In the event of intense competition and globalization trends in the business world, business entities have to rely on their business strategies in order to stay competitive, adapt and strive to survive with the best use of resources and capacity. Therefore, it can be said that business strategy has a decisive role in explaining why some businesses succeed while others fail. Business strategy should be engaged in the long-term direction of an organization and continuously updated due to the frequent alterations of the external markets. A company with an appropriate strategy in the right time would be able to gain dominant competitive advantages and surpass other competitors in the market. However, the process of creating, implementing and evaluating a strategy is far more complicated in real-life business. Thus, the aim of this essay is to determine the essentials of strategy in the business settings, and identify potential obstacles during the process of enacting a business strategy. First, the report provides a coverage of key concepts, which includes the definition of strategy, a review of relevant theory and research and a highlight of the essence of strategy in the business world. Second, it discusses the challenges that organizations might face during the development and implementation of a business strategy with supported practical case study.
- Main body of the essay
Definition of strategy
The definition of strategy has been discussed widely in previous research. Overall, a strategy is a set of actions that managers might consider to take in order to improve the performance of the company (Hill & Jones, 2009). To be more specific, the term business strategy refers to the action plan that requires an integration of different functional strategies for a particular product or service to compete in a particular industry or market, within a targeted customer segment (Wit, 2017). The management board of the company has an essential part in the successful implementation of a company’s strategy (Hyväri, 2016). The ultimate goal of creating and implementing a business strategy is to achieve competitive advantage, since this is the fundamental of superior performance (Omalaja, 2011). According to Barney (1991), a firm is considered to have a competitive advantage when it implements a strategy that adds value for the organization while none of current or potential competitors is not able to do so.
Review of relevant theory and research
Strategy content, strategy context, strategy process
Wit (2017) suggested four dimensions that need to be considered when developing a strategy, including strategy content, strategy context and strategy process and the organizational purposes. Regarding strategy content, there are five business strategy approaches, which are commonly used in the business setting, namely cost leadership, focused cost leadership, differentiation, focused differentiation, and integrating between cost leadership and differentiation (Handson et al. 2017). However, the selection of business strategy must be relied on the company’s objective, organizational structure and the strategy context. The strategy context refers to the surrounding conditions, which might have an impact on strategy activities, such as external factors related to customers, competitors and market trends. The strategy process comprises three main stages, which are strategy formulation, strategy implementation and strategy evaluation (Chang & Huang, 2006). Strategy formulation is the stage whereas the leader of the organization decides which strategy is suitable to the current context, while the strategy implementation is the stage when strategies are put into actions (Hill & Jones, 2009).
Fundamental analysis for strategy development
Despite the differences in the company size, industry, market segment and the country where the business is in, all enterprises must carry out analysis of the organization and the external environment if they have an intention to develop a strategy (Fuertes et al. 2020). For the purpose of studying the internal environment, the SWOT analysis and the resource-based model are basic tools to help the organization determine its available resources and its current position in the market. While SWOT stands for strength, weakness, opportunity and threat of the company, the resource-based model focuses on assessing both tangible and intangible resources of a business. Otherwise, various effective tools to analyze the external environment has also been developed by scholars, such as the Porter’s five forces and the industrial organizational models. The Porter’s Five Forces model helps the company assess the competitiveness of an industry based on five elements, which are rivalry among existing competitors, bargaining power of suppliers and buyers, threat of new entrants and substitutes (Porter, 1985). Otherwise, the industrial organizational model is also a common tool to evaluate the attractiveness of an industry based on the general environment, the industry environment and the competitor environment that helps an organization formulate a suitable strategy. For every type of strategy, in both small and large business, it is usually communicated through four tools, which are vision, mission, business model and strategic plan (Grant, 2008b). An appropriate strategy must have a strategic plan that is aligned with the company’s vision and mission and support for its business model. The effectiveness of a strategy could be measured by the quantitative approach, which allows the company to company the results of strategy implementation with the investment, the growth forecasts; and the key performance indicators (Van De Aalst et al. 2016). Otherwise, Rumelt (1980) suggested four criteria for strategy formulation, comprising coherence, concordances, advantage, and viability.
The importance of strategy in business
The very first role of strategies at the business level is creating and reinforcing long-term competitive advantages of the organization in the market (Fuertes et al. 2020). During the process of initiating and implementing a business strategy, the organization would have a closer look at customers’ expectation and competitors’ performance, in the meantime, it has time to assess their current performance, their available capabilities for the purpose of coming up with initiatives to deploy its resources and perform better than competitors in the market. On the other hand, the formulation process of a business strategy requires internal and external environment analysis that helps the company regularly update with the change of the surrounding environment and be aware of its available resources, therefore it helps the organization create a formulation of the company’s objectives, goals and resources in a systematic way (Durmaz and Düşün, 2016). In addition, the strategy concept also involves foreseeing and forecasting the future through countless analysis, which provides better preparation for the company when it encounters the change of external environment, eventually resulting in a sustainable development of the organization. This is in line with the statement of Lewis (2008), whereas he argued that business strategy helps an organization to be more proactive in contemplating its own future.
