Definition and Importance of Business Strategy
Every business and organization needs a planned process of future functions and activities. This process helps the management to run the business in the present competitive environment. Such planned processes are named as the business strategy which is different from business to business as per their nature of products and services. The business strategy is needed in all type of business where it is a profit organization or a non-profit organization (Mainardes et al., 2014). This report describes the importance of business strategy for both type of organizations along with the challenges faced in the formulation and implementation process. The information contained in this derived from the journal articles and authenticated online information published in this regard. This report provides information about business strategies in a generalized manner which is not specific to any particular business or industry. At the end of the report, a conclusion has been drawn to provide a brief understanding of the concept to the reader.
The strategy can be defined as a set of decision-making procedures and rules for the guidance of organizational activities and behavior. According to the managers, strategy defines their future-oriented large-scale plans in the competitive environment to attain the organizational objectives. It shows the game plan of a firm and provides a framework for managerial decisions. It is a powerful weapon for facing the environment of change and to cope up with the adverse environmental conditions. It is costly, complex to use and is formulated when rapid changes occur in the business environment (Nyagah, 2015).
Strategic planning allows the non-profit organizations to utilize its financial and human resources more effectively. The expenditures are ranked on the basis of judgments that how they would impact on the services quality. Non-profit entities are being asked to provide their strategy to the large and potential donors as businesses serve their plans to the capital sources or stakeholders. The strategy serves as a guide to both, profit and non-profit organizations which ensures that all the embers and employees of the organization are working towards common goals with similar priorities. The importance of business strategy can be understood in an effective manner by below-mentioned points:
Strategies enable organizations to develop a clear understanding of their own business and find out the best possible way to get success. It helps in analyzing the core competencies, weaknesses, strengths, risks, and opportunities presented in the business environment. It also helps the organization to focus on the areas that are required to be considered for increasing the productivity of the operations (Odiyo et al., 2013).
Importance of Business Strategy for Non-Profit Organizations
In the current fast-changing needs of society, business and organizations are required to be responsive to the changes. An appropriate business strategy allows an organization to meet and predict the changes demands of the current target market. By reviewing and analyzing the needs and expectations of the customers, management can identify the market trends in a better manner (Leskaj, 2017).
Resources are finite in case of the profit and non-profit organizations. The strategy provides a direction for the allocation of such finite resources in the most promising that are expected to provide maximum return on investment.
Formulation of strategy is the first and foremost stage in the strategic development process. At this stage, an organization needs to develop its business and function strategy and various sub-strategies on the basis of the vision and mission of the business (Brinkschröder, 2014). For this purpose, there are many challenges that have to be faced by the management related to the human and financial resources which can be described as follows:
It is often seen that at the time of formulating any business strategy, every individual employee or manager provides the opinion because of which the strategy does not contain a single opinion. It often leads to arising the conflicts among the managers.
The rapid changes in the external business environment are a big challenge. Sometimes the strategies formulated by the management become outdated till the time they are implemented. Thus, it is necessary to implement the strategies and plans at the right time and in the right manner which can result in providing higher benefits to the organization (Almalki et al., 2017).
Planning is all about the forecasting the future events and if it is not done inappropriate manner then the business has to face a huge loss. Forecasting the business and industry needs accurately is another important challenge faced in the process of strategy formulation (Kiplagat, 2014).
Implementation of strategy is a tough task in comparison to the formulation as there is a huge difference in the theoretical overview and practical implication of a plan. Thus, there are a number of challenges which occurs at the time of implementation of strategies in business. Some of them are as follows:
Culture can be defined as the behavioral patterns and cognitive systems existed within the organization. Culture is highly concerned with behavior, norms and shared values. For the successful implementation of a strategy, culture needs to be consistent and clear. Along with this, managers need to focus on creating the atmosphere of faith and trust to cope up with the strategic needs (Blahova & Knápková, 2010).
Analysis of Business Environment through Business Strategy
Organization structures can be defined by the three main constructs, namely the degree to which working relationships and decisions are governed by formal procedures and rules, the degree to which such relationships and decisions are controlled by the top, middle or lower level managers, and the extent to which the company needs to hire generalists or experts. On the basis of these constructs, organizational structure can be considered as organic or mechanistic. Companies having organic structure do not value the formal procedures and rules whereas companies possessing mechanistic business structure follow rules and procedures and strictness inflow of information. Therefore at the time of implementation of the strategy, an organization has to face the challenge related to the degree of ability of the organization structure to adopt the changes (Elwak, 2013).
Inappropriate allocation of resources may act as a hindrance in strategy implementation. The main resource an organization has to manage includes human and financial resources. Financial resources help in enabling strategic change and also impact the allocation of human resources. Therefore, the allocation of resources in an appropriate manner is one of the most challenging tasks faced in the strategic implementation process.
