Question & Answer: Describe in detail what strategy is; what role does it play in business; what factors make up a…..

Strategy of an organizaion is the match between its internal capabilities and internal and external environments.It allows an organization to utilize its resources and capabilities to exploit opporunities and limit threats in external environment. Taking simple example, while going to office, some people have luxury to plan early to leave and follow shorter path having some traffic; while others have to complete additional works e.g. dropping children to school, etc. and hence is ok with long route in order to avoid congestion to reach office on time.

Strategy plays very important role in business. Business comes up with a strategy after analyzing markets, customers and competitors so that it provides value to customers and at the same time should be a differentiating factor that is difficult for competitors to emulate thereby giving competitive advantage to the organization. In business, an organization primarily forms strategy to successfully position itself against Porter’s 5 forces – Threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute products and services and rivalry among exsting firms.

In order to ensure long term success and competitive advanage, organizations today should focus on creating values for customers in addition to address Porter’s 5 forces. There are three generic strategies which pla very important roles in this. This was also proposed by Porter. 3 generic strategies are:

1. Overall Cost Leadership: Cost Leadership strategy involves a firm charging lower prices and still earning profits. For this, the firm needs to be low cost producer in order to get profits.

2. Differentiation: It is about providing unique and different product or services to customers, which have capabilities to meet different customer needs. For such products, customers are willing to pay premium price. Best example is Apple iPhone which is having huge demand even though it is comparatively costlier. What makes its stand apart is its quality. Important point here to get strategic benefit in the market is that cost of differentiation must not ouweigh prices being charged from customers.

3. Focus: A focus strategy allows a firm to target a segment or niche within a market. This segment can be a particular segment group, geographical markets or product lines. The reason wheel detergent was successful is that it focused on low to middle income group segment and advertise or promote product accordingly. Hence it was a huge success in rural areas and towns in India.

While cost leadership and differentiation are industry wide generic strategies, focus is towards a particular segment.