The term ‘strategy’ is derived from the Greek word ‘strategos’, which means generalship. i.e. strategy is artof war, the skill in managing any affair or the use of a trick in order tosucceed in a specific purpose. For example, Michael Porter, in his article titled ”WhatIs Strategy?” (1996), states that ”strategy is the creation of a unique andvalued position, involving a different set of activities.” Strategy is ”a deliberate search for a plan of actionthat will develop a business’ competitive advantage and compound it.
”The definition of business strategy is a long term planof action designed to achieve a particular goal or set of goals or objectives. Strategy is management’s game plan forstrengthening the performance of the enterprise. It states how business should be conducted toachieve the desired goals.
Without a strategy management has no roadmap toguide them. Creating a business strategyis a core management function. It mustbe said that having a good strategy and executing the strategy well, does notguarantee success. Organisations canface unforeseen circumstances and adverse conditions though no fault of theirown. A Business strategy needs to: • Show the lenderor the investor that they have a big chance of being repaid and that they willbe getting good returns on their investment. • Build the necessary confidence for the firm and thecapabilities of the owner.
• Show theinvestors that there is a very good market for the service or product that youoffer. • Show you a clear picture where you’re heading and howto get there. A good business strategy is the base ingredient for a successfulbusiness. However, there are many different kinds of business strategies. The best businessstrategy should be able to guide your company into a direction wherein theexpected internal pressure due to business continuity meets the great demand ofthe fast changing world for the revolutionary business plans.In olden days there was not much need for evolving Business Strategy.
In standardapproaches to competitive markets, the problem of capturing value is quitesimply assumed away: inventions are often assumed to create value naturallyand, enjoying protection of iron-clad patents, firms can capture value bysimply selling output in established markets, which are assumed to exist forall products and inventions. Thus there are no puzzles about how to design abusiness e it is simply assumed that if value is delivered, customers willalways pay for it. But with the globalization of manufacturing activities,trading activities, advent of internet, TV etc. consumers are more educated andtheir demands are more specific. They knows the options available to them are plenty and every company has to plan their business strategyto remain in business and increaseprofitability. A case study of Dell and Wall Mart will further enhance our knowledge of Business Strategy. Having a differentiated (andhard-to-imitate) but at the same timeeffective and efficient e architecture for an enterprise’s business model isimportant to the establishment of competitive advantage. The various elements need to be cospecializedto each other, and work together well as a system.
For example, both Dell Inc. and Wal-Mart havedemonstrated the value associated with their business models (while Webvan andmany other dotcoms demonstrated just the opposite). Dell and WalMart’s businessmodels were different, superior, andrequired supporting processes that were hard for competitors to replicate (at least in the U.S. e elsewhere, newentrants could adopt key elements of the model and pre-empt Wal-Mart, as Steven Tindall has demonstrated so ably inNew Zealand with ‘The Warehouse’). BothDell and Wal-Mart have also constantly adjusted and improved their processesover time. Michael Dell, founder ofDell, notes: This belief that by working directly with customers wecould get them technology faster, provide a better level of service, andprovide better value was the basis ofthe business e the fundamental business system was quite powerful and deliveredlots of value to our customers we screwed up lots of things, but the one thingwe got right was this core business model, and it masked any other mistakes Dell’s competitorswere incumbents who had difficulty in replicating its strategy, as sellingdirect to customers would upset their existing channel partners and resellers:as a new entrant, Dell had no suchconstraints.
Another critical element of Dell’s success, beyond the way itorganized its value chain, was the choice of products it sold through itsdistribution system. Over the time, Dell developed (dynamic) capabilitiesaround deciding which products to build besside desktop and laptop computers,and has since added printers, digital projectors and computer-relatedelectronics. Of course, the wholestrategy depended on the availability of numerous non captive suppliers able toproduce at very competitive prices .
