The purpose of planning and strategy is to maximize business productivity and growth. That’s why companies develop corporate strategies. Today, we’re going to discuss corporate strategy, its types, components, and examples.
What is Corporate Strategy?
The corporate strategy follows the portfolio approach to make a decision where you look at all of the company’s businesses and analyze how to generate maximum value out of it.
If you’re establishing a corporate strategy, then you should find a link that how different businesses are connected, their impact on each other, and the structure and functionality of the parent company. it’s to improve the management, processes, and human capital.
Companies usually develop a corporate strategy on top of their business strategy, and it deals with the business strategy of individual businesses.
Different Between Corporate and Business Strategy
Business strategy is a specific plan of action that a company devises to achieve a certain target or goal of the organization. The business strategy usually follows the concerns of the corporate strategy that impacts the whole company. It helps the company to attract new investors so that they could invest their capital. Moreover, it assures creditors about the financial health of the organization.
Corporate strategy, on the other hand, is the top management plan concerning the whole organization. It’s the master plan that directs the company towards success. The more appropriate corporate-level strategy is, the more it would increase the chances for the success of your organization.
Some of the main differences between corporate and business level strategy are as follows;
- Managers usually design the business strategy to improve the overall performance of the company. On the other hand, the mission statement expresses the corporate strategy and the ultimate goals of the organization.
- It’s the departmental and mid-level managers who usually structure the business strategy. Managing directors, CEOs, top-level management, and board of directors plan the corporate strategy.
- The nature and purpose of business strategy are to govern and execute a company’s plans, whereas the corporate strategy has more of a deterministic and legislative nature.
- The time length of the business strategy is short term and the corporate strategy is to achieve the long-term goals.
- The purpose of the business strategy is to choose a business plan that meets the goal of the organization. However, the goal of the corporate strategy is to choose a business for the organization that should compete in the market.
- A particular department, division, or unit is the main concern of the business strategy. The focus of the corporate strategy is various business units and the whole organization.
- The focus of the business strategy is to compete in the market with other businesses, and the focus of the corporate strategy is to increase the company’s growth and profitability.
- The business strategy follows the introvert approach where it deals with the internal functionality of the company. The corporate strategy follows the extrovert approach, and it deals with the business environment.
- The business strategy applies strategies like differentiation, focus, and cost leadership. The corporate strategy follows strategies like retrenchment, stability, and expansion.
Components of Corporate Strategy
Some of the main components of the corporate strategy are as follows;
Resources allocation comprises of dealing with two major resources; capital and people. The leader has a task to utilize these resources so efficiently in order to improve the value of the organization, and how and where to distribute these resources in various quantities in different departments. Some of the key factors in resource allocation are as follows;
- Knowing the strengths and capabilities of the company’s staff and distribute them across the organization in different departments
- Changing the position of leader depending on the feasibility and where they could perform better and add more value
- Making sure the availability of the talent across the organization
- Distributing financial resources across various business divisions where they could generate more
- Exploiting external opportunities like mergers and acquisitions while efficiently distributing capital internally and externally.
Organizational design means making sure that the company has a proper system and structure in place that could generate value. The leader should consider following the centralized or decentralized approach and the reporting system of the individuals and business divisions. Some of the main factors in the organizational design are as follows;
- Determining that how much independence a business unit should have
- Whether the Decision-making process should be up or down the hierarchical chain
- How much influence business units should have on the strategy
- Diving the responsibilities and commitment of the large initiative into smaller divisions
- Combining various business functions and units, so that there are no redundancies left
- Maintaining a balance between risk and responsibilities
- Selecting a proper delegating authority
- Setting up management and reporting structure
Management of Portfolio
Portfolio management is about finding a correlation among business divisions that complement each other. Some of the factors in portfolio management are as follows;
- Making a decision about the field of business you want to be in
- Minimizing the risk factor through diversification of the resources and decreasing the result correlation
- Generating a new strategic option by looking for new opportunities
- Balancing the portfolio according to the market trends
A strategic tradeoff is about finding a balance between the risk and return. You must also have a critical view of your business whether your company is meeting the required results or not. Some of the main factors relevant to the strategic tradeoff are as follows;
- The risk usually relies on the strategy that the company chooses to follow
- Product differentiation is also very risky, it could lead you towards winning everything or losing it
- When a company follows the copycat strategy by modifying the market experimented product
- You should be familiar with the strategy and associated risks
- You should differentiate in some areas like cost leadership and follow the copycat strategy in the other
- The independence of various business divisions
The high-risk strategy usually pays off higher return, the cost leadership and product differentiation could pay off a lot in the long term
- Incentives are very important when it comes to divisional managers that how much risk and return, they should take
- Separate the revenue generator and the responsibilities of the risk-takers, so that they could perform better
- Manage and maintain the various short term/long term and risk overlapping
Types of Corporate Strategies
Growth strategy is all about achieving the growth of your company in terms of market penetration, market share, revenue, etc. Businesses achieve their through the following strategies;
- Horizontal Integration
- Vertical Integration
- Basic Diversification
- Cost Effective
- Adjacent Growth
- Conglomerate growth
Businesses and companies following the stability strategy don’t focus on business development and growth. Instead, their focus is on staying in the business, because they’re satisfied with the current state of affairs of their business. The achieve stability through;
- Status Quo
It’s completely opposite to the growth and status quo strategy, here you follow the defensive strategy in order to improve the company’s position and get rid of weak points that are pulling you down.
Re-inventing strategy is all about reinventing your existing business that hasn’t changed for years. Companies usually reinvent their business with the latest technology. Businesses reinvent their businesses through following strategies
- Evolutionary Strategy
- Revolutionary Strategy
How to Develop an Effective Corporate Strategy
First, you should start with developing the mission and vision statement of the organization, what impact the company attains to leave on society.
Next, you should ask this question that how you should reach there. The company should devise a strategic plan and the whole organization should be on the same page in order to achieve its goal.
Then you should develop a decision-making structure, and it should involve the management and the governing body on board.
You should make sure that the whole organization should be on board and they all move in the same direction. You should clearly talk about your corporate strategy and take relevant steps in order to achieve your goals.
Example of Corporate Strategy
Porsche is the world’s leading automotive brand. The company was on the verge of disaster in 1990 due to the outdated design and obsolete methods of engineering. Wendelin Wiedeking, a German vehicle manufacturer and a newly appointed CEO reinvented the brand by following the Japanese manufacturing concepts to increase the efficiency and productivity of the organization.
Vehicles models like Cayman, Boxster, and 911 were specific and they targeted a certain type of customer market. Later, the automotive company launched a new model by the name of Cayenne, a luxury four doors SUV, and it was targeting wealthy customers.
The brilliant strategy and a remarkable design generated a lot of profit for the company and leaving all the competitors behind in terms of growth. It’s worth noting it here that Porsche’s revenue is much higher than its parent brand, Volkswagen.