Business Strategy: Meaning, Types, Levels, Features & Importance

What is a Strategy?

The concept of strategy is traditionally associated with warfare, where it refers to the methods or means adopted to defeat an enemy. In the business context, however, strategy refers to the methods and courses of action adopted by an organization to achieve its objectives while responding effectively to constraints and challenges in its environment.

The term strategy is derived from the Greek word “strategia,” meaning “generalship.” The word is also associated with “strategos,” meaning a general, and the Greek terms stratos (army) and ago (leading or moving).

In the military context, strategy involves arranging and deploying troops before engaging the enemy. Once the enemy is engaged, attention shifts towards tactics, which are the specific actions used to win the battle. The central concern of strategy is therefore the effective deployment and utilization of resources to achieve desired objectives.

This concept has been transferred to the business world. In business, strategy involves the formulation, implementation, execution, and control of plans and policies to achieve the strategic goals of an organization.

Strategy in Business

A business organization operates in an environment that may be competitive, uncertain, adverse, or hostile. Strategy enables an organization to respond effectively to such environmental conditions and achieve its desired objectives.

In business, strategy can be understood as:

• A plan developed by management to conduct operations, attract customers, and compete successfully.
• A comprehensive and integrated plan of action designed to achieve desired business goals and objectives.
• A long-term plan or blueprint that provides the organization with a desired direction, image, and destination.
• A set of key decisions and actions designed to achieve organizational objectives.
• An integrated course of action aimed at securing a sustainable competitive advantage.

Thus, a business strategy is a comprehensive master plan that explains how an organization intends to achieve its mission and objectives.

Strategy and Strategic Management

Strategic Management refers to the managerial process through which an organization develops and implements strategies to achieve its long-term objectives.

The strategic management process generally involves:

1. Forming a strategic vision – defining what the organization wants to become in the future.
2. Setting objectives – establishing specific goals that the organization intends to achieve.
3. Crafting a strategy – determining the appropriate course of action for achieving those objectives.
4. Implementing and executing the strategy – putting the chosen strategy into action and allocating resources effectively.
5. Making corrective adjustments – reviewing performance and making necessary changes to the vision, objectives, strategy, or execution.

Therefore, strategic management is a continuous process of planning, implementation, evaluation, and adjustment.

Strategy as a Long-Term Direction

Strategy provides a general direction for an organization and its various components to achieve a desired future state. It determines where the organization wants to go and how it intends to reach that destination.

At the corporate level, the overall purpose of strategy is to match the organization with its external environment in the most advantageous manner. An effective strategy aligns the organization's resources and capabilities with market opportunities and environmental challenges.

Strategy is therefore an integrated set of actions designed to create and sustain a competitive advantage.

Strategy: Meaning and Definitions

Strategy may be defined as the determination of the long-term goals and objectives of an enterprise, together with the adoption of appropriate courses of action and the allocation of resources necessary to achieve those goals.

It can also be viewed as management's game plan for strengthening the organization's position, satisfying customers, competing effectively, and achieving performance targets.

Definitions of Strategy

Glueck:
“Strategy is a unified, comprehensive and integrated plan designed to ensure that the basic objectives of the enterprise are achieved.”

Alfred D. Chandler:
“Strategy is the determination of the basic long-term goals and objectives of an enterprise and the adoption of the courses of action and the allocation of resources necessary for carrying out these goals.”

Johnson and Scholes:
“Strategy is the direction and scope of an organization over the long term, which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations.”

Quick Summary of Business Strategy

In simple terms, strategy is a long-term plan of action that determines where an organization wants to go, how it will get there, and how it will use its resources to achieve its objectives. It helps an organization respond to environmental challenges, satisfy customers, compete effectively, and build a sustainable competitive advantage. Strategy is therefore not merely a plan; it is a comprehensive and integrated approach to achieving the long-term goals and objectives of an organization.

Elements of Strategy

An effective strategy considers several important elements that help an organization determine its direction, achieve competitive advantage, and move from its current position towards a desired future state.

1. Direction

Where is the business trying to get to in the long term?

Strategy defines the long-term direction and destination of the organization. It clarifies what the business wants to achieve and where it wants to be in the future.

