Why Does a Business Need a Strategy?

A quick look at why a business needs to have a strategy

 

“Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stockholder expectations” Johnson et al (2008)1

Without a strategy an existing business can drift away from its customers and become uncompetitive within its environment and eventually stops making profit, this is known as Strategic Drift2. Therefore having a strategy is a way to remain competitive or a way of forcing a strategic change when an organisation has drifted away from its environment and is starting to fail.

Most small businesses have a strategy in the form of a business plan; this is usually a standard document generated to convince either an advisor or a bank they have a good idea and have thought about it. The UK government’s (Business Link 2010)3 business advice recommends at least some SWOT analysis and financial forecasting within its business plan template. This type of strategic business plan is then used to secure funding from the stakeholders.

Strategy has a military history, going back at least to 600 b.c. with The Art of War by Sun Tzu, and as such has been mostly concerned with competitiveness. How to win a battle with your competitors has been the main stay of strategic literature for many year, with positioning of products (Strategic choice) aim to make the business better than the competition.

More recently, strategic tools are being used in the creation of vision and mission statements; to be communicated to the stakeholders. These have a number of uses: Firstly, to help sell the idea of the company to its investors to secure resources for expansion. Secondly, the move to culture based management; where the organisation rely on its culture to inform the employees choices, enabling them to make the correct decisions at all levels without strict supervision4.

Continue to read…

  1. Johnson G, Scholes K & Whittington R. (2008) “Exploring Corporate Strategy” Person Education Limited []
  2. Handy C. (1989), “The Age of Unreason”, Hutchinson []
  3. Goto Business Link []
  4. Huczynski A.A. & Buchanan D.A. (2007), “Organisational Behaviour sixth edition”, Pearson Education Limited p623 []

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