2.0 Business Strategy

Business Strategy

1) Introduction:

What is Business Strategy?

• Business strategy refers to a company's comprehensive plan for achieving its long-term objectives and maintaining a competitive edge. It involves managing key aspects, such as capital structure, investment decisions, cost control, and risk management, to drive sustainable growth, maximize value, and ensure long-term viability.

What will you learn in this chapter?

Here you will be able to learn 5 strategies of the Business Strategy:

• Capital Allocation
• Revenue Strategy
• Profit Target
• Cost Management
• Growth and Expansion Planning

2) Explaining:

1. Capital Allocation:

Capital allocation is a kind of distribution to use the resources the company has to maximize the company’s profitability and its market value.

• Define:

1. In capital allocation, we aim to identify long-term investments that enhance the company’s profitability and increase its market value. To achieve this, the company must ensure that the expected return on an investment exceeds its cost of capital.
2.  An efficient capital allocation is critical for companies, particularly those operating in highly competitive markets where resources must be deployed strategically to maintain and grow their market position. Capital is a limited resource, and how it is invested determines not only short-term financial performance but also long-term sustainability and competitiveness.
3. If capital investments consistently yield returns below the cost of capital, it results in value erosion, which can gradually weaken the company’s financial position. Over time, this shortfall hinders the firm’s ability to reinvest, innovate, or scale operations, thereby impeding its progression toward the next stage of growth and long-term profitability. In essence, poor capital allocation doesn’t just stall growth—it can jeopardize the company’s very survival in a competitive landscape.

• Words explaining:

1.  Cost of Capital:

The minimum return that a company must earn on its investments to justify the use of capital, whether it’s financed through debt, equity, or both. It serves as a benchmark for evaluating investment opportunities.

2. Return on Invested Capital (ROIC):

A financial metric that measures how effectively a company generates profit from the capital invested in its business. It shows how well a company is using its capital to create value.

Formula: ROIC=Net Operating Profit After Tax (NOPAT)/Invested Capital

 

2) Revenue Strategy:

A revenue strategy is a company's deliberate plan to identify, optimize, and manage its various sources of income. It involves both short-term and long-term initiatives across sales, marketing, pricing, and customer engagement to maximize revenue and drive sustainable growth.

• Define:

1. Revenue strategy outlines how a company plans to generate consistent and sustainable income through sales, pricing, and market positioning.
2. Revenue strategy is essential for accurate revenue forecasting, as it provides the foundation for using historical data, sales projections, and market trends to guide resource allocation. 
3. Revenue strategy helps a company analyze customer behavior and sales data, enabling it to tailor offerings and pricing to different market segments.

3) Example:

Company: Potato Chips Brand

Company Goal:
 Increase annual revenue by 20% while expanding market share in both retail and online channels.

1. Product & Pricing Strategy

• Launch new premium flavors (e.g., truffle sea salt, spicy lime) to attract younger, trend-conscious consumers.
• Introduce value packs for bulk buyers and smaller snack packs for vending machines.
• Implement price segmentation (e.g., slightly higher prices in convenience stores, discounts for grocery chains).

2. Channel Expansion

• Expand into e-commerce platforms like Amazon, Instacart, and the company’s own D2C website.
• Partner with gas stations, universities, and airlines for broader distribution.
• Launch limited-edition flavors through online-only sales to drive direct revenue.

3. Marketing Campaigns

• Use influencer marketing on TikTok and Instagram to promote new flavors.
• Run a loyalty program: “Buy 5, Get 1 Free” to increase repeat purchases.
• Seasonal promotions (e.g., back-to-school, game-day bundles) to increase sales volume.

4. Geographic Growth

• Expand to untapped regions in southern and western states.
• Secure shelf space in large national chains like Walmart, Target, and Costco.

5. Customer Feedback Loop

• Use social media polls and feedback surveys to determine which flavors to keep or retire.
• Offer exclusive voting rights to email subscribers to boost engagement and data collection.

6. Operational Efficiency

• Negotiate better deals with suppliers to reduce ingredient costs.

• Invest in automated packaging to reduce production bottlenecks and fulfill growing demand.

4) Expected Impact:

1. Increase sales from both new customers and loyal buyers.
2. Improve profit margins by offering higher-value products.
3. Build brand recognition and long-term customer loyalty.

