Some companies have even built a strong reputation for having exceptional customer service. Do you know the three types of learning styles? You cannot offer the highest quality products in the market for the lowest prices. Thirdly, a good strategy needs to encompass how the focal company wants to win in the marketplace: how will it convince customers to come its way? Ansoff Matrix: How to Grow Your Business? This can mean investing in research and development, acquiring a smaller company to gain access to their technology or even acquiring employees with unique skills that will give the company a technological advantage. In their framework (also known as the Strategy Diamond) it is essential that the five elements form a unified whole and reinforce each other. This is where strategy comes in. However, as the environ… IKEA therefore largely followed the so called Uppsala model approach. The economic logic should deliver strong year-in/year-out profits due to a sustained competitive advantage resulting from a unique combination of different activities. The following are illustrative examples of a strategy … Some companies like to invest in research and development in order to constantly innovate, even with your most successful products. If companies plan to keep their prices low, they will need to sell a much higher volume of products, as the profit margins are usually very low. Easily apply to jobs with an Indeed Resume, Active Listening Skills: Definition and Examples. Even a small increase in cart size can have a significant impact on profitability, without having to spend money to acquire more new customers. All aforementioned decisions on the Arenas, Vehicles, Differentiators and Staging seem to come together here to jointly reinforce IKEA’s unique selling point. Figure 2: IKEA’s time line on its geographical expansion. According to Porter, a company can only outperform rivals if it can establish a difference that it can preserve. However, as the environment became more complex, competition less predictable, technological advancements more disruptive and preparing for the future more difficult, people seemed to disagree about the true meaning of strategy more and more. © 2010-2020 Simplicable. This in turn reinforces IKEA’s choice to sell relatively cheap products. What Is Strategy? This is not just geographically speaking, but also includes what product categories you focus on, what market segments you serve, and what value-chain activities you will take on (e.g. This is, however, practically impossible due to previously made decisions (path-dependency) and the fact that IKEA’s economies of scale are simply too large to just copy from scratch. Indeed is not a career or legal advisor and does not guarantee job interviews or offers. An overview of creative thinking with examples. They include: Related: Ultimate Guide to Strategic Planning. It defines what the business needs to do to reach its goals, which can help guide the decision-making process for hiring and resource allocation. The common types of market entry with an overview of advantages and disadvantages of market entry strategies. The business strategy also guides many of your organizational decisions, such as hiring new employees. Some organizations focus on selling more products to the same customer. This can be a good business strategy if your business has had a problem delivering quality customer service. Chandler once defined strategy as ‘the determination of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals‘. A business strategy is a powerful tool for helping you reach your business goals, defining the strategies and tactics you need to take within your company. IKEA doesn’t offer the best quality furniture but at least it offers reliable quality for very low prices. Finally, IKEA offers customers the possibility to take home their desired furniture immediately through an extensive inventory. Important here is to balance out the options you can choose from. Many companies, particularly in the technology or automotive space, are distinguishing themselves by creating the most cutting-edge products. With the aid of strategic tools such as the SWOT analysis, Ansoff matrix, Growth-Share matrix and the Five Forces model, managers became better able to understand their businesses and the environment, and make decisions on future steps to take. IKEA obviously started in Scandinavia with its concept, but decided to expand internationally quite rapidly in order to create economies of scale as quick as possible and decrease costs per unit. They can differentiate their products by highlighting the fact that they have superior technology, features, pricing or styling. Creating a business strategy that's in line with the vision you have for your company takes time and development. After all, we are still dealing with companies. The definition of strategic analysis with examples. A good tool to help establishing meaningful differentiators is the Value Disciplines framework. You could launch an entire business strategy aimed at increasing the sustainability of your business. In order to use this as your business strategy, you will need to define what "innovative" will mean for your organization or how you're innovative. For IKEA the Arenas are pretty well-defined: IKEA sells relatively cheap but stylish home furnishing products to primarily young, white-collar customers worldwide. In short, strategy is all about making deliberate choices on what to do and more importantly what to NOT do. Porter, M.E. The definition of operations planning with examples. Most innovative product or service. An overview of the tetris effect with examples. With a vision for the direction of the business, you can create clear instructions in the business strategy for what needs to be done and who is responsible for it. By increasing the amount of product sold per customer, you can increase the average cart size. You can set professional and personal goals to improve your career. IKEA has primarily chosen for organic expansion by setting up its