Organizational strategies are crucial for businesses of all sizes. The details of these strategic plans may differ between large global enterprises and small local start-ups, but the end goal remains the same. A well-made plan will help the company to succeed and ultimately grow. Plans vary between companies, not just because of their size, but also in relation to the business environment they are working within.
Planning for change
Most organizational strategies span three to five years and feature milestones the company must achieve at certain points in its journey. These periods are commonly used because they give the business enough time to complete the larger changes required, but they are also short enough to create a sense of urgency among the staff.
The strategy will usually factor in several considerations, including the resources a business has, such as its workforce, financial position and inventory. It will also outline the best way of using these to ensure tasks such as production, marketing and infrastructure are supported.
Although a company may choose to keep aiming for the same goals while following a strategy, there should also be room for maneuver. If the plan is not unfolding the way it was supposed to, or if things have changed for the business, the primary goals may become irrelevant.
Theories of organizational strategy
Organizational theory involves studying the way businesses and other organizations operate, as well as how they structure themselves. These theories include how employees act within the organization, how the company performs and what its levels of productivity are. The interplay between these key components of a business is what interests people such as researchers and business analysts, who study organizational theory to find out what makes a successful company.
To learn more about the dynamics of a prosperous organization, they look at the relationships between staff and managers, as well as the apparatus that connects leaders to their managers. They try to discover what is it about these structures that nurtures a culture of productivity in that workplace and how it can be replicated in others.
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Popular types of organizational strategy
Businesses select a strategy that aligns with their vision for the future and the position they occupy in the marketplace. Among other things, they are seeking a competitive advantage, a wider share of the market and a secure financial future. Here are some of the most adopted strategies — some businesses use just one, while others may incorporate elements from various approaches:
The focus strategy
Businesses that search for their niche in a saturated market are hoping to find a small, specific group of customers. They aim to develop and sell products that are unusual, unique or of exceptional quality. This could be a food product aimed at people with rare allergies or a pet camera for owners who spend time away from home.
Although businesses will not pursue a large segment of the market, the distinctive qualities of their product mean many other companies cannot replicate exactly what they do. Some companies will combine this approach with a cost focus strategy which still targets a certain sector but offers a lower cost than others competing in the sector. There is also a differentiation focus strategy in which businesses keep prices high, but create very specialized products. For example, they might offer luxury goods that are highly practical and robust to a small select group of consumers.
For the best chance of success, businesses require a deep understanding of what their customers need, so they can continue to develop valuable services or products. This means bigger profits, but also a loyal customer base. Happy customers are the best ambassadors for a brand and can generate business quickly even within a limited group of people.
The low-cost production strategy
Sometimes referred to as cost leadership, a low-cost production strategy involves a business offering the best possible price for its product. This policy attracts customers quickly because the items are more affordable than those offered by other businesses. However, the company must find a way of maintaining a low-cost approach and this is often done by minimizing labor and production costs. For example, fast-food companies manage to sustain their low prices by having a limited menu, disposable food packaging and paying the minimum wage.
Companies that choose to focus on undercutting their rivals need to work with products that are already in high demand. These are usually consumer staples such as food, cleaning products and clothing. These are daily-use items that people cannot avoid buying. However, goods that are considered to have a luxury edge or be high-end, such as fine jewelry and couture clothing, will not have a low-cost alternative. Producers that adopt a low-cost strategy keep their range small and focus on a limited number of customer segments. They succeed because these items are always needed.
Companies that successfully use a cost leadership model need plenty of capital, which means getting a foothold is difficult for start-ups. They need generous reserves to meet the huge economies of scale required. Once they are thriving, businesses will also need to invest in the types of technology or equipment that keep production costs minimal without affecting their output.
The differentiation strategy
Businesses that strive to distinguish themselves from others and excel at what they do are using a differentiation strategy. To make this work they concentrate on making products or offering services that are innovative and unique in the market. In order for this strategy to be a success, the business should conduct extensive research into its target market so they gain insight into what customers are attracted to. In many cases, this will be making products or services for which there is no cheaper alternative and building a compelling brand story around them.
