics talk about how to specifically achieve goals.

Tactics are more tangible and strategies are abstract. As Chinese general and philosopher Sun Tzu wrote, “All the men can see the tactics I use to conquer, but what none can see is the strategy out of which great victory is evolved.”

Resource Allocation

Strategies ensure effective allocation and utilization of organizational resources. The strategy helps to best allocate time, talent, and budget as such managers get enhanced performance and likelihood of achieving expected goals.

Levels of Strategy

In organizational settings, mainly strategies exist on three levels viz. corporate, business, and functional level strategy.

Corporate Level

Corporate-level strategies are formulated considering the overall growth, performance, and scope of the organization. They are formulated by complying with the vision and mission statement.

They are prepared by top executives considering the overall risk and return to the organization. The corporate level strategy also includes four main types of strategies that a firm can opt for:

  • Stability: It aims to continue the current operations of the organization without any significant changes in direction.
  • Growth: Organizations who aim to expand their business aim this strategy. It is designed to achieve growth in sales, assets, profits, or some combinations.
  • Retrenchment: Aims to reduce the size or diversify of a company for financial feasibility.
  • Mixed: Adoption of stability, growth, and retrenchment strategies in different business units and operations.

Business Level

Business level strategies help to successfully implement corporate-level strategies and outline how to compete with current market competition and how to retain customers.

These are all about how an organization successfully competes with competitors and achieves competitive advantages by exploiting organizational core competencies. It also includes three main types.

  • Cost Leadership: This strategy attempts to achieve a competitive advantage by providing acceptable products at lower than the competitors.
  • Differentiation: Involves providing goods and services which are different than those of competitors at an acceptable cost.
  • Focus/Niche: Aims to serve a particular buyer group or niche more effectively than the competitors.

Functional Level

Functional level strategies are formulated to operate the day-to-day operations of the organization more effectively. It aims to operate daily activities effectively, enhance effectiveness in different functional areas, and support business-level strategies and ultimately to the corporate level.

Functional level strategies are also called operational level strategies. It also has a number of types:

  • Marketing: It deals with customers and competition. It is basically related to market position, marketing mix, reputation, and brand.
  • Production/Operation: This strategy determines how and where a product or service is to be manufactured. It also deals with the level of vertical integration in the production process, deployment of physical resources, relationships with suppliers, and the optimum level of technology.
  • Finance: It includes activities related to the acquisition and management of funds required for business. It mainly aims at enhancing the financial value of the business.
  • Human Resource: It deals with the acquisition, development, and facilities of human resources. It also addresses the skill, motivation, and diversification of human resources.
  • Research and Development: It mainly deals with the acquisition, use, and development of technology.

Need for Strategy

Globalization and the advancement of information technology have made the current business environment extremely competitive. Managers must develop a new mindset in such a competitive business climate, one that values flexibility, speed, creativity, and the challenges that arise from constantly changing business conditions.

Firms typically actively confront their competitors in a competitive market to improve their competitive position and performance. In this case, strategy becomes a tool for obtaining a long-term competitive advantage.

It is a potential plan of actions that includes top management decisions and a considerable amount of resources. It is prime objective is to achieve a sustainable competitive advantage over competitors. The following are some of the points to show the need for a strategy for the organizations.

  • To understand the competitive environment and compete successfully
  • To effectively adapt to the environment
  • To adopt a suitable business model
  • To acquire and utilize resources optimally
  • To set a competitive organizational structure
  • To retain the customers by building a relationship with them
  • To expand the business
  • To fulfill the stakeholder’s expectations
  • To ensure the sustainability of the business

Conclusion…

Strategy hence is the action plan that is used to achieve long-term organizational goals and objectives which effectively utilize talent, time, and scarce budget of the organization. Strategy is the effective means to achieve desired goals. A manager should first carefully study, understand, and evaluate environmental constraints, and then develop strategies in order to realize competitive results that sustain the business for the long term.

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