In general, corporate strategy is how the business gets from where it is to where it wants to be in the future. It requires making the key decisions that are taken to ensure that business is successful in the long term.
The main goal of strategy is to create value for the company’s shareholders. This can be done in a number of ways such as increasing sales revenue, expanding into new markets or developing new products.
A successful business will have an ultimate goal while its corporate strategy will be a clear plan pushing the firm towards achieving this vision. Strategy is important in business organizations of all sizes ranging from commercial for-profit-only businesses to social not-for-profit business organizations.
Strategy hierarchy
Strategic management is the highest level of managerial activity. It is undertaken and closely supervised by the Chief Executive Officer (CEO) and approved by the Board of Directors (BOD).
When deciding on the business strategy, the CEO, directors of different departments and middle managers need to think about business ideas and work together on business concepts to make informed decision about the future direction of the entire business organization.
In large business organizations there are several layers of management. Strategy hierarchy includes the following types of strategies:
- Corporate strategy (for business). The overall strategy development for the whole corporation is developed under the broad role of the senior directors. It is a long-term plan of action for the entire business designed to achieve a particular goal in the future. It based on an assessment of the company’s current position in relation to the external environment. Corporate strategy asks the big questions, contains key business objectives and decisions needed to achieve these – such as which markets the business wants to be in, which products it wants to sell, should the business expand from manufacturing operations into retailing too, etc.
- Business strategies (for product or geographical business unit). These are business-level competitive strategies for different business groups in the firm. Separate business divisions of a large corporation in different geographical regions or responsible for different products must come up with strategies to achieve competitive advantages and defend their market share. Successful business strategies will lead to the corporate strategy also being successful.
- Functional strategies (for individual departments). These are formed after the corporate strategy and business strategies have been established. Functional department strategies are plans that are limited to the department’s own functional responsibilities. They include product production strategies, marketing strategies and human resource (HR) strategies.
All these different types of business and functional strategies must be coordinated with the overall corporate strategy to increase the chances of achieving the organization’s long-term aims.
What is corporate strategy?
Corporate strategy is a long-term plan that outlines clear goals for a company and how it will achieve them. It is a high-level plan that takes into account all aspects of the business, from its mission and vision to its financial performance and competitive landscape.
Corporate strategy is about making sure that a business produces products that add value to customers and bring returns to shareholders. It involves surviving in the short-term, growing in the medium-term and delivering profits in the long-term.
These strategic corporate decisions often involve going through a major change within the business organization.
Components of corporate strategy
A comprehensive corporate strategy should include the following components:
- Business portfolio. This is a list of all the businesses that the company owns or operates. The strategy should identify which businesses are core to the company and which ones are non-core. It should also explain how the company will allocate resources to each business.
- Growth strategy. This explains how the company plans to grow its revenue and profits. It may include plans to expand into new markets, develop new products or services, or acquire other companies.
- Competitive strategy. This explains how the company will compete in its markets. It may include plans to differentiate its products or services from those of its competitors, or to achieve a cost advantage.
- Financial strategy. This explains how the company will finance its growth and operations. It may include plans to raise debt or equity, or to generate cash flow from its existing businesses.
How to establish corporate strategy for a business organization?
Corporate strategies are typically influenced by a range of different factors such as:
- Resources available. Scarce business resources which are finite will force firms to choose which strategies to choose and which strategies to scale down or drop entirely.
- Other strengths of the business. A business with proven capabilities in certain areas will apply these strengths when devising future strategies as it already has business skills and experience it does not have. Additionally, low-performing areas of the business might be sold off with the firm concentrating on its current successes to achieve growth.
- Competitive external environment. Innovations by competitors are considered a major constraint on business strategy because they might be difficult to copy with or win over. However, major new promotional campaigns could prove to be very effective when a business operates in a competitive environment.
- Business objectives. The objectives of the business greatly influence strategy. Increasing shareholder wealth in the short-term requires the business to invest less in extensive Research and Development (R&D) with a payback many years into the future. This may hinder future prosperity of the firm. While maximizing returns to shareholders might be the central objective of the business, considering Triple Bottom Line approach to corporate objectives should also be taken.
Differences between strategic decisions and tactical decisions
It is important to be clear about the distinction between strategies and tactics.
Tactics are short-term decisions which are a part of the longer-term strategic aim. They are smaller-scale policies aimed at resolving a particular measurable problem or meeting a specific part of the overall strategy
Here are key differences between strategic decisions and tactical decisions:
- Strategic decisions are long-term decisions taken by directors and senior managers regarding strategic aims, e.g. to enter new markets abroad. They are cross-functional as they involve all major departments of the business. Hence, difficult to reverse once made because departments will have committed resources to it.
- Tactical decisions are short-term to medium-term decisions taken by less senior managers and subordinates with delegated authority regarding particular problems, e.g. to sell a product in new packaging. They only impact on one department. Hence, they are reversible, but there may still be costs involved.
Benefits of corporate strategy
A well-crafted corporate strategy is essential for the success of any business. It provides a clear roadmap for how the company will achieve its goals and create value for its shareholders. Mainly, it provides integration, direction and focus.
It also helps to ensure that the company is aligned around a common vision and mission.
When corporate strategy is customer focused, it ensures that the long-term plans meet consumers’ needs and generate conditions that allow for the creation of value.
It helps the firm to manage internal change and respond to external challenges thanks to offering innovative approaches to solve business problems.
In today’s rapidly changing business environment, it is more important than ever for companies to have a clear corporate strategy. By carefully analyzing their internal strengths and weaknesses, as well as the external opportunities and threats, companies can develop a strategy that will help them to remain competitive and successful.