2. Competitive Advantage

How can the business perform better than its competitors in its chosen markets?

Strategy focuses on developing a competitive advantage that enables the organization to perform better than its competitors and create superior value for customers.

3. Business Environment

What external environmental factors affect the organization's ability to compete?

Strategy takes into account external factors such as economic conditions, technology, government policies, social trends, market conditions, and competition that may influence the organization's performance.

4. Stakeholders

What are the values and expectations of those who have power in and around the business?

Strategy considers the interests, expectations, and influence of important stakeholders, including owners, employees, customers, suppliers, investors, government, and the wider community.

5. Resources

What resources are required to compete successfully?

Strategy identifies and allocates the resources required to achieve organizational objectives. These may include:

• Skills and human resources
• Physical assets
• Financial resources
• Technology
• Knowledge and capabilities

6. Policies, Objectives and Goals

Strategy is derived from the organization's policies, objectives, and goals. These provide the basic framework within which strategic decisions are formulated and implemented.

7. Movement from the Current to the Desired State

Strategy is concerned with pursuing activities that move an organization from its current position to a desired future state. It provides a roadmap for achieving long-term objectives.

8. Resource Allocation and Implementation

Strategy is also concerned with determining the resources required to implement a plan effectively. Proper allocation and utilization of resources are essential for successful strategy implementation.

Quick Summary - Elements of Strategy

The major elements of strategy can therefore be summarized as: 

Direction → Competitive Advantage → Environment → Stakeholders → Resources → Objectives → Action → Resource Allocation 

Together, these elements help an organization formulate and implement an effective strategy for achieving its long-term goals.

Nature of Strategy

The nature of strategy refers to the basic characteristics that explain how strategy is formulated, implemented, and used by an organization to achieve its objectives.

1. Relates the Organization to its Environment

Strategy is a major course of action through which an organization relates itself to its external environment. It enables the organization to respond effectively to changes in markets, competition, technology, government policies, and other external factors.

2. Blend of Internal and External Factors

Strategy is a combination of internal and external factors. An organization identifies opportunities and threats arising from the external environment and matches them with its internal strengths and weaknesses to formulate an appropriate strategy.

3. Situation-Specific

Strategic actions differ according to the nature and circumstances of each situation. There is no single strategy that is suitable for every organization or every situation. Strategy involves a combination of actions designed to solve specific problems and achieve a desirable outcome.

4. May Involve Contradictory Actions

A strategy may sometimes involve apparently contradictory actions, either simultaneously or at different points in time. For example, an organization may decide to close down certain operations while expanding other operations at the same time.

5. Future-Oriented

Strategy is primarily future-oriented. It focuses on preparing the organization for future opportunities and challenges. Since new situations may arise that have not been experienced in the past, strategic actions may need to be revised or modified accordingly.

6. Requires Systems and Norms

Effective strategy adoption requires appropriate systems, procedures, policies, and organizational norms. These provide a framework for implementing strategic decisions efficiently and consistently.

7. Provides an Overall Framework

Strategy provides an overall framework for guiding organizational thinking and action. It gives direction to decision-making and helps different activities and departments work towards common organizational objectives.

Quick Summary - Nature of Strategy

The nature of strategy can be summarized as follows: 

• Environment-oriented 

• A combination of internal and external factors 

• Situation-specific 

• Capable of involving contradictory actions 

• Future-oriented 

• Supported by systems and organizational norms 

• A framework for organizational thinking and action 

Thus, strategy provides an organization with a long-term direction and an overall framework for responding to environmental changes and achieving its desired objectives.

Features / Characteristics of Strategy

Strategy has several important characteristics that distinguish it from routine operational activities. The major features of strategy are as follows:

1. Responsibility of Top Management

Strategy is primarily the responsibility of top management because strategic decisions affect the overall direction and future of the organization. Top-level managers are responsible for formulating major strategies and ensuring their effective implementation.

2. Involves Large-Scale Resource Allocation

Strategic decisions often require the allocation of substantial organizational resources, including financial resources, human resources, technology, assets, and managerial capabilities.

3. Long-Term Impact

Strategy has a significant impact on the long-term prosperity and performance of the organization rather than merely affecting routine day-to-day operations. Strategic decisions can influence the organization's growth, profitability, market position, and survival.