Marketing is of key importance, as it helps to establish the voice of a business, be it humorous, authoritative or high-end. Another key factor in this approach is pricing, as customers almost always compare products based on price before choosing which to buy. Some companies are able to price low, but if the product is exclusive, a premium price point can be the best option, assuming the quality is excellent.
Finally, the way a company treats its customers can make all the difference with this type of strategy. Being available to chat or answer questions on social media can generate loyalty and catch the attention of potential consumers who value great customer service.
The growth strategy
As the name suggests, organizational strategies that concentrate on expanding the business are growth strategies. This could include buying up new facilities, acquiring other businesses or increasing sales. For instance, if a pet food manufacturer decided to increase their product range to include clothing and toys for animals, that would be considered a growth strategy.
Growth is an objective for most businesses and most decisions are made with the intention of driving forward the company’s reach. Although the objective is similar, there are several ways it can be achieved.
Companies that prefer to be self-sufficient and utilize the resources that are currently at their disposal might go for organic growth. They strive to make their processes more efficient, so more can be produced for less, and sales may be increased. To avoid debt and increase the revenue to fund other strategies, this is a good option.
Internal growth is similar, in that it involves optimizing the company’s existing resources. This might mean spending cuts where wasteful practices are identified, or using automation for certain production tasks, instead of hiring employees.
Other businesses will opt for strategic growth, which might mean investing in new products and marketing tactics. The challenge with this and other growth models is the introspection it requires. Businesses must critically examine their own processes to initiate change, rather than analyzing external influences.
The rationalization strategy
By adopting this strategy, businesses are bracing themselves for a large-scale overhaul. It calls for a distinct reorganization, which may encompass policies, facilities, products and staffing. This is often done when the business has become clunky or overcomplicated and the leaders want to refocus on what is important for its continued success.
It might be necessary as a result of over-expansion, or difficulties in shifting stock. The company might choose to relocate to a smaller building, lay off several employees or revamp its product line. The plan is that these changes will boost revenue as well as decrease the business’s current costs.
It may seem like one of the most difficult strategies to get right, but rationalization is also one of the most considered. This is because it covers so many bases, from cutting away waste to refining processes and making the company more efficient. In larger companies, entire segments could be closed, while smaller concerns might focus on streamlining their processes to save money.
Companies that stand to benefit the most from rationalization are those that know they need to reduce costs and attain a more attractive bottom line. It might also be a good solution when there is a need to update processes or equipment and generally simplify the business model that has been followed so far. This is a dynamic process and can cause upheaval, but companies that are ready to rationalize quickly will be in a better position to survive tough times and move on to future successes.
What constitutes a good organizational strategy?
Although organizations can carefully select and form a strategy of their own, when it comes to execution, not all are successful. To avoid problems further down the line, businesses should adopt an organizational strategy that considers their company’s individual situation and unique needs. The plan should be flexible enough to change as required, when the markets alter or the values of the business are modified. However, as a general rule, a strategy will provide answers to certain key questions such as where the company aims to be in three years, what needs improving, or what needs to change in order to meet goals.
Create goals that are specific to the business
Pinpointing what the goal is in a clear, specific way is the start. This can be done by considering what it is and why it is important to the organization. In terms of specifics, the goal should identify the people involved in its achievement, what resources will be required, and the problems that are anticipated. Furthermore, the progress toward these goals should be measurable and tracked. Assessments and deadlines keep the team motivated and show them what they have managed to accomplish so far.
Ensure the chosen strategy is realistic
For it to be achieved, the strategy and goals that go with it need to be realistic. That is not to say it will not be a challenge, but a goal that is clearly out of reach could have a demoralizing effect. To avoid being too optimistic, it is necessary to outline how each milestone will be reached. Furthermore, if required, it is important to mention the external resources that will be brought on board to offer specific skills or provide access to equipment.
Keep things moving in the right direction
The right organizational strategy — one that is planned and implemented with care — will ensure that a business is making the best use of its resources in relation to its aims. The vision it offers will map out the future of the entire business and involve all levels of employees. With everyone pulling in the same direction, it is easier to keep sight of the organization’s goals and maintain an upward trajectory throughout the financial year.
