Business Strategy Level Example – Corporate strategy uses a portfolio approach to strategic decision-making, looking at all of the company’s businesses to determine how to create the most value. To develop a business strategy, companies need to look at how the various businesses fit together, how they influence each other, and how the parent company is structured to optimize human capital, processes and management. Corporate strategy is based on business strategy, which is related to strategic decision-making for an individual company.
There are several key components of business strategy that organizational leaders focus on. The main tasks of the business strategy are:
Business Strategy Level Example
Resource allocation in a company usually focuses on two resources: people and capital. In an effort to maximize the value of the enterprise as a whole, managers must determine how to allocate these resources to different companies or business units so that the whole is greater than the sum of the parts.
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Organizational design is about ensuring that a company has the necessary business structure and related systems in place to create maximum value. Factors for managers to consider are the role of corporate headquarters (centralized versus decentralized approach) and the reporting structure of individuals and business units – vertical hierarchy, matrix reporting, etc.
Portfolio management looks at the way business units complement each other, their correlations, and decides where the business will “play” (i.e., which companies it will or will not enter).
One of the most difficult aspects of business strategy is balancing the trade-offs between risk and return across the business. It is important that all companies have a common view and ensure that the desired levels of risk management and return are achieved.
Corporate strategy differs from corporate strategy because it focuses on how to manage resources, risks, and profits across the enterprise, rather than looking at competitive advantage.
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Leaders responsible for making strategic decisions must consider many factors, including resource allocation, organizational design, portfolio management, and strategic trade-offs.
By optimizing all of the above factors, a manager can hopefully build a portfolio of companies that is worth more than the sum of its parts.
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But this distinction creates major problems when some writers focus on both the ends (missions, goals, objectives) and the means to achieve them (policies and plans). Still others emphasize only the means rather than the ends in the strategic process.
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Strategy refers to defining a company’s purpose or mission and basic long-term goals and allocating the necessary courses of action and resources to achieve those goals.
Policies are general statements that guide managers’ thinking to make a decision. They provide a broad margin within which decisions must be made.
But it refers to the direction in which human and material resources will be used to increase the probability of achieving the chosen goals.
The main function of strategies and policies is to bring plans together and provide direction. But if one of them is alone, it can hardly ensure that the organization will achieve its goal.
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Strategic planning seems like a simple task; it analyzes the current and expected future situation, determines the company’s direction and develops means to achieve the goal.
In reality, strategic planning is a very complex process that requires a systematic approach to identify and analyze factors outside the organization and align them with the company’s capabilities.
Strategy development involves determining the ways in which an organization can accomplish its operational goals, weaken competitors, achieve competitive advantage, and ensure the organization’s long-term survival.
In a diversified company with multiple businesses under one roof, strategies are initiated at four levels.
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Corporate strategy is formulated at the highest level by the top management of a diversified company (in our country, a diversified company is popularly known as a group of companies, for example, Alphabet Inc.). Such a strategy describes the overall direction of a company with respect to its various businesses and product lines.
For example, P&G’s business strategy can take over the big tissue paper companies in Canada to become the undisputed market leader.
A corporate-level strategy is a set of strategic alternatives that an organization chooses while managing its operations in different industries and markets.
It is a corporate-level strategy formulated by the top managers of a structural unit. This strategy emphasizes strengthening the company’s competitiveness in the field of products or services.
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Business strategy includes all actions and approaches to compete with competitors and the ways in which management addresses various strategic issues.
As noted by Hitt and Jones, corporate strategy consists of action plans adopted by strategic managers to use the company’s resources and distinctive competencies to gain a competitive advantage over competitors in the marketplace.
Business strategy is usually formulated according to business strategy. The main emphasis of business strategy is on product development, innovation, integration (vertical, horizontal), market development, diversification and the like.
And competitive advantage comes from strategies that create some uniqueness in the market. Winning competitive strategies are based on sustainable competitive advantage.
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Business strategy is about the actions managers take to improve the company’s market position by satisfying customers. Improving market position means acting against competitors in the industry.
Thus, the concept of competitive strategy (as opposed to cooperative strategy) has a competitor orientation. The goal of competitive strategy is to win the hearts of customers, satisfy their needs, and finally compete with competitors (or rival companies) and achieve competitive advantage.
The success of the competitive strategy depends on the company’s capabilities, strengths and weaknesses in the competitors’ capabilities, strengths and weaknesses.
Companies face many strategic issues when doing business. Management has to deal with all these issues effectively to survive in the market. Business strategy addresses these issues as well as how to compete.
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A corporate-level strategy is a set of strategic alternatives that an organization chooses when doing business in a particular industry or market.
So there can be production strategy, marketing strategy, advertising strategy, sales strategy, human resource strategy, inventory strategy, financial strategy, training strategy, etc.
Functional strategy refers to a strategy that emphasizes a specific functional area of an organization. It is designed to achieve some objectives of a business unit by maximizing the productivity of resources.
For example, the production department of a manufacturing company develops a “production strategy” or a departmental strategy, or a training department formulates a “training strategy” for employee training.
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Functional strategy is concerned with developing distinctive competence to give a business unit a competitive advantage.
Each business unit or company has its own set of departments, and each department has a functional strategy. Functional strategies are adopted to support competitive strategy.
For example, a company pursuing a low-cost competitive strategy needs a manufacturing strategy that emphasizes reducing operating costs and a human resources strategy that requires keeping as few highly skilled employees as possible.
Other functional strategies such as marketing strategy, advertising strategy and financial strategy also need to be formulated appropriately to support the competitive strategy at the firm level.
Product Mix Strategy
The business strategy is formulated in the administrative structural units of the organization. A company can develop a business strategy for its factory, sales area or small departments.
Typically, field level executives/managers develop business strategy to achieve immediate goals. In large organizations, operational managers usually take help from middle managers in developing business strategy.
In some companies, managers “develop a business strategy for each set of annual goals in departments or divisions.
So, while developing corporate-level strategies for each industry or market, they also develop an overall strategy that helps define the mix of industries and markets that are important to the company. The success of any company is determined by the effectiveness of the strategy it follows. Strategy explains how the company plans to compete in the market and how it plans to grow profitably.
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Businesses around the world sell goods and services in competitive markets