Businesses and companies develop strategies and planning to serve various purposes. Increasing sales, growth, profitability, and productivity are among the few. Today, we’ll discuss what is a corporate strategy, its key components, main types, and how to develop a corporate strategy.
What is a Corporate Strategy?
Corporate strategy is the top-level management strategy and its decisions impact the whole organization in terms of the company’s growth and direction. It sets a long-term vision that would create corporate value and inspire the workforce to run operations effectively to satisfy the needs of customers.
Development of the corporate strategy is a gradual process where you remain in contact with the investors so that they could invest their money in the company. The focus of the companies is to satisfy the requirements of the customers. After that, they revise their corporate strategy over time in order to make further improvements.
Business Strategy vs Corporate Strategy
The business strategy comprises of course of actions that a company implements in order to achieve its goals. It’s usually in alignment with the corporate strategy that affects the entire organization. However, the effectiveness of the business strategy attracts investors to the company. When the company is doing well, then you can pledge to creditors about the financial health of the company.
Corporation strategy is the top management level strategy that guides the company to move towards growth and success. If the corporate level strategy is good and effective, then it would amplify the possibility of success of the company. However, the key differences between the business strategy and corporate strategy are as follows;
- Top-level management, CEOs, Managing Directors, and Board of directors devise a corporate strategy. It’s the job of mid-level managers and heads of departments to formulate business strategies.
- The mission statement is the presentation of the corporate strategy and it defines the goals of the company. The business strategy helps managers to improve the performance of the company.
- The focus of the c strategy is on the long-term goals and the business strategy is on the short term.
- The nature of the c strategy is legislative and deterministic, and the business strategy is to plans.
- The objective of the c strategy is to select a business niche for the company to work on and compete in the market. The goal of the business strategy is to develop a business plan and meet the company’s objectives.
- C strategy covers the whole organization including all the departments and units, and the business strategy focuses only on the specific business unit and division.
- C strategy plans to grow and improve profitability, and the business strategy makes the company compete with other businesses.
Components of Corporate Strategy
After discussing what is corporate strategy and the difference between business strategy and corporate strategy, the key components of corporate strategy are as follows;
A strategic tradeoff is a delicate balance between risk and return. It requires you to critically analyze your company whether your company is achieving its goals or not. However, the key factors involved in the strategic tradeoff are as follows;
- Making various business units independent
- Invest resources to differentiate your product in some areas, and remain the same in the other
- Be aware of the strategy you’re implementing and its expected risks
- You should know when to copy and when to differentiate and modify
- Product differentiation involves a lot of risks, and it is either win or lose situation
The higher return involves taking a higher risk. However, product differentiation and cost leadership are the long-term strategies that involve a lot of risks and it pays off in the long term.
- Monetary incentives are the main concerns of the managers and divisional heads
- The responsibilities of the risk-takers and the sales department should be different so that they could focus on their work
- Overlap short term and long term goals and manage them effectively
Management of Portfolio
Management of portfolio means developing such a correlation among various business units so that they could complement each other. Key elements in the management of the portfolio are as follows;
- Developing a balanced portfolio relevant to the market trends
- Creating new strategies in order to exploit more opportunities
- Diversifying the resources in order to reduce the risk and lower the risk correlation
- Make a decision about the business categories that you want to launch
- Structuring reporting and management system
- Choosing a suitable delegating authority
- Balancing between risk and obligations
- Integrating different business divisions and leaving no room for redundancies
- Transferring the commitment and responsibilities from the top level to the lower level
Resource allocation means managing the resources of the organization like people and capital. The management should utilize the resources in such a way that would improve the efficiency of the organization. They should know how, when, and where to allocate resources in what amount. Key elements in the resource allocation are as follows;
- Various business units should have sufficient talent to perform tasks
- Shifting the positions of managers at different departments relevant to the feasibility to check their performance
- Be aware of the strengths and weaknesses of the employees, so that you can allocate them accordingly
- Taking advantage of both internal and external opportunities, like efficiently allocating capital within the company and merger and acquisition
- Allocating capital within the organization in such a way that would add more value
- Capital and revenue
The company’s structure and workspace design should be professional and it should amplify productivity. The reporting system of the company should be centralized or decentralized. The key element of the organization design is as follows;
- The influence and say of various business divisions on the company’s strategy
- The chain of command and authority system for decisions
- The independence of various business divisions
Types of Corporate Strategy
Some of the main types of corporate strategy are as follows;
As the name implies stability strategy doesn’t intend to grow and develop the business. However, the company is happy with its current state and wants to stay the same. Businesses and companies earn stability through;
- Status Quo
Growth strategy means taking such course of actions that would increase the growth of your business in terms of revenue, profitability, market share, market penetration, etc. some of the main growth strategies are;
- Vertical Integration
- Horizontal Integration
- Basic Diversification
- Conglomerate Growth
- Cost-Effective Growth
- Adjacent Growth
It means reinventing your existing business resources that haven’t changed for a long time. Companies follow the re-investing strategy by upgrading to the latest technology. Anyways, some of the main reinvesting strategies are;
- Revolutionary strategy
- Evolutionary strategy
Retrenchment is a defensive strategy; here you stabilize the company’s position by selling out the weak units. Some of the main retrenchment strategies are;
How to Develop a Corporate Strategy
- The first step in developing a C strategy is by creating a vision and mission statement of the company. It would represent the company in public.
- Your goals and objectives should be clear. It means where you want to be and how you plan to reach there. The whole organization should be on the same page with the strategic plan you devise.
- The decision-making system should involve governing body and the entire management.
- The Board of directors and the top management should be on the same page relevant to the strategic plan. Therefore, it’s important that you should clearly describe the C strategy and its steps.
Example of Corporate Strategy
Porsche is one of the world’s top automobile companies. In the 1990s, the company faced great losses due to its obsolete engineering tech systems. The company hired a new CEO, Wendelin Wiedeking applied Japanese manufacturing techniques.
The company became specific about its product and target customer market. When Porsche introduced Cayenne to wealthy customers, then it was a huge hit. However, this strategy allowed the company to earn profit and win the competition.
Conclusion: What is a corporate strategy?
After an in-depth study of what is corporate strategy, the components, and types of C strategy, we’ve realized that C strategy defines the vision and future of the company. If you’re developing the C strategy, then you should be familiar with its various types, and how to use it in various situations.
Ahsan Ali Shaw is an accomplished Business Writer, Analyst, and Public Speaker. Other than that, he’s a fun loving person.