own wholly owned stores rather than acquisitions as existing companies didn’t fit IKEA’s innovative concept (see differentiators). Throughout the years, many more strategic tools have popped up and the word strategy itself has become a catchall term used by both academics and practicioners to mean whatever one wants it to mean. The most popular articles on Simplicable in the past day. The definition of strategic direction with examples. For example, the objective could be to reduce energy costs or decrease the company's footprint by implementing a recycling program. The business strategy also includes a way to track the company's output, evaluating how it is performing in relation to the targets that were set prior to launching the strategy. However, each of these options have different pros and cons depending on the type of Arenas the company is trying to enter and the prior knowledge and expertise the company has. Entering the worldwide furniture industry is therefore extremely unattractive for companies. different general perspectives (which he defines as ‘schools’) in the literature on strategy formulation. All Rights Reserved. SWOT stands for strengths, weaknesses, opportunities and threats. Are You Sure You Have A Strategy? Strategy has been around for over thousands of years and finds its origin in the military and the need for people to defeat their enemies. This is a common business strategy, especially for business-to-consumer (B2C) businesses. It's generally far easier to retain a customer than spend money to attract a new one, which is why this is a great strategy if you see opportunities for improvement in customer retention. (1996). Here are 10 examples of great business strategies. The business strategy is intended to help you reach your business objectives. A list of strategic goals with an action plan to achieve each goal. Usually, companies have a problem in one specific area, so a business strategy that's focused on improving customer service will usually focus its objectives on something like online support or a more effective call center. A metaphor for the unintended global or national impact of individual choices. There are six key components of a business strategy. This is because competitors can easily imitate these operational activities and achieve the same results after a while as well. In addition, it is in IKEA’s belief that its own management should fully control its international expansion activities in order to be successful and to minimize risk for brand damage. An extensive list of business strategies. This is also reflected in Mintzberg’s book Strategy Safari in which he identified 10(!) An overview of quality control with examples. Harvard Business Review. Some large companies are buying out or merging competitors to corner a young market. Academy of Management Executive. Practically no other furniture retailer is able to create similar scale economies and is therefore not able to charge lower or even similar prices for similar quality. Here’s how to identify which style works best for you, and why it’s important for your career development. Hence the book that is considered to be the first to have ever covered strategy in narrative form is Sun Tzu’s famous Art of War, written in China around 500 B.C. Many companies, particularly in the technology or automotive … This material may not be published, broadcast, rewritten, redistributed or translated. through aggresive acquisitions). A strategy plan, more commonly known as a strategic plan, is a list of strategic goals together with an action plan to achieve each goal.This is the output of strategy planning and may be developed at the level of an organization, department or team. An overview of competitive differentiation with examples. IKEA wouldn’t have this control with licensing or franchising agreements. Hambrick and Fredrickson’s Strategy Diamond is therefore a great framework to establish that. Visit our, Copyright 2002-2020 Simplicable. Hambrick, D.C. and Fredrickson, J.W. Now it is clear where your company will be operating, it is important to figure out how to get there. Report violations, 23 Examples of Competitive Differentiation. Strategy Safari by Henry Mintzberg, Bruce Ahlstrand and Joseph B. Lampel. A guide to the strategic planning process. Hence, competitive strategy is all about being different. This all proves the relevance of an internally aligned strategy. This could for example mean that a company manufactures products faster, cheaper or with less defects in between due to a more efficient production line. These useful active listening examples will help address these questions and more. This is a common strategy used by Fortune 500 companies to gain an advantage in a new or rapidly growing market. Moreover, we see that IKEA expanded by targeting foreign countries with similar cultural backgrounds to its home country first, before moving on to countries that are culturally more distant (like Spain, United Arab Emirates and China). All rights reserved. THE place that brings real life business, management and strategy to you. Staging is all about the speed and sequence of the major moves to take. Scanning the Environment: PESTEL Analysis, BCG Matrix: Portfolio Analysis in Corporate Strategy, SWOT Analysis: Bringing Internal and External Factors Together. These are traits many conventional furniture retailers don’t have. IKEA has however done this only one region at a time in order to learn from every experience and to not get overwhelmed with potential cultural barriers. In this article, we will discuss what a business strategy is and why it's important, the components of a business strategy and 10 examples of business strategies to help you generate ideas for your own company. Cookies help us deliver our site. This seems logical since IKEA’s main target groups are likely to have limited financial capabilities. A company can only create a true and sustainable competitive advantage once all elements of its strategy are aligned and reinforce each other in the way IKEA has done it.