Corporate Strategy: The Four Key Components
by Tom Wright, on Jul 31, 2019 5:49:27 PM
What is corporate strategy?
Corporate strategy is arguably the most essential and broad ranging strategy level within organizational strategy. The corporate strategy level concerns itself with the entirety of the organization on a more or less abstract level, where decisions are made with regard to the overall growth and direction of a company. For context, other strategy levels include business strategy and functional strategy - more on those later!
In more concrete terms, the main components of corporate strategy are:
- Objective Setting
- Allocation of Resources
- Strategic Trade-offs (Prioritization)
Visioning involves setting the high-level direction of the organization - namely the vision, mission and potentially corporate values.
Objective Setting involves developing the visioning aspects created and turning them into a series of high level (sometimes still rather abstract) objectives for the company, typically spanning 3-5 years in length.
Allocation of resources refers to decisions which concern the most efficient allocation of human and capital resources in the context of stated goals and aims.
Strategic trade-offs are at the core of corporate strategy planning. It's not always possible to take advantage of all feasible opportunities. In addition, business decisions almost always entail a degree of risk. Corporate level decisions need to take these factors into account in arriving at the optimal strategic mix.
What are the three strategy levels?
As we noted earlier, a complete organizational strategy is divided into three distinct levels, based on the concerns and goals of the three hierarchical elements which make up an organization - at the corporate level, the business level, and the functional level.
As we’ve already taken a brief look at the corporate strategy level, it’s useful to understand the other strategic levels as they pertain to corporate strategy.
The business strategy level is the strategic level which mediates the abstract strategic goals which underpin corporate strategy, with the needs and capacities of the business unit level, for organizations with more than one business unit.
The business strategy level takes a corporate level strategic goal such as 'increasing market share in a given region or demographic', and turns it into a more fine-grained, practical strategic goal based on business level knowledge and experience.
The functional level is the most granular level of strategy - the realm of practical decisions and concerns which are less relevant at the business or corporate strategic levels. At the functional level, strategies and goals from the business and corporate level are turned into meaningful, functional results which ultimately determine outcomes for a business.
By way of example, the functional level of a telecom company like Vodafone might be comprised of district or even store managers. At this level of strategic planning, general strategic goals are reduced to concrete strategic measures.
It is important to note that while on a hierarchical level, corporate strategy can be viewed as the topmost level of the corporate planning process, each level of decision making involves two way influence.
Taking the example of a manufacturing business, corporate strategy will necessarily be influenced by functional strategic concerns such as R&D and marketing, which will in turn be impacted by the productive capabilities of the functional strata such as capital and personnel.
For an explanation of how to apply strategy levels in your business, click here.
What are the benefits of corporate strategy?
Now that we’ve taken a look at the elements that comprise corporate strategy, and the manner in which it relates to other strategy levels, you might well be left wondering
“What are the benefits of corporate strategy for my business?”
Ultimately, the benefits of well defined corporate strategy for an organization increase as the organization scales. While it may well be possible for a small or even medium sized businesses to get by without investing time in developing corporate strategy. But as the needs of an organization grow and evolve, it becomes increasingly necessary to attack the strategic planning process in a manner which reflects the complexity of that organization.
That said corporate strategy offers a number of benefits for any organisation, regardless of scale.
Corporate strategy offers your business strategic direction. Without differentiation between the abstract needs and goals of an organisation which are evident at a corporate strategic level, and the core competencies and resources which business and functional units can utilize to realize these goals, it is difficult to develop and grow a business.
In addition, corporate strategy allows us to manage change and better understand our organizations. In a dynamic world, organizations need to keep pace with changes as they happen - by continually defining corporate strategy and strategic goals in relation to opportunities or threats as they present themselves, corporate strategy allows us to perform optimally.
Finally, by defining a clear corporate strategy organizations can improve decision making and motivate their employees. Without clearly defined strategies at a corporate level, business and functional level units will perform sub-optimally. The abstract level of decision making that is only possible at the corporate level will translate to better results at other decision making levels, and help employees to feel that their organisation has a clear direction and purpose.
How is corporate strategy implemented?
As noted, corporate strategy is characterized by its dynamic nature. In response to the needs and the environment of a business, corporate strategy must reflect an optimal approach to these variables.
With this in mind, it is helpful to divide corporate strategy into three possible classifications based on external and internal factors.
Growth strategies are strategies designed to grow a business in a given way. Growth strategies might include entering new markets, increasing or diversifying existing ones, or using forward or backward integration to take advantage of economies of scale.
Stability strategies are designed to consolidate an organization's current position, with an eye towards creating a strategic environment which will provide greater flexibility for the future employment of growth or retrenchment strategies. Stability strategies are more conservative strategies, focused on preserving profit, reducing costs and investigating future strategic possibilities.
Retrenchment strategies are a response to unprofitable or damaging elements of a business or organisation. These might include the elimination or sale of unprofitable assets or product lines.
What should my corporate strategy model look like?
There are a number of different models which can be applied to the strategic planning process, each with their own merits.
Corporate strategy planning is the topmost level of strategic planning within a business or organisation. As a result, the corporate planning process is the most sophisticated level of strategic planning, and must take into account a huge number of variables.
Defining a vision
Reducing this complexity is a must. Corporate planning starts with defining an abstract vision or overarching goal, based on the current organization and the environment in which it exists. This vision will provide a point of reference against which goals and strategies can be measured.
For a more in depth explanation of the process of developing a vision statement, check out this article.
Describe your company’s values
The vision statement of your organisation is a destination. Company values describe the manner in which you will arrive at this destination. The values that you outline should be clear, concise and above all real. The process of ascertaining and defining your company values is outlined here.
Choose focus areas
Focus areas can be thought of as the pillars on which corporate planning is based. The abstract ideas represented in your vision statement and company values are here applied to choose areas in which your company can act in order to effect its stated goals.
Once a clear vision has been defined and areas of focus selected, corporate strategists must outline definable objectives which will represent a more concrete and specific example of what you want to achieve, with stated deadlines and objectives. For a more in depth explanation of the process of defining specific objectives, check out this article.
Note that you might have several different levels of objectives aligned to each other at your corporate strategy level.
The corporate planning process ends with the definition of KPIs which will allow corporate strategists to understand and adjust strategy based on results.
Note: We've deliberately omitted 'Projects' from our corporate strategy model. This is because projects should not generally exist in a corporate strategy. Instead, projects would commence at either the business level or the functional level of your strategy.
Corporate strategy is at the pinnacle of organizational strategy
Corporate strategy provides your company with the essential conceptual tools required to succeed in competitive markets. Taking the time to understand corporate strategy, as well as organizational strategy as a whole, will quickly yield benefits that are quantifiable, as well as offering insights into the operation of your organization as a whole.
For more information on corporate strategy, and the strategic planning process in general, check out our eBook: “How to write a strategic plan”