What is business strategy?

Over the last few decades a lot of mystique and unnecessary complexity has been built up around business strategy.  But essentially, it is a practical tool for creating a successful business.  The essence of business strategy can be distilled into one simple question:

• How can we arrange our business so that people will, gladly and consistently, hand over money for our goods and services?

From that single enigmatic question we can deduce some of the elements that a strategy needs to deal with:

1. What people might be interested in buying in the future

Because we are talking about the future, this must always be a guess. We can strive to make our guess as accurate as possible using experience, intuitions, and data about past behaviours, but it will still be a guess.  This has several major implications for strategy that we will consider shortly.

2. Good reasons why they will prefer our products over someone else’s

We may be brilliant at guessing what people will want to buy in future, but if everyone else guesses the same we will find it difficult to compete.  The most useful guesses are the ones that are both accurate – and different to the ones that other firms have made.

3. The ability to deliver the product or service at a cost that enables a profit to be made

There is little point being accurate and different if we cannot deliver the product or service at a cost that is lower than the price that customers are willing to pay for it.

That’s all there is to strategy – everything else is irrelevant.  Having said that, it is immensely difficult to get all three right on a consistent basis, which is why we see businesses wax and wane as their grasp on these fundamentals varies over time.