Corporate Strategy: What Is It? Four Essential Components

What Is Corporate Strategy?

Corporate strategy refers to an organization’s overarching plan or direction in pursuit of its long-term goals. It entails establishing the company’s purpose, vision, values, and goals, as well as determining the markets and products it will focus on, the competitive advantages it hopes to create, and the resources and skills required to fulfil its goals.

Corporate-level strategy entails creating a strategic roadmap to guide the organization’s actions. By doing so, the organisation maintains its long-term strategic objectives while staying nimble enough to adapt to changes in the business environment.

What Are the Four Components of Corporate Strategy?

Understanding the components of corporate strategy can assist you in developing a well-thought-out plan that is simple to follow and implement.

Visioning

Visioning entails establishing the organization’s high-level orientation, which includes the vision, mission, and corporate values.

Setting objectives

Setting objectives entails setting defined and quantifiable results that you wish to attain over a certain timeframe.

Resource distribution

This is the process of allocating human and capital resources to achieve goals.

Strategic compromises

Because businesses cannot always take advantage of all available possibilities, this is a vital component of corporate strategy planning. Leaders must understand how to select the best strategy combination for balancing risks and returns.

Strategies at the Corporate, Business, and Functional Levels

A comprehensive organisational plan consists of three levels:

Corporate business and functional strategies are represented by a pyramid of strategy tiers.

The three tiers of strategy.

Strategy at the corporate level

The highest degree of corporate strategic planning is corporation-level strategy. (We’ll go deeper into it in this tutorial).

Strategy at the corporate level

The business-level strategy combines the company’s strategic goals with the requirements and capabilities of the business unit level.

Based on business-level knowledge and experience, it transforms a corporate-level strategic aim into a realistic strategic goal.

Functional-level strategy

The particular plans and activities established by various departments within an organisation to fulfil the aims and objectives outlined in the corporate-level strategy are referred to as functional-level strategy. These plans are more specific than corporate strategies and focus on the organization’s day-to-day operations.

Functional-level strategies are created based on the general aims and objectives of the firm. Their goal is to guarantee that each functional area of the organisation makes a coordinated and strategic contribution to the company’s success.

Assume a corporation has established a corporate-level aim to minimise costs. The operations team can implement a functional-level strategy to simplify the supply chain to lower the cost of inventories and raw materials. Another functional strategy would be to optimize the use of technology to reduce costs.

Corporate-Level Strategy vs Business-Level Strategy

The two layers of strategic planning that organisations utilise to attain their aims and objectives are corporate-level strategy and business-level strategy.

Corporate strategy entails making judgements regarding the organization’s general direction and scope. This involves determining which sectors and marketplaces to compete in, allocating resources across multiple business units or product lines, and diversifying the company’s product or service portfolio. Long-term aims and objectives are the emphasis of this strategy level, which frequently involves mergers and acquisitions, joint ventures, vertical integration, or other strategic partnerships.

In contrast, company-level strategy focuses on how specific business units or product lines will compete in their marketplaces. Making judgements concerning product differentiation, price, marketing, and resource allocation to accomplish certain goals and objectives. This strategy level is concerned with short-term goals and objectives, which frequently involve product development, marketing campaigns, and operational improvements.

Both layers of strategy are critical for organisational performance and should be coordinated.

Differences between corporate and business strategies

There is a distinction between corporate and business-level strategies.

The Relationship Between the Three Strategy Levels

The three layers of strategy are interrelated and must be linked to fulfil the overall aims and objectives of an organisation.

A corporate-level strategy of diversifying a company’s portfolio through the acquisition of a new business unit, for example, would necessitate a business-level plan to integrate the new business and align it with the company’s current operations. The functional-level strategy would then focus on optimising processes, allocating resources, and creating skills to support and assure the success of the new business unit’s activities.

Understanding how the three strategy levels communicate aids in the development of an effective strategic plan.

What Are the Advantages of a Corporate Strategy?

The advantages of a well-defined corporate strategy for an organisation grow as the organisation grows in size. Small and even medium-sized organisations may get by without devoting time to creating their corporate strategy. However, as an organization’s demands expand, it becomes increasingly important to build the strategic planning process in a way that matches the organization’s complexity.

Finally, business strategy is beneficial to every organisation, regardless of size.

The following are the three primary advantages of having an effective company strategy:

1. Provides strategic guidance

The following are the three primary advantages of having an effective company strategy:

An organisation may identify its intended direction and give clear advice to executives, stakeholders, and employees on how to prioritise choices by executing a corporate strategic plan, making strategy implementation and goal attainment much simpler.

2. Assists you in being adaptable and flexible as necessary.

Organisations must keep up with changes as they occur in a dynamic world.

Your organisation will be able to consistently function effectively if corporate plans and strategic goals are constantly defined in response to opportunities and dangers as they arise.

3. Enhances decision-making

Without a properly defined company strategy, business and functional divisions will execute sub-optimally.

The abstract level of decision-making at the corporate level will transfer to better results at other levels of decision-making and will make employees feel that their organisation has a clear direction and purpose.

The Advantages of a Corporate Level Strategy.