4. Future-Oriented

Strategy is future-oriented. It focuses on anticipated opportunities, challenges, and changes in the business environment. Since the future cannot be predicted with complete certainty, organizations must prepare themselves to deal with uncertain events.

5. Considers the External Environment

Strategy takes into account important factors in the external environment, such as customers, competitors, technology, economic conditions, government policies, social trends, and market developments.

6. Significant in Nature

Strategic decisions are significant and fundamental because they can have far-reaching consequences for the organization. Since perfect foresight about the future is impossible, organizations must formulate strategies that enable them to respond effectively to uncertain and changing business conditions.

7. Focuses on Long-Term Developments

Strategy deals primarily with long-term developments rather than routine operations. It may involve decisions relating to:

• Introduction of new products or services
• Development of new production methods
• Adoption of new technologies
• Entry into new markets
• Expansion or diversification of business
• Development of new business opportunities

8. Considers Stakeholders

Strategy considers the interests and expectations of various stakeholders of the organization, including owners, employees, customers, suppliers, investors, government, and society.

9. Considers Probable Behaviour

Strategy is formulated by considering the probable behaviour of customers, competitors, employees, and other stakeholders. For example, a marketing strategy may anticipate changes in customer preferences, while a competitive strategy may consider how competitors are likely to respond.

Quick Summary - Features / Characteristics of Strategy

The major features of strategy can be summarized as: 

Top Management Responsibility → Large-Scale Resource Allocation → Long-Term Impact → Future Orientation → External Environment → Significant Decisions → Long-Term Developments → Stakeholder Consideration → Probable Behaviour 

Thus, strategy is a significant, future-oriented, and long-term course of action formulated by top management to guide the organization, allocate resources effectively, respond to environmental uncertainty, and achieve sustainable organizational objectives.

Functions of Strategy

Strategy performs several important functions in an organization. It provides direction, helps in solving problems, ensures effective utilization of resources, and enables the organization to respond to changes in its business environment.

1. Helps in Problem Solving and Resource Allocation

Strategy provides a dual approach to problem solving:

• It helps identify and use the most effective means to overcome difficulties and face competition.
• It assists management in deploying scarce resources among the organization's most critical activities.

Thus, strategy ensures that limited resources are utilized where they can create the greatest impact.

2. Guides Organizational Development

Strategy focuses attention on important changes in the organizational structure and setup. It also influences the administration of organizational processes, employee behaviour, and the development of effective leadership.

3. Helps in Managing Change

Strategy provides an effective technique for managing organizational change. It enables management to anticipate changes, respond to them effectively, and, where possible, influence the direction of change.

It also encourages managers to adopt new ways of thinking and become more adaptable to changing circumstances.

4. Balances Present and Future Opportunities

Strategy provides management with a broader perspective in which present and future opportunities are given appropriate consideration. It prevents management from focusing only on immediate results and encourages long-term thinking.

5. Helps Cope with a Complex Environment

Strategy provides management with a mechanism for dealing with a highly complex and dynamic business environment. Such an environment may be influenced by diverse:

• Cultural forces
• Social forces
• Political forces
• Economic forces
• Technological forces
• Competitive forces

Strategy helps the organization understand these forces and develop appropriate responses.

Quick Summary - Functions of Strategy

The major functions of strategy are: 

Problem Solving → Resource Allocation → Organizational Development → Change Management → Present-Future Balance → Managing Environmental Complexity 

Therefore, strategy acts as an overall managerial framework that helps an organization overcome difficulties, utilize scarce resources effectively, manage change, develop leadership, and respond successfully to a complex and uncertain environment.

Importance of Strategy

Strategy is an essential part of effective management because it provides an organization with a clear direction and a framework for achieving its long-term objectives. Its importance can be explained as follows:

1. Provides a Clear Roadmap

Strategy serves as a well-defined roadmap for the organization. It guides management and employees regarding what needs to be achieved and the course of action required to reach the desired destination.

2. Defines Mission, Vision and Direction

Strategy helps define and support the organization's overall mission, vision, and long-term direction. It ensures that organizational activities are aligned with its desired future position.

