What is the importance of business strategy?
Importance of Business Strategy
Business strategy is important because it is the framework of a business. It is a plan of action developed with goals and objectives in mind. It states the direction, goals, and objectives of the business, as well as how they will be achieved. A business strategy allows a business to distinguish itself from its competitors. It is a valuable tool for predicting future success and for planning.
1. Plans success
Moreover, business strategies are valuable to businesses because they outline plans for achieving success, as well as different approaches that can be taken to achieve those goals. A business strategy helps a company determine what opportunities exist in the market and how it will react to those opportunities.
2. Predict future actions that work
Business strategies also help businesses with planning. They allow companies to predict future actions based on past performance and behavior patterns of customers and competitors.
3. Recognize business opportunities
Business strategies are created by managers, but they must also be approved by the board of directors to ensure that the company is headed in the right direction. Having a business strategy to guide business operations, businesses can recognize new opportunities and react accordingly. This gives them the ability to maximize profits and gain competitive advantages over their competitors.
What the Business Strategy Plan Contains
A strategic plan is a formal document, usually produced annually. It communicates the organization’s mission, vision, core values, and other statements of its philosophy. In addition, it establishes its objectives; details its strategies for achieving its objectives. Also, it evaluates how well it has performed in meeting its objectives; and sets forth priorities for the coming year.
The document is directed at multiple audiences:
- Shareholders
- Employees
- Suppliers
- Customers
- government regulatory agencies
- communities
It may be directed at all of these audiences or at only one or two of them, for instance. The strategic plan statement may be in other documents such as an annual report or a mission statement.
What is Strategic Planning?
Strategic planning is the process of:
- defining the organization’s mission
- setting goals and objectives to accomplish that mission
- identifying strategies for achieving those goals and objectives (including how to finance them)
- also, monitoring results to determine whether actual performance matches planned performance
In addition, strategic planning is not an end in itself but rather a means to an end—the achievement of organizational objectives.
Strategic planning helps managers make decisions about what business to be in (or leave) and what products or services to offer. It helps companies determine where they are now competitively in comparison with their competitors.
Companies benefit from it because it helps them in making decisions. For instance, how much money should be for existing products or services. Also, how much should be for creating new ones. Lastly, where to invest money to achieve maximum return.
Strategic planning also helps companies take corrective action if their performance does not meet expectations—or if it exceeds expectations—by helping them decide whether to reinvest profits or distribute them as dividends.