Recommended reading: Simplified Strategic Control: A 6-Step Process and Tools

The Most Common Issue With Corporate Strategy

One of the most common problems with strategy, particularly corporate strategy, is that it becomes bogged down in the boardroom. Leaders are the experts; they’ve scaled the heights and have the scars to show it. It is self-evident that they are best qualified to make strategic decisions and devise a strategy that will drive the firm on the proper path.

That sentence appears fair at first glance, however it includes a falsehood.

Creating a static PowerPoint document, no matter how long or beautiful it is, is not a strategy. “The main problem with strategy is that it’s usually not even strategy,” says Mike Lardner, former Director of Corporate Strategy at Whirlpool, in a strategy report. It’s only the first draft of next year’s budget!”

A yearly cycle of secret meetings depletes resources, and no one knows where, why, or what to do. Often, the plan is left in a PowerPoint presentation until the next year, and it is so laborious to synthesise that it is not even updated or tracked regularly.

Corporate Strategy Types and Examples

Your corporate strategy must represent an ideal method that reacts to your company’s demands and surroundings. As a result, it’s useful to categorise corporate strategy into four categories depending on external and internal elements.

Strategies for expansion

These are growth-oriented tactics that may involve entering new markets, expanding or diversifying current ones, or utilising forward or backward integration to capitalise on economies of scale.

Most Internet businesses, such as Facebook (Meta), Google, and Amazon, use growth strategies to capitalise on new possibilities.

When Facebook first began in 2004, it was a modest social media network among many others. Facebook went from a modest campus social network to the omnipresent firm it is today by employing a market penetration growth strategy focused on Harvard college students and, subsequently, a tech acquisition approach that bought new technologies.

Strategies for Stability

These are intended to strengthen an organization’s existing position to create a strategic environment that will allow for greater flexibility in the future use of expansion or retrenchment tactics.

Stability strategies are more conservative tactics that are focused on conserving earnings, lowering expenses, and researching future strategic options.

The Steel Authority of India implemented a stability policy that prioritised efficiency above plant expansion. This action aided in addressing industry overcapacity and maintaining the company’s position as the world’s third-fastest-growing steel manufacturer.

Retrenchment tactics

These are actions taken in reaction to unproductive or harmful aspects of a business or organisation, such as the elimination of unprofitable assets or product lines.

General Motors (GM), previously the world’s largest carmaker, began pursuing retrenchment measures in important global markets such as Russia, India, and Western Europe. As its competitors continually grabbed the top sales positions, the major reasons were declining sales and profitability.

Combination Strategy

Organisations will sometimes mix the aforementioned tactics, even if they appear to be conflicting.

A firm, for example, may use a stability and retrenchment approach to keep earnings rising while protecting capital. Alternatively, businesses might continue to take chances to develop while keeping some parts of the business steady.

When organisations are huge and operate in complicated contexts, such as having numerous firms functioning in various industries with diverse demands, a combination strategy is beneficial.

McDonald’s, for example, continues to pursue expansion by entering new areas across the world while keeping a lucrative core menu and focusing on increasing operational efficiency.

Another example is Hewlett-Packard’s decision to divide the firm in two to pursue both a stability and growth plan. To sustain profitability, HP Inc., the sluggish arm that sells personal computers and printers, concentrates on a stability strategy. Meanwhile, HPE, the intriguing company that offers industrial-grade server computers to businesses, is focusing on a growth plan while tapping into an underdeveloped market sector.

How Should My Corporate Strategy Model Appear?

There are several models for strategic planning, each with its advantages and disadvantages. We’ll teach you how to create your company strategy model using our tried-and-true strategic planning model, the GOLDEN GATE PROPERTIES.

Corporate strategy planning is the most advanced level of strategic planning inside a company or organisation, and it must account for a large number of factors.

1. Creating a vision

It is critical to reduce complexity. The foundation of corporate planning is the formulation of an abstract vision or overall aim based on the present organisation and its surroundings.

The vision will act as a reference point for your objective, while the mission will serve as a standard for assessing goals and evaluating methods.

2. Describe the values of your firm.

The vision statement for your firm is a destination. The values of the company outline how you will get to this destination.

Your values should be clear, precise, and, most importantly, genuine. Read our article to learn how to define your company’s values.

3. Determine focus areas

Consider focal areas to be the core of your organisational planning. They are strategic priorities that your organisation will focus on over a specific period.

4. Establish goals

You must outline the strategic objectives after you’ve set a clear vision and chosen your emphasis areas.

These objectives will provide a more concrete illustration of what you hope to accomplish, with specific timelines and milestones.

5. Establish key performance indicators

The corporate planning process concludes with the establishment of key performance indicators (KPIs), which will allow corporate strategists to track and change strategic objectives depending on results.

Get A Blueprint For Corporate Strategic Planning

Corporate strategic planning gives your company the essential conceptual tools to succeed in competitive markets. Taking the time to plan a well-structured corporate strategy will quickly yield benefits that are quantifiable and provide insights into your operations.

Get your corporate strategy planning to follow a structured approach and create a highly effective corporate strategic plan that keeps everyone aligned with the business objectives.