A striking early American example of 19th centurybusiness strategy model was Swift and Company’s ‘re-engineering’ ofthe meat packing industry. Prior to the 1870s, cattle were shipped live by railfrom the Midwestern stockyard centers like Omaha, Kansas City and Chicago toEast Coast markets where the animals were slaughtered and the meat sold bylocal butchers. Gustavus Swift sensedthat if the cattle could be slaughtered in the Midwest and shipped alreadydressed to distant markets in refrigerated freight cars, great economies in’production’/centralization and transportation could be achieved, along with animprovement in the quality of the final product. Swift’s new business model quickly displaced businessmodels involving a network of shippers, East Coast butchers and therailroads. His biggest challenge wasthe absence of refrigerated warehouses to store the beef near point of sale,which were not part of the existing distribution system. Swift set about creating a nationwide web ofrefrigerated facilities, often in partnerships with local jobbers. ‘Once Swift overcame the initial consumerresistance to meat slaughtered days before in distant places, his productsfound a booming market because they were as good as freshly butchered meats andwere substantially cheaper e Swift’s success quickly attracted imitators. A more recent exampleis containerization.
Malcolm McLean, owner of a large U.S. trucking company,was convinced that conventional shipping was highly inefficient becauseshipping companies typically broke bulk at dockside, and cargo ships spent mostof their time in port being loaded or unloaded. In 1955 he hired an engineer todesign a road trailer body that could be detached from its chassis and stackedon ships. McLean acquired a small steamship company, renamed it Sea-LandIndustries (it eventually became absorbed into the Maersk Line).
He developedsteel frames to hold the containers, first on the top decks of tankers, and thenon the world’s first specialized cellular containership, the Gateway City,launched in 1957. To promote the standardization necessary to develop theindustry, McLean made Sea-Land’s patents available royalty free to theInternational Standards Organization (ISO). Sea-Land began service on NorthAtlantic routes in 1966. When R. J.
Reynolds bought Sea-Land for $530 millionin 1969, McLean received $160M for his share and retired. Another U. S.
exampleof successful business model innovation is Southwest Airlines, where thefounder surmised that most customers wanted direct flights, low costs,reliability and good 176 Business Models, Business Strategy and Innovationcustomer service, but didn’t need ‘frills’. To achieve these goals, Southwesteschews the hub-and spoke model associated with alliances, nor does it allowinterlining of passengers and baggage, or sell tickets through travelagencies e all sales are direct. Aircraft are standardized on the Boeing 737,allowing greater efficiency and operating flexibility. Southwest’s businessmodel e which was quite distinct from those of the major carriers e followedelements of a discount airline model first pioneered in the U.
K. by FreddieLaker. Although Laker Airways eventually failed e as did other early followersin the U.S. such as People’s Express e Easy Jet has implemented a similar modelin Europe, so far successfully. The ‘razor-razor blade model’ is another classic (and quitegeneric) case of a well known business revenue model (which is just one componentof a business model), which involves pricing razors inexpensively, but aggressively marking-up the consumables(razor blades).
Jet engines for commercial aircraft are priced the same waye manufacturers know that engines are long lived, and maintenance and parts is where RollsRoyce, GE, Pratt & Whitney and others make their money. So engines are sold relatively inexpensivelye but parts (and service) involve considerable mark-ups and represent an incomestream that may continue for decades. The plansuccessful business strategy, the team of managers should have vastand varied knowledge of their products, manufacturing locations, anticipate difficulties that will beencountered, include all levels of management, customers, selling agents, logistic supports etc. etc. In India also, Hindustan Lever implemented a successful businessstrategy and more recently “PATANJALI” which rose from a ayuvedic soap manufacturing company to internationally reputed firms. Patanjali brand even competed with huge financially backed companies likeProctor and Gamble, Hindustan Lever etc.
etc. Now everyone is harnesshing its model of “Ayurvedic products”. Shri Ramdev Baba achieved through creating awareness andhealth consciousness amoung Indiansabout ayurvedic products. He also created a feeling in the minds of consumers that consumption of ayurvedic products are patriotic people. Every multinational companies are now introducing various types of ayurvedicproducts to compete with Patanjali.