3) Profit Target:

A specific financial goal a company sets for the amount of profit it wants to earn over a certain period.

• Define:

1. Profit target allows the company to measure its revenue and success.
2. Profit target sets a benchmark for the company and its employees to achieve.
3. The profit target is often based on the company’s past performance or other same industry’s sales data.
4. While achieving the profit target, it motivates the employees to a better goal, and creates confidence between the company and employees. 

5) Example:

A company forecasts $1,000,000 in revenue for the year and sets a profit target of 15%, meaning it aims to earn $150,000 in net profit.

4) Cost Management:

A process of planning, controlling, and reducing expenses to improve a company’s profitability and competitive position.

• Define:

1. Cost management could help an organization enhance future cost management prediction and budgeting.
2. Cost management not only supports traditional budgeting and forecasting but also increasingly involves estimating and controlling costs associated with cloud services. As businesses migrate to cloud-based infrastructures, managing these costs becomes critical to avoid overspending and reduce "cloud waste"—the unnecessary or underutilized resources that inflate expenses without delivering value.
3. Cost management in present dynamic business environments plays a vital role in long-term financial planning, ensuring that spending aligns with strategic priorities and overall organizational goals. Effective cost management fosters financial discipline, enhances decision-making, and enables companies to remain agile and competitive in a constantly evolving marketplace.

• Word explaining:

Could service:

On-demand computing resources and services are delivered over the Internet by providers.

It includes:

• Data Storage
• Computing Power
• Softeare Platform
• Networking and Security tools

- Example:

Scenario:
 A mid-sized software company offers a cloud-based SaaS platform. Over time, the company notices rising operational costs, particularly from its usage of cloud infrastructure on Amazon Web Services (AWS).

(SaaS platform: a type of cloud-based software that users access via the internet, usually through a web browser.)

Cost Management Actions Taken:

1. Cost Analysis:

• The finance and DevOps teams analyze AWS billing data and usage metrics.
• They discover that several virtual machines are running 24/7, even during off-peak hours, and some services are over-provisioned.

2. Cloud Cost Optimization:

• The company implements auto-scaling to match resource usage with demand.
• Unused instances and redundant storage are identified and terminated.
• They switch from on-demand pricing to reserved instances to lock in lower rates.

3. Budgeting and Forecasting:

• A cloud cost dashboard is introduced to track expenses in real-time.
• Monthly cloud budgets are set per department, with forecasting based on historical usage trends.

4. Ongoing Monitoring:

• Alerts are set up for unusual spikes in usage.
• Teams review usage reports monthly and adjust resource allocation accordingly.

Result:
 The company reduces its cloud expenses by 25% over six months without compromising performance. This frees up budget for product development and supports long-term strategic goals like entering new markets.

5) Growth Strategy

A long-term strategic expansion plan for the company to increase revenue and expand the total addressable market(TAM).

Here we will split into 3 parts of growth strategies to talk about.

• Revenue Growth Strategy
• Customer Growth Strategy
• Marketing Growth Strategy

1. Revenue Growth Strategy:

A revenue growth strategy may help the company to increase revenue and bring benefits like

• Monitoring cash flow
• Analyzing current market trends
• Diminishing customer acquisition
• Leverage sales forecasting reports

2. Customer Growth Strategy:

A customer growth strategy helps a company to know its customer churn rates, customer retention, and customer lifetime value.

3. Marketing growth strategy:

Marketing growth strategy helps the company grow its market share and total addressable market.

• Word explaining:

Total Addressable Market(TAM) - A total revenue opportunity available for a product or service.

Market Share - A percentage of total sales in an industry or product category that belongs to a particular company.

• Example: 

Company: A small online clothing retailer specializing in eco-friendly activewear.

Market Development (Reaching New Customers):

• Strategy: Expand into international markets (e.g., launch in Canada and Europe).

• Actions:

1. Translate the website into French and German.
2. Partner with local influencers in target countries.
3. Set up international shipping and localized pricing.

2. Product Development (New Offerings):

• Strategy: Launch a new product line for men’s activewear.

• Actions:

1. Conduct customer surveys to identify demand.
2. Design and release new eco-friendly men’s gym wear.
3. Bundle products and promote through social media campaigns.

