So, you have managed to secure a business plan and you are probably in the middle of gathering as much information as you can so you can become knowledgeable. The importance of knowledge should never be underestimated after all knowledge is power. When it comes to building and eventually running a successful business there are phrases which always take centre stage. You will be told you need to come up with a business strategy or go home and take time to design a business model. But what do these seemingly fancy phrases mean and why are they important in my journey towards a building a business? After all, they seem to be making a buzz in the world of start-ups.
The purpose of any business is to create and deliver value to the market place. The process of value creation has to be done at a competitive price, which would ensure the continued creation and provision of that value. Simple as this might sound, there is quite a lot that goes into the processes involved which go beyond the mere creation of a product or service. It is in seeking to understand these different processes that we arrive at a business strategy which can be viewed from different perspectives.
From an operational standpoint, strategy entails a set of coherent activities contributing to the creation and delivery of value to the customer. Where one is much concerned about competition, the strategy consists of choosing to perform activities in a rather different manner compared to that of your competitors. This is done to achieve a competitive advantage in the market place, an edge which can account for the profitability of your business in the market place. These various and otherwise interlocked activities responsible for the creation of value form the building blocks of any given business.
You could be in retail, manufacturing or service delivery your major activates usually hover around having close contact with providers or suppliers of the necessary inputs. It is, therefore, the goal of a business model to ensure that each building block is perfectly defined and properly arranged in your business system. Given that a business model allows you to properly position the various and otherwise interlinking processes, there is a sense in which one might want to look at business strategy as the heartbeat of every business model. It is through the business strategy that you will decide how to carry out the defined block and activities. In business, such decisions will usually be inclined towards profit maximisation and cost minimisation.
You might have the strongest of the financial muscle which you think will be bail you out in running your business. You should also think of what would be your fate if you so much lack the strategies to ensure that your financial muscle is maintained and constantly nourished. The strategy, therefore, becomes an important element in ensuring the successful operation of any business model. A brief overview of business strategies reveals that three types of strategies can be implored both in designing and operating a business model. Such strategies can be defined as the cost advantage strategy, the blue ocean and the differentiation strategy.
The cost advantage strategy
With this business strategy, a business will put more emphasis on creating a product/service that provides functionalities required by customers at a lower price than competitors. You could be quick to think of Telecel and its Mega Juice promotions. At some point, a $1 worth of airtime would give you an extra $1 or so worth of airtime which was a bargain for many. I don`t know about you, but quite often this made me think other service providers as rather expensive. Yes, one fact amongst many others was that this network provider had much of her business strategy hinged on the cost advantage strategy. I would wonder if this was really profitable for Telecel given the position they currently are in despite dishing out all those bonuses.
In this strategy, a business will conduct activities which do not differ substantially from existing products in the market. Efforts are however made towards ensuring that the provision of such a product/service is done so in an efficient manner by controlling costs associated with the activity in question. What emerges as important in this strategy is the need to gain an in-depth understanding of activates performed in the business system/cycle. It is from this understanding of business activities that you will realise that each activity as listed in your business model comes with a set of costs and assets involved in its carrying out. Therefore, if you so wish to make your business to operate on a cost advantage you will need to consider controlling the drivers of cost of production as associated with each activity in your business model. This has to be better than your competitors.
Differentiation Advantage Strategy
Have you wondered why we have a lot of products falling under one broad category like sugar? In the sugar category we have icing sugar, brown and white sugar and what do you think is the reason for this? Put simply, this is the differentiation advantage strategy at its best. Strategies based on differentiation advantage seek to create a unique value for the consumer as they seek to capitalise on elements that matter most to the consumer. Some consumers just want the sugar to sweeten their tea while a baker would specifically want a special type of sugar for his product. A sugar processor will, therefore, see an advantage to create different types of sugar one specifically meant for bakers and bakeries while another processor might be content with supplying unprocessed sugar for those who do not have special preferences. The end result is that in the market place we end up having unique differentiation in the products each guaranteeing their producer a unique market.
Mistakes commonly made by a number of businesses is to see differentiation in terms of physical products or marketing practices instead of focusing on the value chain. This usually robs them of the opportunity of creating unique products from which they can reap over bounding rewards. Having taken the efforts to create a product with unique features you can set up premium prices so as to compensate for the activities undertaken to meet the unique consumer needs.
In such a strategy it is critical that a business understands its customers to a point of clearly defining their behaviour and they’re most pressing and otherwise unmet needs. This strategy will, therefore, require that a business owner focus his/her attention on the customer segment portion of the business model canvas. This is so as he/she may gain an insight into understanding consumer behavioural patterns and desires. This is key in this strategy and will usually border around gaining an insight into the various products which might be in the marketplace and ascertain whether or not they meet the ever so dynamic consumer needs.
In all, this business strategy if employed will enhance the uniqueness in existing business activities and will go a long way in defining the criteria for your product/service uniqueness in the marketplace. This can even aid in the creation of completely new systems of activities that will in turn influence and shape how business is conducted in a particular sector.
The Blue Ocean Strategy
Ever heard of companies or brands that have the rare ability to create or otherwise finding new uncontested market spaces? Apple should be quick to come to one`s mind, after all, who had ever thought of making an iPhone when the market place was occupied by such brands as Nokia. These are all mobile phones, but there is something rather different from iPhones. Perhaps it’s the attention to detail in its design which is glaringly obvious when comparing to other devices. Maybe it is its simplicity in the device`s functions and overall design as well. Whatever the case might be, at some point you couldn`t compare an iPhone to any ordinary phones, even today. Why is this so?
The blue ocean strategy has been defined as a strategy which largely focuses on the alternative customer. Usually, this alternative customer places less weight on the current element being offered in the value propositions in a given market place. Mobile phone manufacturers will focus its new offering on cool new functionalities and less on the overall design of its devices. Another brand will simply place emphasis on both the functions and the design which will create a strikingly new offering in the market place. Definitely, this offering will attract customers who are concerned more about the design and functionalities. Undoubtedly this will create a new market for the product.
Put simply, the blue ocean strategy emphasis is largely placed on defining new market boundaries by reaching consumers beyond the existing demand for certain products. This can be done by either creating new elements that are not in the market or eliminating elements contained in the current value proposition which can be viewed as unimportant. This is a sure strategy that will inspire entrepreneurs to be creative and highly competitive in the market place.
All in all, one can notice that the business strategy and business model have a hand and glove relationship. However, while the process of drafting a business model forms part of business strategy, business strategy is a continuous process which goes beyond drafting business models. As stated earlier, business strategy is the heartbeat that pushes all the necessary blood around the veins of your business. As an entrepreneur, always invest in whatever that improves your ability to be strategic both in operations and management.