3. Maximizes Strengths and Competitive Advantage

The objective of strategy is to maximize the organization's strengths and capabilities while developing ways to overcome or reduce the competitive advantages of rivals. It helps the organization build and sustain a strong position in the market.

4. Bridges the Gap Between the Present and the Future

Strategy acts as a bridge between “where we are” and “where we want to be.” It identifies the organization's current position, establishes the desired future position, and determines the actions and resources required to move from the present state to the desired state.

Quick Summary - Importance of Strategy

The importance of strategy can be summarized as: 

Clear Roadmap → Mission, Vision & Direction → Competitive Advantage → Present-to-Future Transformation 

Thus, strategy provides an organization with direction, focus, competitive strength, and a systematic approach to achieving its long-term objectives.

Kinds of Corporate Strategy

Corporate strategy determines the overall direction and scope of an organization and helps management decide how the organization should grow, maintain its position, or reduce its activities.

There are four major strategic alternatives, commonly known as Grand Strategies:

1. Stability Strategy
2. Expansion Strategy
3. Retrenchment Strategy
4. Combination Strategy

1. Stability Strategy

A stability strategy is adopted when an organization decides to maintain its existing business activities and position while focusing on improving its functional performance.

The major types of stability strategy are:

a. No-Change Strategy

Under this strategy, the organization continues with its existing products, markets, and business activities without making significant changes.

b. Profit Strategy

Under a profit strategy, the organization focuses on improving profitability and maintaining satisfactory financial performance, particularly when major expansion is not considered appropriate.

c. Pause / Proceed-with-Caution Strategy

This strategy involves taking a temporary pause in expansion or proceeding cautiously before committing additional resources. It allows management to consolidate existing operations and assess future opportunities.

 

2. Expansion Strategy

An expansion strategy is followed when an organization aims to achieve higher growth, increased market share, or expansion of its business activities.

Expansion may be achieved through:

a. Concentration

The organization concentrates its resources on its existing or closely related products and markets to achieve greater growth.

b. Integration

The organization expands by gaining control over different stages of its value chain. Integration may be:

• Vertical integration – expansion into activities related to suppliers or distribution channels.
• Horizontal integration – expansion by acquiring or combining with businesses operating at the same stage of the industry.

c. Diversification

The organization enters new products, markets, or businesses to create additional sources of growth.

d. Cooperation

Organizations may pursue expansion through cooperation with other businesses. Major forms include:

• Mergers
• Takeovers / Acquisitions
• Joint ventures
• Strategic alliances

e. Internationalization

The organization expands its activities into international or foreign markets to achieve growth and access new customers and resources.

 

3. Retrenchment Strategy

A retrenchment strategy is followed when an organization aims to reduce or contract its business activities because of poor performance, financial difficulties, unfavorable environmental conditions, or the need to focus on more profitable areas.

Retrenchment may take the following forms:

a. Turnaround Strategy

A turnaround strategy is adopted to revive an underperforming or loss-making business by improving efficiency, reducing costs, restructuring operations, and restoring profitability.

b. Divestment Strategy

Under divestment, the organization sells or disposes of a business unit, product line, or investment that is no longer strategically or financially desirable.

c. Liquidation Strategy

Liquidation involves closing down the business and disposing of its assets when the organization is unable or unwilling to continue its operations.

Liquidation may occur through:

• Compulsory winding-up
• Voluntary winding-up
• Winding-up under the supervision of the court

 

4. Combination Strategy

A combination strategy is adopted when an organization uses a combination of stability, expansion, and retrenchment strategies.

These strategies may be applied:

• At the same time in different businesses or divisions, or
• At different times in the same business, depending on changing circumstances.

For example, a diversified company may expand one business, maintain another, and divest a third business at the same time.

Summary

The four major kinds of corporate or grand strategies are:

Strategy	Main Purpose
Stability	Maintain existing position and improve performance
Expansion	Achieve growth and increase business activities
Retrenchment	Reduce or contract business activities
Combination	Use stability, expansion, and retrenchment in different situations

Thus, corporate strategy enables an organization to choose an appropriate overall direction based on its objectives, resources, competitive position, and business environment.