6) Expected Results:

1. Increase customer base by 40% in 12 months.
2. Boost revenue by entering 2 new markets and expanding product variety.
3. Strengthen brand identity as a sustainable, inclusive activewear brand.

3. History and context

History of “Business Strategy”:

Before business strategy was a formal concept, strategic thinking was evident in trade, governance, and military strategy; business activity was largely tactical, not strategic. Success relied on experience, relationships, and intuition. During the late 18th to the full 19th century, the rise of machines, factories, and large-scale production created a need for structured management. In 1911, Frederick Winslow Taylor introduced Scientific Management in the early 1900s

Strategy at this time was mostly internal—maximizing output, minimizing waste, not about market competition. In the early 20th century, Alfred P. Sloan of General Motors pioneered decentralized management, dividing operations into business units with their own strategies. Business schools like Harvard introduced “business policy” courses to train future executives in high-level decision-making. Strategy began to mean more than just operations—it involved long-term planning and resource allocation. The 1960s marked the birth of business strategy as an academic and practical field. Harvard professor Igor Ansoff published Corporate Strategy (1965), introducing the Ansoff Matrix.

• Ansoff Matrix: The Ansoff Matrix, often called the Product/Market Expansion Grid, is a two-by-two framework used by management teams and the analyst community to help plan and evaluate growth initiatives.

 

4. Use in today's world:

1. Starbucks - Market growth strategy:

Starbucks, a world-renowned coffee company, first started in Seattle, USA. Today, it's commonly seen in different countries and cities.  Its market growth strategy had succeeded in various countries.

2. Google(Alphabet) - Cost management:

Google reduced its infrastructure costs while scaling cloud and AI services by custom-building its energy-efficient data center. To minimize labor costs, Google replaced unnecessary human resources with AI tools to optimize its services.

3. Berkshire Hathaway - Capital allocation:

Warren Buffett, one of the world’s most successful investors, and his company Berkshire Hathaway could be a great example of capital allocation. Berkshire Hathaway does not follow a traditional corporate strategy. Instead, it functions as a conglomerate and capital allocator, deploying funds into businesses and investments that generate strong, long-term returns.

Examples:

• Reinvestment into Wholly Owned Subsidiaries:

These businesses generate steady cash flows that are reinvested or used for further acquisitions or investments.

• Maintaining a Large Cash Reserve:

Avoid financial distress or forced selling in bad times.

Real-life applications:

1. IKEA- Sustainability as Strategy:

Invests in renewable energy, uses recyclable materials, and offers buy-back programs. As a result, IKEA had strengthened its brand loyalty and operational efficiency.                  

2. Apple- Premium Product Design & Innovation:

Designs high-end, user-friendly devices like the iPhone, iPad, and Mac with cutting-edge features. As a result, Apple has commanded higher margins and maintains a loyal, global customer base.

3. NVIDIA- Pioneering in AI & Deep Learning:

Shifted its focus to AI computing by creating the CUDA platform (programming model) and GPUs optimized for deep learning. As a result, NVIDIA’s data center revenue now exceeds gaming, fueled by cloud and enterprise AI demand.

5. Future Outlook

As we navigate an increasingly dynamic global landscape, our business strategy must evolve in alignment with rapid technological innovation, shifting regulatory environments, and changing customer expectations.

Artificial Intelligence (AI) is evolving from a supplementary tool to a foundational pillar across industries. No longer confined to automating repetitive tasks, AI is becoming integral to core business functions. It is reshaping how organizations operate by informing strategic decision-making, enabling deep product personalization, and providing predictive insights across the value chain—from supply chain logistics to customer experience optimization. Generative AI, in particular, is set to redefine the boundaries of creativity and knowledge work. Beyond automating content creation, it is transforming how companies interact with customers through dynamic, context-aware conversations and how they manage and surface internal knowledge. This technology is not just enhancing existing roles; it is creating new modes of collaboration and ideation that were previously unfeasible. Traditionally, business strategy has depended on a combination of historical data and executive experience. Today, both of these inputs can be enhanced or even replaced by sophisticated AI models that identify patterns, simulate outcomes, and recommend actions with a level of depth and speed unattainable by human analysis alone. However, it's important to note that AI is ultimately a tool: powerful in its capabilities, but limited by its design and data inputs. The most AI can do is offer you an informed answer, not a final decision. Human judgment, values, and context remain essential. The businesses that will thrive in an AI-powered world are not those that blindly defer to machines, but those that integrate AI intelligently, augmenting human insight, not replacing it.

