Every business leader wants their company to succeed. Making a profit and meeting stakeholder expectations are important goals, but they cannot be achieved without a strong business strategy.

To succeed, leaders need to sharpen their skills and set clear business goals by developing a strategy that adds value to the company, customers, suppliers, and employees. Below is an overview of what a business strategy is and why it is important for your company’s growth and success.

What Is a Business Strategy?

A business strategy is a plan that outlines how a company will create value for itself and its stakeholders while gaining an advantage in the market. It is one of the most important parts of running a company and should be in place before producing or selling any product or service.

According to Harvard Business School Online’s Business Strategy course, a strong strategy answers these three questions:

• How can my business create value for customers?
  
• How can my business create value for employees?
  
• How can my business create value through working with suppliers?
  

Many business ideas fail because the company does not focus enough on value creation. While creativity is important, a business cannot survive without putting value at the center of its plan.

Why Business Strategy Matters

A good business strategy is the foundation of success. It helps leaders set goals and gives the business an edge in the market. It affects several key areas of business, including:

• Price – Deciding how to price products or services based on customer satisfaction and production costs
  
• Suppliers – Choosing where to get materials and whether to use sustainable sources
  
• Employee Hiring – Finding and keeping skilled employees
  
• Resource Use – Deciding how to use time, money, and materials wisely
  

Without a clear business strategy, a company is unlikely to provide value or achieve long-term success.

Understanding Value Creation

To build a good business strategy, it’s important to understand how value is created. In the Business Strategy course, Professor Felix Oberholzer-Gee explains that value is about differences. For instance, the difference between what a customer is willing to pay for a product and its actual price shows the value created for that customer.

This idea can be shown using the “value stick,” which has four parts:

• Willingness to Pay (WTP) – The highest price a customer is willing to pay
  
• Price – What the product or service actually costs
  
• Cost – The cost of making the product or offering the service
  
• Willingness to Sell (WTS) – The lowest amount a supplier is willing to accept, or the least an employee is willing to earn
  

The differences between these parts show the value created for each group—customers, the business, suppliers, and employees. A business strategy should aim to widen these gaps to increase overall value.

Increasing Customer Satisfaction

The difference between WTP and price is called customer satisfaction or delight. A smart business strategy improves customer value by either increasing WTP or lowering prices. The bigger the gap, the more customers benefit.

One way to raise WTP is through marketing. Research can help a business understand what customers are willing to pay and how to increase that amount. For example, a company that follows eco-friendly practices may appeal to customers who care about the environment. By aligning with customer values, businesses can boost loyalty and WTP.

Increasing Business Profit

The difference between price and cost is the company’s margin—this shows how much profit is made on each sale. A common way to measure this is with Return on Invested Capital (ROIC), which compares profit to the amount invested in the business:

ROIC = Net Operating Cost After Tax (NOCAT) / Invested Capital (IC)

This number shows how well a company turns investment into profit. A company can improve ROIC by increasing prices (if customers are willing to pay more) or by lowering costs. Sustainable practices can help here, too, by cutting down on materials or using more efficient processes. Focusing on profit, people, and the planet—the triple bottom line—can increase both customer satisfaction and company profit.

Supporting Suppliers and Employees

Creating value for suppliers means helping them earn more than their minimum WTS. While simply paying more may not be possible, companies can reduce WTS in other ways. For example, offering long-term contracts or promotions can lead suppliers to offer better prices.

Employees are also key stakeholders. The gap between what workers earn and the least they would accept reflects employee satisfaction. Companies can boost this gap by:

• Raising Pay – Some businesses have succeeded by paying more. For instance, Gravity Payments raised its base salary to $80,000, which led to growth and positive attention.
  
• Improving Benefits – Offering things like remote work, flexible hours, or a four-day work week can make jobs more attractive and lower the minimum workers are willing to accept.
  

There are many ways to increase value for suppliers and employees without hurting profits. Yet, research shows that many managers spend only about 7% of their time focusing on staff and partners. A successful strategy must take care of both internal and external stakeholders.

Putting the Strategy into Action

Developing a strategy is just the beginning. Making it work is what matters. Strategy implementation means turning plans into actions. It includes the following steps:

• Set clear goals and measure progress using key performance indicators (KPIs)
  
• Make sure everyone knows their roles and what’s expected
  
• Assign tasks and manage resources properly
  
• Put the plan into motion and track how it’s going
  
• Make adjustments when needed
  
• Support your team and keep everyone focused on the goal
  
• Review the final results and learn from them
  

While following your strategy, it’s important to stay flexible. Make changes when necessary, but avoid constantly second-guessing your decisions. Finding this balance is hard, but it’s key to a strategy’s success.

Keep Learning About Business Strategy

The world of business is always changing as customer needs and market conditions evolve. That’s why it’s important for business leaders to keep learning how to create and carry out effective strategies.