Types / Levels of Strategy

Strategy in an organization can be formulated at three different levels:

1. Corporate-Level Strategy
2. Business-Level Strategy
3. Functional-Level Strategy

These three levels are interconnected. Corporate strategy provides the overall direction, business strategy determines how each business competes, and functional strategy supports the business strategy through specific departmental actions.

1. Corporate-Level Strategy

Corporate-level strategy defines the broad business areas in which an organization will operate. It is concerned with the overall scope and direction of the organization and involves decisions about managing a diverse set of businesses, whether related or unrelated.

Corporate strategy focuses on:

• Defining the business areas in which the organization will operate.
• Deciding whether to enter, expand, maintain, or withdraw from particular businesses.
• Allocating resources among different business units.
• Integrating and managing diverse businesses.
• Creating synergy among different businesses.
• Providing a path towards achieving the organization's vision.

Corporate-level strategy is primarily formulated by the top management team, as it affects the organization as a whole.

Example

Suppose an organization operates in four different businesses:

• Automobiles
• Steel
• Tea
• Telecom

The corporate-level strategy will determine which businesses the organization should compete in, which businesses it should withdraw from, and where investments should be increased or reduced, in line with the organization's overall vision.

Key Point:
Corporate-level strategy answers the question:

“What businesses should we be in?”

 

2. Business-Level Strategy

Business-level strategy is formulated for a specific Strategic Business Unit (SBU) and relates to a particular product-market area. It focuses on determining the competitive position of an individual business unit.

Business-level strategy is concerned with how a particular business can compete successfully within its industry.

The formulation of business-level strategy is generally based on three broad generic competitive strategies:

• Overall Cost Leadership
• Differentiation
• Focus

These strategies enable different business units within the same organization to adopt different approaches depending on the nature of their respective industries and markets.

Example

A diversified organization may choose:

• Cost leadership for its steel business.
• Differentiation for its tea business.
• Focus for its automobile business.

Business-level strategies are generally decided by the heads of Strategic Business Units and their respective teams, taking into account the specific nature of the industry and competitive environment.

Key Point:
Business-level strategy answers the question:

“How should we compete in this particular business?”

 

3. Functional-Level Strategy

Functional-level strategies relate to the different functional areas within a Strategic Business Unit, such as:

• Marketing
• Production and Operations
• Finance
• Human Resources
• Research and Development

These strategies are formulated by functional heads along with their teams and must be aligned with the relevant business-level strategy.

Functional-level strategies translate the broader business strategy into specific, short-term, measurable objectives and actions.

Example

Suppose a tea business follows a differentiation strategy at the business level.

Its functional strategies may include:

Marketing:
Launch and promote a wide variety of tea products through company-owned retail outlets.

Distribution:
Set an objective of opening 25 retail outlets in a particular city.

Production:
Develop and produce 15 different varieties of tea.

When these functional objectives are successfully achieved, they contribute to the successful implementation of the overall business-level strategy.

Key Point:
Functional-level strategy answers the question:

“How can each department support the business strategy?”

 

Relationship Among the Three Levels

The three levels of strategy work together in a hierarchical manner:

Corporate Strategy
↓
Determines the overall businesses and direction of the organization
↓
Business Strategy
↓
Determines how each Strategic Business Unit will compete
↓
Functional Strategy
↓
Determines how individual departments will support the business strategy

Simple Example

If a company decides at the corporate level to remain in the tea business:

Corporate Level:
“We will continue investing in the tea business.”

Business Level:
“We will compete through differentiation by offering premium and unique tea varieties.”

Functional Level:

• Marketing: Promote premium tea products.
• Production: Develop new tea varieties.
• Finance: Allocate funds for product development.
• HR: Recruit and train employees with relevant skills.

Thus, corporate strategy provides the overall direction, business strategy establishes the competitive approach, and functional strategy converts that approach into specific departmental actions.

Summary Table

Level	Main Focus	Key Question	Usually Formulated By
Corporate Level	Overall scope and business portfolio	What businesses should we be in?	Top Management
Business Level	Competitive position of an SBU	How should we compete?	SBU Heads and Teams
Functional Level	Departmental actions and objectives	How can each function support the strategy?	Functional Heads and Teams

In One Line

Corporate Strategy = Where to compete
Business Strategy = How to compete
Functional Strategy = How each function will support the competition