Looking ahead, businesses must prepare for a landscape defined by rapid regulatory evolution, collaborative innovation, and intensified customer expectations. Regulatory pressures around AI ethics, data sovereignty, and ESG compliance will require companies to embed governance directly into technology and product development, shifting compliance from a back-office function to a strategic differentiator. Innovation will be increasingly driven by open ecosystems and platform models, enabling faster co-creation and modular growth through APIs, partnerships, and digital marketplaces. At the same time, the workforce is undergoing a fundamental transformation, where human-AI collaboration, continuous reskilling, and flexible, purpose-driven work environments are essential to attract and retain top talent. Customers, empowered by technology and values-conscious behavior, will demand hyper-personalized, ethically designed experiences that are seamless across physical, digital, and immersive platforms. To thrive amid these shifts and persistent global volatility, businesses must build resilience through agile operating models, scenario planning, and strategic adaptability—turning disruption into a source of competitive innovation rather than a threat to survival.

6) Reflections and critical thinking:

Why is “Business Strategy” sometimes controversial?

Business strategy can be controversial, mainly because it involves choices that impact people, values, and power structures.

How business strategy show that finance drives decision-making?

Business strategy is deeply intertwined with financial logic—it’s about allocating capital to achieve competitive advantage and maximize value.

7) Takeaways:

Summarizes:

1. Business strategy primarily relies on data analysis to inform decision-making.
2. It establishes clear goals that guide the company toward long-term success.
3. Effective capital allocation supports market entry, growth, and expansion planning.
4. Analyzing customer data from the previous season helps optimize acquisition strategies.
5. Strong profits and revenue depend on a well-structured and adaptable strategy.

Mnemonic tip:  “S.T.R.A.T.E.G.Y”

• S – Set goals: Define clear objectives and desired outcomes.

T – Target market: Identify who you serve and what they need.

R – Resource allocation: Allocate capital, people, and time efficiently.

A – Analyze data: Use insights to guide decisions and reduce risk.

T – Track performance: Monitor KPIs and adjust when needed.

E – Evaluate competition: Understand your position in the market.

G – Grow through innovation: Find new ways to deliver value.

Y – Yield sustainable advantage: Build long-term differentiation.

Recommended book :

7) “Good Strategy/Bad Strategy: The difference and why it matters”

• By: Richard Rumlet
• Publication date: January 1, 2013

 

“The Competitive Strategy: Techniques for Analyzing Industries and Competitors”

• By: Michael-e-porter
• Publication date: January 1, 2004

Further reading article:

• Wallstreetmojo: It provides further financial information for the public to learn about.             (https://www.wallstreetmojo.com/)
• The Strategy Institute: A useful resource to learn more about different business strategies.       (https://www.thestrategyinstitute.org/)

8) Quiz:

Questions: True or False (underline paragraph or words)

1. “Revenue strategy involves only long-term initiatives across sales, marketing, pricing, and customer engagement to maximize revenue and drive sustainable growth.”                        

Ans: False (Revenue strategy includes both short-term (e.g., seasonal promotions, tactical pricing) and long-term (e.g., market positioning, customer lifetime value) initiatives.)

 

2. “Frederick Winslow Taylor introduced Scientific Management in the early 1960s.”          

Ans: False( First introduced in the early 1900s or more specifically 1911)

 

3. “Business strategy primarily relies on capital allocation to inform decision-making.”        

Ans: False (While capital allocation is an important component, business strategy primarily relies on broader analysis, including market research, data insights, competitive positioning, and long-term planning. Capital allocation is more of a tactical execution within the strategy, not the core source of decision-making.)

 

4. “Effective capital allocation only supports market entry.”                                                

Ans: False (Capital allocation supports many strategic functions, not just entering new markets. It’s about prioritizing where to invest company resources (money, time, assets) for the highest return—this includes market entry, but also R&D, operations, technology upgrades, acquisitions, marketing, and scaling existing businesses.)

 

5. “If capital investments consistently yield returns greater than the cost of capital, it results in value erosion, which can gradually weaken the company’s financial position.”

Ans: False (If capital investments consistently yield returns greater than the cost of capital, that creates value, not erodes it.)