How to Create a Winning Business Level Strategy
by Tom Wright, on Aug 21, 2019 10:53:21 PM
Business level strategy is concerned with the strategic planning and execution of initiatives for business units. Business strategy is considered the 'middle' level in the overall strategy hierarchy.
Thinking in terms of strategy levels is a useful way of dividing up strategy in a meaningful way, allowing you to distinguish between the various parties and responsibilities involved in both the formulation and execution of the strategy. In this post, I walk through the components of strategy at a business level and how to actually write a strategic plan for your business unit and cascade that strategy to a functional strategy level.
What is Business Level Strategy?
In short, business level strategy describes opportunities to provide value to customers and gain competitive advantage in individual business areas. This is in contrast to corporate level strategies which might look at multiple markets and broader concepts that apply to the entire organization.
As a result, organizations with only one distinct business unit will often combine business strategy with corporate strategy as a single strategy level.
Corporate Strategy vs Business Strategy
There seems to be a lot of confusion surrounding the difference between corporate strategy and business strategy, so I wanted to clarify it once and for all. While corporate level strategy is concerned primarily with defining the strategic direction of the entire organization - business level strategy is distinguished by an emphasis on market navigation for a specific business unit. Business level strategies are (as the name suggests) strategies which concern a single business unit. Check out the example below of a Bank and how they would use strategy levels in their organization.
Business Strategy Examples
In order to better understand how business level strategy differs from other strategy levels, it is useful to look at some examples of business level strategy as it is applied ‘on the ground’. In very general terms, we can distinguish five strategies that organizations can utilize at a business level to foster competitive advantage.
- Cost Leadership
Offering a product at a lower price than competitors is the most straightforward way in which businesses compete for customers. Business units can reduce costs by a number of means - building better facilities, investing in tooling or reducing the cost of overheads, minimizing costs of R&D, POS and so forth.
Rather than focusing on lowering costs and passing those reduced costs onto customers, differentiation strategies emphasize the development and marketing of products in a manner which provides greater value to customers. In the laptop market, Apple has invested heavily in R&D, customer service and marketing, successfully carving a niche which allows Apple to charge substantially more than other manufacturers without compromising market share. If you're looking at pursuing a differentiation strategy, Mckinsey's Three Horizons of Growth is a great framework to use.
- Focused low cost
In addition to reducing cost, businesses may choose to further focus their efforts by targeting only one subset of the market. For example, a tool manufacturer choosing to focus only on the professional tradesperson market.
- Focused differentiation
In much the same way, businesses may choose to differentiate themselves from their competitors while simultaneously focusing their efforts on a smaller subset of their customer base. While it may seem counter intuitive, focused strategies can be highly effective - with a smaller, better understood customer base, businesses are able to more accurately anticipate their customers' needs - making the process of creating value significantly easier in some cases.
- Integrated low cost/differentiation
For some businesses, the optimal approach may be a hybrid strategy, emphasizing both low cost, as well as differentiation. The rise of so called ‘premium fast food’ restaurants, which offer both the low price associated with more established fast food chains, as well as a differentiated range of offerings, is a testament to the effectiveness of this strategy.
If you're struggling to decide on the best business strategy to pursue for you business unit, Value Disciplines is a great framework to help point you in the right direction for your company.
How to Write A Business Strategic Plan
Once you've chosen the type of business strategy you'd like to pursue, you'll need to write a strategic plan to address all the actions your business unit will undertake to achieve its vision. We've already written in depth on how to write a strategic plan, but here is a quick overview of how to write a business strategic plan.
Your vision statement defines where you want to get to. Do not start your strategic plan without defining your Vision Statement! Lots of articles have been written about the value of a good Vision Statement - here's our guide to writing one.
Values represent how you'll behave as an organization as you work towards your vision. Too often, organizations simply throw out words that they think will sound good in a glossy marketing brochure but have little relevance to anything else. Our take on 'Values' is subtly different and hopefully somewhat more pragmatic. Think of Values as the 'enablers' of your Vision Statement. Don't be afraid to be honest about how you want your people to act and think.