Challenges in developing and implementing business strategy in the current context and practical evidence
The research result of Kabeyi (2019) showed that challenges of the strategy implementation process come from such uncontrollable factors as political interference, limited resources and global economic situations. However, in another perspective, these changes can be seen as an opportunity for innovative business, which has the ability to adapt quickly to the change. It is undeniable that the rapid changes of the external environment would foster the continuous development and the flexibility of a business strategy. At the moment, the Covid-19 pandemic is an uncontrollable situation that causes a serious deterioration to the world economy in general and profound loss to countless businesses around the world. In fact, various businesses have changed their strategy to adapt with the situation, increase their resilience in the fight with the pandemic and to support the community as a whole. For example, Ford, General Electric and 3M are collaborating up to convert their manufacturing facilities into production lines of medical equipment, masks and ventilators. Pharma companies such as Abbott and Biomerica are focusing on developing test equipment for Covid-19. At the same time, online businesses such as Amazon, Walmart or delivery service also found an opportunity during the crisis and enacted a hiring surge in their human resources strategy to ensure the quality of service. These movements might be considered as a temporary strategy amid the pandemic, but there might be an opportunity for these newly developed products to continue to develop and sustain its market share after the crisis. However, not every business has the ability to transform its business strategy promptly due to sudden changes of the external environment. Since these changes of strategy require a great deal of resources, small and medium sized enterprises would be difficult to afford. Therefore, overall, negative impacts and restrictions of the external environment are still considered as a significant challenge for the developing and implementing of business strategy.
Another major challenge for developing a business strategy is integrating the goal of maximizing profits and social responsibility. Since there is an increase in the severity of environmental degradation and ecological crisis, sustainability in business has received a rising attention recently. The current context of the business world has paved the way for the sustainable strategies concept, which is a combination of business strategy and corporate social responsibility practice. However, this concept is difficult to achieve since the company has to address different challenges in different stages of sustainability within its business operations and to develop new capabilities to tackle these challenges in the meantime (Danciu, 2013). Otherwise, it is challenging to make sure that the company is maximizing its profit on one hand and to ensure that the business operation does not cause any harm to the ecological system on the other hand. In another perspective, many companies have seen corporate social responsibility and sustainable strategies concept as an investment opportunity rather than an expenditure because it provides additional competitive advantage, increases innovation ability, and promotes good relation with stakeholders, hence improving the company’s performance in terms of productivity and return (Waddock and Graves, 1997; Hart, 1995). A hard evidence of a successful sustainable strategy implementation in real life is the Aeon Group – a leader in the Japanese retail industry. Aeon successfully balances between their profit generation and corporate social responsibility by building up its own eco-supply chain throughout the region and providing customers with eco-products. In addition, it continuously invests in environmental activities and philanthropies in the place where its business operates. By doing so, Aeon has gained a favorable image in customers’ eyes and has generated profit through its own investment of sustainability development. However, not all large corporations are willing to invest resources in sustainable strategies and scarify a part of profit for social responsibility. Coca Cola – a giant in the beverage industry – is an example of failure sustainable strategy implementation. The conflict between the sustainable strategy stated by Coca Cola and its business practice was manifested in the case of water shortage and water and soil pollution caused by its operations in different regions of India.
In conclusion, after providing a general definition of strategy and a specific definition of business strategy, the essay provides a review of related theory and research about four dimensions of a business strategy, namely strategy content, strategy context, strategy process, and the organizational purposes. The writing also goes through fundamental analysis, which is commonly used in the development of a business strategy, including SWOT analysis, Porter’s five force, the resource-based model and the industrial organizational models, together with well-known methods in strategy evaluation. This essay highlights three essential roles of business strategy. First, it creates competitive advantages that helps the organization perform beyond competitors and satisfy customers’ expectations. Second, it helps the company keep track of the changes of the external environment and available resources in a systematic way. Third, developing business strategies contribute to formulating the future of the business on their own. Finally, the essay discusses two main challenges of developing and implementing a business strategy in today’s context. One is uncontrollable factors derived from the external environment and second is the challenge of the sustainable strategy concept. It can be said that while these challenges could be seen as opportunities for large corporations and multinational companies with strong and sustainable resources, they still act as a barrier in implementing business strategy for small and medium sized businesses.
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