“Why do we need a business strategy?”

Today we answered your question:

A business usually has more than one strategy but for the purposes of this article the focus is on a strategic (business future) perspective.

Regardless of whether your goal is to grow your business into something or is simply a means to earn a monthly income for yourself, without knowing which you are aiming to achieve getting there will be a hit and miss affair, decision-making weak and difficult, resources may not be available when you need them, and it could take longer than necessary to get there with a trial and error approach rather than strategic. The trial and error approach historically provide other businesses with the opportunity to get to your customers before you do.

I will use the popular analogy of going on a journey to explain further.

Let’s say you decide to go on a journey. Would you immediately jump into a car and start driving? Or would you first decide on where you were going, the best route to take, the type of transport required to get there, how long it will take, do you need overnight stays, rest stops, will fuel be needed along the way? And so on.

Most of us would do the latter, that is, before setting off, decide on a destination (the goal/purpose/problem to solve), determine our preferences such travelling at low congestion times to reduce carbon emissions (guiding principles). We would precisely plan the roads to take, the required rest and fuel stops, book hotels to stay at along the way, all from the start of the journey to the destination and back (actions).

Of course, there are many analogies like the journey analogy. For example, I could have used another well-known analogy of  a general planning and managing an army to win a war without fighting as compiled in “The Art of War” by Sun Tzu.

Whichever analogy is used any good strategy has these 3 key elements: a clearly identified goal/purpose/problem to solve or ,destination, guiding principles, and precise planned actions required to produce the desired ‘destination’. These three elements transformation the current situation to where it should be, what inputs are required, when, to obtain desired outputs.

But why is it so important in business? Here are five simple reasons.

Vision and decision making
It is far easier to know what decisions to make if you know where you are going. Each business regardless of size, wealth, age, is part of the business community and environment contributing to the economy rather than an isolated player. So, a business is one element within a larger environment. As the environment changes decisions on are required on adapting the business accordingly without negatively impacting the rest of the business. A good strategy guides the decision-making process.

For example, on our journey we come across roadworks and a detour (change in our environment). We only know which alternative route to take because we know what our destination/end goal/purpose is and the road surfaces we can travel on because we know what type of transport we are using. So, a strategy makes decision making easier about which detour to follow rather than it being a hit and miss affair.

Competitive advantage
In business there are many competitors, today globally, who provide the same or a similar service/product. If we take our time figuring out through trial and error how to reach the limited number of customers that would use our service/product, someone moving faster towards a clear destination will reach those customers first. So, a strategy helps us reach a destination in the most efficient and efficient way.

Available resources
When compiling an effective strategy, the resources required are clear. Business owners use this knowledge to plan, schedule, and budget for resources often purchasing ahead of time or in larger quantities to achieve savings that can be pass on to customers compared to competitors pricing.

In our journey analogy we needed a car to travel in, and a number of hotel rooms, fuel, and rest stops along the way. The number and frequency is dependent on how leisurely or fast we want to arrive at the destination.
 
Effective Leadership
Having a strategy makes leading a business easier. It is easier for a leader to convey a vision or ‘destination’ to people such as staff, suppliers, contractors, customers. Once shared a leader can leave the team to achieve the vision or destination in a way that works best for them. A leader can get on with leading the company forward rather than micromanaging.

Culture
Today a strong business culture is often used as a competitive advantage (a different topic for a different answer). The culture should align and be in synergy with the business ‘destination’. Culture which includes ethics is a key aspect of the guiding principles to be considered when formulating a strategy. Using our journey analogy, we decided before we set out that we were travelling during hours of least congestion to reduce the impact of carbon emissions on the environment.
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Strategy, therefore, is key to remaining focused on a destination and effectively, efficiently reaching the destination efficiently, effectively, and releasing additional value to be passed to customers that competitors do not offer.

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