Your focus areas are the high level things that you’ll be focusing your efforts towards as you strive towards your vision. Focus Areas should be tighter in definition than your Vision Statement - but not to the level of having any particular metric or deadline.
Strategic objectives represent what you want to accomplish - they’re reasonably high level, but should still have a deadline attached. Your Strategic Objectives should align to one or more of your Focus Areas. Typically you’ll have 3-6 objectives for each focus area.
KPIs are how you will measure progress towards your strategic objectives. They're measurable values that show your organization’s progress. KPIs should be developed to contribute to achieving a specific goal or objective. If they're not developed with a specific objective in mind, they run the risk of stealing attention, time, and money from KPIs that actually help to achieve strategic objectives.
Projects describe what you will do to accomplish your objectives. They must be extremely specific and contain a deadline and a clear articulation of your actions. Your projects should align to at least one of your strategic objectives and describe how you will actually achieve your strategic objective. Typically you will create multiple projects for each strategic objective.
If you’re writing a strategic plan, it can be helpful to think about it this way: business level strategy decisions are ultimately based on analysis of two main factors - customers and core competencies.
The Key Focus Areas for Business Level Strategies
OK, so we've got a rough understanding of how to structure a business strategy, but what about the actual content of your strategy. Well this will of course vary between organizations, but typically you'll need your business level strategy to address at minimum two key elements:
As a result of the more restricted, singular nature of business level strategy, the concept of a business’s core competencies becomes very important. Core competencies are the elements of a business which differentiate that business in the market, and provide value to customers.
Understanding what a business’s core competencies are, and examining the manner in which these competencies can be developed or leveraged into real world competitive advantage in a market is a massive part of business level strategy. If you're struggling to create competitive advantage or identify your business's core competencies, a VRIO analysis is a great place to start.
In addition to understanding a business's core competencies, business level strategy is concerned with the nature of the customers, both current and potential, which interact with the business. The words who, what and how can be used to develop this understanding.
- Who are the customers?
Demographic descriptors as well as consumption patterns can help to draw a picture of who your customers are. In contrast to those working at the corporate strategy level, business level strategists are often able to develop an extremely accurate and specific idea of who their customers are, allowing us to tailor strategic planning decisions in a way which just isn’t feasible at a corporate level.
- What are the products that customers need?
Understanding what a business’s customers actually want is vitally important when it comes to developing and maintaining competitive advantage. Companies which fulfill needs and create value for customers are successful businesses.
In addition, the ability to accurately forecast changes in customer needs over time, as well as anticipating fluctuations in demand, allows businesses to respond in strategic terms.
- How can the business satisfy customer needs?
Finally, organizations need to figure out how to leverage core competencies and resources in a manner which satisfies customers - creating value.
Putting it all together
With a firm idea of what a business’s core competencies are, as well as an idea of the customers that business serves, we already have a powerful model of a business as an entity. This gives us the ability to start developing strategies that can foster competitive advantage and create value - the end goal of business level strategy.
How to Cascade Business Level Strategy to Functional Level Strategy
Once you've created your business strategy, you'll need to cascade this down to your functional departments, so they're able to create the functional level strategy. Your functional level strategy will start to address the specific actions that functional departments will take to achieve strategic objectives and projects in the business strategy.
The business strategy should first be shared and communicated with the heads of functional departments. The functional department leaders will then need to use the strategic objectives and projects from the business strategy that relate to their department, and use these as a basis to inform their focus areas. They are then able to develop their own strategies and tactics to achieve these focus areas, which should flow up to help achieve the strategic objectives and projects in the business strategy.
Some Final Thoughts
Business level strategy is heavily focused on customers, as well as the core competencies of a business. With these variables in mind, developing business level strategy becomes significantly easier.
Ultimately, business level strategy is where the abstracted strategic directions developed at the corporate level are realized as meaningful, concrete initiatives - turning ideas into real-world value.
This makes business level strategy immensely valuable. Good strategic planning at the business level can radically impact outcomes for any organization - from the very small right up to the very large.