An Organizational Strategy: What It Is and How to Create One
Updated March 22, 2023
Businesses use strategies to structure resources in a way that supports their business activities. When implemented effectively, a well-developed strategy can improve organizational decision-making and help guide team members towards a common goal. If you work in a management or leadership position, it can be helpful to understand what an organizational structure is and how it can benefit a business. In this article, we define an organizational strategy and explain how it benefits businesses, list the different types of strategy, and discuss the key elements of an effective one.
What is an organizational strategy?
An organizational strategy is a long-term plan that guides business decisions, income-generating activities, and resource allocation to support a specific goal. Companies use these strategies to help them achieve their objectives and develop strategic plans. They often include detailed assessments outlining what the company wants to accomplish, leading managers towards supporting the company's mission.
Why do businesses need an organizational strategy?
Developing a strategy to guide an organization can help decision-makers maintain consistency in their actions. A well-defined strategy can help businesses structure their resources that support business activities and income generation. Establishing a strategy can also benefit businesses by:
Allowing teams to prioritize their actions to meet a common goal
Aligning departments across an organization with free-flowing information
Simplifying the decision-making process by clarifying the best ways to reach goals
Establishing a baseline for understanding, allowing for cross-functional integration
Increasing transparency between managers and employees
What are the defining qualities of an organizational strategy?
Typically, effective strategies are:
Strong organizational strategies are specific in stating their goals and objectives. When businesses create their corporate strategy, they outline goals that are specific and don't allow for misinterpretation. For example, instead of saying they want to improve their company culture, they may state that their goal is to increase employee satisfaction and retention by 20% over five years.
Strategies that include measurable objectives help businesses determine whether they reached their goal. If they set a goal that they can easily measure, they're better able to track their progress along the way. For example, instead of saying they want to increase retail presence nationally, they might state that they want to place their products in 400 stores within three years. Many organizations use percentages to show the amount of increase or decrease they desire to define their goals.
To achieve goals, it's important to make them realistic. Many organizations consider their past achievements when determining what they can strive for in the future. For example, if a building company raised its profits from $500,000 to $700,000 last year, it might consider striving to raise the profits to $900,000 to match the established trend.
Corporate strategies are time-bound, which means they have a deadline that limits them. Depending on the goals set, businesses may dedicate one, five, or even ten years to achieving a particular goal. This deadline gives teams a way to measure their success when they meet their target and helps maintain motivation to ensure the task gets done.
Five types of organizational strategies
Businesses select their strategy based on their vision, mission, and position in the marketplace. They often choose a strategy that gives them a competitive advantage and helps customers differentiate their business from their competitors. Some types of corporate strategies include:
Focus strategy is a method businesses use to find a niche market group to develop, market, and sell their products to. Businesses may select a type of customer, specific need, or geographical area to target as their ideal customer. The goal of this strategy is to provide high-quality products and exceptional customer service to generate customer loyalty. Creating a successful focus strategy can help an organization understand its customers' wants and needs so they can craft products that their customers may find useful. For example, an almond milk company might target vegans and individuals who are lactose-intolerant.
Low-cost production strategy
Low-cost production, or cost leadership, is a strategy where a company has the lowest cost of producing goods in the marketplace. Unlike price leadership, where companies offer the best price for their products or services, cost leadership occurs when businesses offer the same market price with lower production costs. The reduction in production costs results in an increase in profit, providing the business with an advantage. To provide low prices to their customers, companies with a low-cost production strategy may minimize the cost of labour, raw materials, or resources.
For example, fast-food companies can keep their prices low by paying their employees minimum wage and only offering drive-thru options, which allow for smaller buildings with lower rent. Businesses that adopt this strategy can appeal to customers who are sensitive to price changes and shop at stores that offer the lowest prices for similar products. Businesses that have a higher profit margin by maintaining lower costs can extend their appeal to customers through regular sales or by offering discounts.
A differentiation strategy is an approach where a company strives to attract and retain customers by offering unique products or services. These businesses may use marketing to position their offerings as the best in the industry, highlighting their product or service's innovative or unique features. For example, a makeup brand might work with celebrities or influencers to create a sense of exclusivity or to generate brand trust and loyalty. This strategy involves in-depth research on the market, the competitive landscape, and the needs of customers to determine what attracts a company's target audience.
Growth strategies are ones in which companies attempt to increase market share and revenue through expansion. This may include increasing their sales or the geographical regions where they sell. Businesses interested in developing a growth strategy may acquire or buy a competitor to gain exclusive access to a new product, service, or technology. For example, a shoe company might expand their offerings to sell accessories in its network of stores. Product or service development allows companies to attract new audiences who may not have had an original interest in their brand.
A business might implement a rationalization strategy to reorganize and become more efficient. This can include reducing staff or the number of stores to focus on the aspects of the business that are producing the most revenue or profit. Companies typically use this strategy when their business gets too complex after applying a growth strategy.
For example, a children's clothing store may decide to open 15 new locations but then realize it's more profitable to maintain fewer stores and focus on online sales. This may lead the company to close some of its new locations, lay off employees, and focus its efforts on developing its online presence.
How companies create an organizational strategy
Here are some steps businesses can follow when developing or refining a strategy for their organization:
1. Understand the organization's current situation
To develop an effective strategy, it's important to understand an organization's current situation. This may involve conducting internal and external audits to better understand current customers and market share or performing a competitor analysis. Understanding how a business is performing compared to its competitors can help position it favourably in the marketplace. A business may perform a SWOT analysis to determine its strengths, weaknesses, opportunities, and threats.
2. Determine the organization's values
To set a clear vision and goal to work towards, it's helpful to decide the organizational values and aspirations. For example, a graphic design company might focus on presenting bold and artistic designs that are unique and outstanding. Once a business determines its core values, it can work to prioritize the activities that can help it reach its goals.
3. Maintain open communication
Business leaders often divide up the corporate strategy into distinct steps and assign responsibility for each. It's important they communicate this important information with employees at all levels to ensure the entire team is working towards a common goal. This involves sharing priorities, objectives, timelines, and targets and maintaining open communication that permits team members to ask questions and express concerns.
4. Consider the corporate culture
Companies may consider how they want others to perceive their brand, what sorts of employees to hire, and how they want managers and employees to interact in the workplace. For example, a tech company may focus on having an innovative corporate culture and hire those who are progressive and have an entrepreneurial attitude.
Related: What Is Corporate Culture?
5. Review regularly
Companies with an effective strategy frequently review the strategy, its activities, and programs to ensure they work as intended. This includes evaluating what's working and determining areas for improvement. It's helpful for companies to hold regular team meetings to discuss organizational goals, request feedback, and decide on areas that might benefit from adjustments.
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