Business strategy can seem daunting, and for good reason: It can make or break an organization. Yet, developing a strong strategy doesn’t need to be overwhelming.
In the online course Business Strategy, Harvard Business School Professor Felix Oberholzer-Gee posits that strategy is simple. His secret? Focus on your organization’s value creation.
“Strategy often sounds like a lofty concept that only the most senior executives can develop,” Oberholzer-Gee says. “But actually, anyone can think and act strategically. It doesn’t need to be difficult; all you need is a proven framework.”
Here’s a breakdown of why business strategy is important, the basics of value-based strategy, and six steps for developing your own.
Why Do You Need a Business Strategy?
Business strategyis the development, alignment, and integration of an organization’s strategic initiatives to give it a competitive edge in the market. Devising a business strategy can ensure you have a clear plan for reaching organizational goals and continue to survive and thrive.
According to a study by Bridges Business Consultancy, 48 percent of organizations fail to meet half of their strategic targets and 85 percent fail to meet two-thirds, highlighting why dedication to the business strategy process is crucial.
One type of business strategy is called value-based strategy, which simplifies the process by leveraging the value stick framework to focus on the advantage your business creates.
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DOWNLOAD NOWWhat Is Value-Based Strategy?
Value-based strategy, also called value-based pricing, is a pricing method in which an organization relies on the perceived value of its goods and services to determine its pricing structure and resource allocation.
The value stick frameworkcan be used to visualize how various factors impact each other and determine which initiatives to pursue to increase value for all parties.
The value stick has four factors:
- Willingness to pay (WTP): The highest price a customer is willing to pay for your product or service
- Price: The amount customers have to pay for goods or services
- Cost: The amount a company spends on producing goods or services
- Willingness to sell (WTS): The lowest amount suppliers are willing to accept for the materials required to produce goods or services
To determine how to best create value, you can toggle each factor on the value stick to see how the others are affected. For instance, lowering price increases customer delight.
"As strategists, we really ask three questions,” Oberholzer-Gee says in Business Strategy. “How can my business best create value for customers? How can my business create value for employees? And how can my business create value by collaborating with suppliers? Think of a company's strategy as an answer to these three questions."
Related:4 Business Strategy Skills Every Business Leader Needs
6 Steps to Develop a Value-Based Business Strategy
1. Define Your Purpose
When approaching business strategy, defining your organization’s purpose can be a useful starting point.
This is vital in creating customer and employee value, especially if your organization’s purpose is linked to a cause such as environmental protection or alleviating specific social issues.
A recent survey conducted by clean energy company Swytch found that nearly 75 percent of millennials would take a decrease in salary if it meant working for an environmentally responsible company. Nearly 40 percent selected one job over another because of an organization’s sustainability practices.
Additionally, research in the Harvard Business Reviewshows that consumers’ motivation to buy from sustainable brands is on the rise. Sales of products marked as sustainable grew more than five times faster than those that weren’t.
By starting with purpose, your organization can create more value down the line.
2. Assess Market Opportunity
Next, understand your market’s competitive landscape. Which companies own shares of the market? What differentiates your competitors’ products from yours? Are there any unmet needs your organization could take advantage of?
Conducting this research before planning a strategy is critical in identifying how your organization provides unique customer value and opportunities to create even more.
3. Create Value for Customers
With an understanding of the market and your company’s purpose, you can determine how your organization provides unique or greater value and strategize ways to improve.
On the value stick, the value captured by customers is called “customer delight.” It can be increased by raising their willingness to pay and decreasing the product’s price. If lowering the price isn’t an option, brainstorm how you could make the product more valuable to customers, thus increasing their willingness to pay.
Some ways to create customer value include:
- Lowering the product’s price
- Increasing the product’s physical quality and longevity
- Providing quick, high-quality customer service and a smooth shopping experience
- Leveraging network effects, if applicable, to create a community of users
- Incorporating an environmental or social cause into processes, packaging, and branding
4. Create Value for Suppliers
In addition to creating value for customers, you also need to provide value for suppliers. Suppliers can include any company that provides raw materials, labor, and transportation to help your organization produce goods or deliver services.
Supplier surplus, also called supplier delight, is created when the cost of materials increases or their willingness to sell decreases. The relationship between a firm and its suppliers can be contentious, given that both want to increase their margins. Yet, there are ways to create value for both parties.
Some ways to create value for suppliers include:
- Agreeing to pay more for higher quality materials: While this increases the supplier surplus, it may also increase customer delight by raising willingness to pay, or increase the firm’s margin by allowing you to raise prices.
- Working with the supplier to increase efficiency: This strategy can increase supplier surplus by lowering the overall cost of the supplier’s labor and their willingness to sell.
5. Create Value for Employees
Creating value for employees is a critical part of an effective business strategy and can be assessed using the value stick. Think of your employees as the “supplier” of labor and the supplier margin as employee satisfaction.
Employee satisfaction can be increased by raising wages or lowering the minimum salary they’re willing to receive by delivering value in other ways. Satisfied employees may provide a better customer experience, resulting in increased customer delight.
The value you provide employees ensures they’re motivated to do their best work, develop their skills, and stay with your company long-term.
Some examples of ways to create value for your employees include:
- Offering competitive salaries and bonuses
- Offering benefits like ample paid vacation and sick days, generous parental leave, and wellness budgets
- Providing flexibility of work location, whether your team is fully remote or hybrid
- Aiding in professional development
- Creating a workplace rich with a diversity of experiences, identities, and ideas
- Fostering a supportive organizational culture
One example from Business Strategy is that of a call center for a diagnostics company. The employees were being paid minimum wage and expressed that the analytical nature of their phone calls with customers warranted higher pay. They also expressed pain points about cumbersome tasks and work conditions.
When a pay increase was implemented for all employees, along with operational changes to make processes smoother, employee productivity increased to the point that it balanced out the higher cost of salaries.
Because the employees’ satisfaction increased, they also began providing better experiences on the phone with customers. This increased the customers’ willingness to pay, directly impacting customer delight.
6. Map Strategy to Actionable Tasks and KPIs
Amidst creating value for each of the three groups, don’t forget the fourth party that needs value: your company. By creating value for employees, suppliers, and customers, you’re creating value for your firm, too.
To ensure you’re tracking to goals, determine your key performance indicators, what metrics constitute success, and how you’ll report results over time. Then, break each of the above value-creation goals into action items. For instance, what steps can you take to increase your employees’ compensation? Who will be responsible for each task?
Having actionable assignments and clear metrics for success will allow for a smooth transition from strategy formulation to execution.
Building Your Strategic Skill Set
By leveraging the value stick, you can create a business strategy that provides value to employees, customers, suppliers, and your firm.
To develop your strategies further and dig deeper into how to navigate value creation, consider taking an online course like Business Strategy. Professor Oberholzer-Gee walks through real-world examples of business challenges, prompts you to consider how you’d create value, and then reveals what those business leaders did and how you can apply the lessons to your organization.
Want to learn more about how to craft a successful strategy for your organization? Explore Business Strategy, one of our online strategy courses, to learn how to create organizational value. Not sure which course is the right fit? Download our free flowchart.
