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In competitive industries, each firm chooses the strategy it is best prepared to exploit.

What is Business Strategy?

Business strategy is sometimes defined simply as a firm's high level plan for reaching specific business objectives. Strategies succeed when they lead to business growth, a strong competitive position, and strong financial performance. When the high level strategy fails, however, the firm must either change strategy or prepare to go out of business.

The brief definition above is accurate but, for practical help, many businesspeople prefer instead a slightly longer definition:

Business strategy is the firm's working plan for achieving its vision, prioritizing objectives, competing successfully, and optimizing financial performance with its business model.

The choice of objectives is the heart of the strategy, but a complete strategy also describes specifically how the firm plans to meet these objectives. As a result, the strategy explains in practical terms how the firm differentiates itself from competitors, how it earns revenues, and where it earns margins.

Strategies Reflect the Firm's Strengths, Vulnerabilities, Resources, and Opportunities. And, They also Reflect the Firm's Competitors and Its Market.

Many different strategies and business models are possible, even for companies in the same industry selling similar products or services. Southwest Airlines (in the US) and Ryan Air (in Europe), for instance, have strategies based on providing low cost transportation. The strategy for Singapore Airlines focuses instead on brand image for luxury and quality service. In competitive industries, each firm chooses the strategy it believes it can exploit.

Strategies Are All About Meeting Objectives

In business, strategy begins with a focus on the highest level objective in private industry: Increasing owner value. For most businesses, in fact, that is the firm's reason for being. In practical terms, however, firms achieve this objective only by earning profits. For most firms, therefore, the highest objective can be stated in terms of profits. The generic business strategy therefore aims first to earn, sustain, and grow profits.

An Abundance of Strategies

Strategy discussions are sometimes confusing because most firms in fact have many strategies, not just a single "business strategy." Analysts sometimes say marketing strategy when they really mean the firm's competitive strategy. And, a firm's financial strategy is something different from its pricing strategy, or operational strategy. The firm's many strategies interact, but they have different objectives and different action plans.

The Strategic Framework

The subject business strategy is easier to understand—to make coherent—by viewing each strategy as one part of a strategic framework.

The strategic framework is a hierarchy. At the top sits the firm's top level (or generic) business strategy. Here, the aim is the top level business objective: earn, sustain, and grow profits. Some may immediately ask: Exactly how does the firm achieve it's profit objectives?

Firms in competitive industries answer the "how" question by explaining how the firm competes. For these firms, therefore, the highest level generic business strategy is rightly called competitive strategy. A competitive strategy explains in general terms how the firm differentiates itself from the competition, defines its market, and creates customer demand.

However, detailed and concrete answers to the "how" question lie in lower level strategies, such as the marketing strategy, operational strategy, or financial strategy, The marketing strategy for instance, might aim to "Achieve leading market share." Or, "Establish leading brand awareness." Financial strategy objectives might include: "Maintain sufficient working capital" or "Create a high-leverage capital structure."

Understand Strategies in Terms of the Framework

Certainly, most firms develop and use a rich and complex strategic framework. As a result, business strategy discussions are clearer when they focus on these points:

Specific business objectives for each strategy. And, which objectives in the framework have priority over other objectives.
Interrelationships between the various strategies. For example, which strategies support other strategies.
This article, therefore, presents business strategies as components of a strategic framework.

Explaining Business Strategy in Context

This article further explains and illustrates business strategy in the context of related terms such as the following:

Business StrategyStrategic Objective Business ModelBusiness Plan High Level StrategyGeneric StrategyCompetitive StrategyMission StatementVision StatementValue PropositionOperational StrategyFinancial StrategyMarketing StrategyProduct StrategyPricing StrategyAdvertising StrategyGrowth StrategyOutsourcing StrategyOperational StrategyFinancial StrategyGrowth Strategy