A competitive environment can be defined as the dynamic external system in which the organization functions and competes. If there are more sellers of the substitutes or similar products, then the environment is considered as the more competitive. Before three or four decades, the competitive environment of almost all the industries was not highly competitive and therefore there was no need to do more analysis and study before formulating any new business strategy (Osotimehin et al., 2012).
On the other hand, the modern competitive environment is high fluctuation due to the rapid changes in technological advancements and fast-changing customer demands. The modern competitive environment is full with the risk and opportunities and a business organization is required to analyze these risks and opportunities at the time of starting the new business or formulation of any new business strategy for the desired success and growth of the organization (Ashraf et al., 2015).
The organizations use below-mentioned tools to analyze the modern competitive environment:
Porter’s Five Factor Forces
It is a very important and appropriate tool which is used to analyze the modern competitive environment. It identifies the five main factors including bargaining power off suppliers, bargaining power of buyers, the threat of new substitutes, the threat of new entrants and competitive rivalry existed in the external business environment.
Challenges in the Formulation of Business Strategy
It is a tool for analyzing political, environmental, social, technological, economic and legal factors and their impact on the business at present or in near future. This tool is used by almost all the leading companies of the retail, IT, service sectors named as Nestle, Amazon, Google, Microsoft, IBM and many more. These companies formulate and implement their new market strategies after analyzing the above-mentioned factors to increase the chances of positive results (Durmaz & Dusun, 2016).
SWOT Analysis
This is the tool for analyzing the internal strengths and weaknesses of the organization and to find out the threats and opportunities accordingly. This analysis gives the information about the existing opportunities and the areas of weaknesses that can be the reasons for the emerging threats to the organization.
After analyzing the strengths, an organization can use them effectively in the formulation of strategy and can also work on the improvement of weaknesses (Anon., 2015).
The relevance of business strategies can be understood in an efficient manner with the help of below-mentioned description:
Management of Human Resources
Strategies provide a framework and objective to the human resources of the organization so that they can work accordingly to achieve the common and individual goals of the organization.
Financial management
Investment of financial resources in the profitable areas is directed by the strategies made by the finance department. It increases the chances of profit and decreases the chances of loss which helps in increasing the revenue of the organization (Lakein & Carroll, 2008).
To meet the external requirement
Strategies are formulated after analysis all the legal and political environment. Thus, appropriate strategies relevant to the external environment needs reduces the chances of any type of uncertain issue from the government as well as from the society and increases the goodwill of the organization in terms of employee and customer welfare.
Grab the opportunities
The implementation of strategies at the right time helps the organization to take advantage of the emerging opportunities in the business environment. It also increases the ability to forecast the risk involved in the opportunities and to analyze the same for providing better results.
To comply with the code of conduct
The formulation and implementation of business strategies are done within the compliance of code of conduct of the organization. Thus, it increases the level of compliance and helps in arranging all the processes and functions in a manner that can be adopted by all the employees and can also increase the level of ethical behavior within the organization.
Challenges in the Implementation of Business Strategy
Thus, it is clear that strategies are relevant in the modern competitive business environment.
Conclusion:
On the basis of the above study, it can be concluded that strategy act as the backbone of any profit or non-profit organization. The importance of having an appropriate business strategy has been explained in an effective manner. The study also concludes that the process of formulating and implementing the business strategy has to face a number of challenges. Some most important challenges of them have been described for both the processes separately. Further, the report also concludes the concept of modern competitive environment in context with the importance of business strategy. An appropriate explanation of the modern competitive environment has been provided along with the modern tools for analyzing the same. It indicates that the level of competition is so high that no business organization can make even a small strategic decision without analyzing the internal as well as the external competitive environment of the organization. In the end, the description of the relevance of strategic in modern competitive environment shows that strategies can never be separated from the life of an organization and in absence of strategic planning, a business not sustains in the industry for a long time.
References:
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Ashraf, T., Hassan, Ghafoor, & Aslam, N., 2015. Strategic Entrepreneurial Decision-Making in Small Firms. American Journal of Social Science Research, 1(2), pp.85-89.
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Elwak, R.A., 2013. CHALLENGES OF STRATEGY IMPLEMENTATION AT MAZARS KENYA. [Online] Available at: https://pdfs.semanticscholar.org/7957/79f2d0cef43797f91dca52e886dc458e9a47.pdf [Accessed 31 August 2018].
Kiplagat, V., 2014. STRATEGY IMPLEMENTATION CHALLENGES IN GOVERNMENT PARASTATALS: A CASE OF KENYA REVENUE AUTHORITY. [Online] Available at: https://erepo.usiu.ac.ke/bitstream/handle/11732/150/VIOLA%20KIPLAGAT.pdf?sequence=1&isAllowed=y [Accessed 31 August 2018].
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