A corporate strategy entails a clearly defined, long-term vision that organizations set, seeking to create corporate value and motivate the workforce to implement the proper actions to achieve customer satisfaction. In addition, corporate strategy is a continuous process that requires a constant effort to engage investors in trusting the company with their money, thereby increasing the company’s equity. Organizations that manage to deliver customer value unfailingly are those that revisit their corporate strategy regularly to improve areas that may not deliver the aimed results.
Corporate strategy is hierarchically the highest strategic plan of the organization, which defines the corporate goals and ways of their achieving within strategic management.
The role of corporate strategy is to ensure that the value of the enterprise as a whole is more than the sum of its parts. Corporate strategy is an ongoing process—particularly given today’s volatile competitive environments. Consistently delivering value creation that outpaces peers demands that organizations enhance their capabilities and regularly revisit their strategies.Developing a winning corporate strategy requires a relentless focus on value creation—and thoughtful attention in three important areas.
- First set a clear, shared, long-term vision that motivates the team and engages investors. Where do we want to be in five or ten years?
- Then define a portfolio strategy to realize the vision. Which businesses should we be in? Where should we expand and where is it best to divest?
- And finally, establish the corporate policies and processes that reflect the corporation's parenting approach. How do we link strategy to value creation?
Types of Corporate Strategy
- Expansion strategy: Increasing the scope of business definition of single or more than one businesses. For Example - ADAG Communications, Infrastructure, Financial services, Entertainment, Power, Natural resource, Petrochemical ,Health care, BPO
- Stability Strategy: Marginal change in business definition to improve its performance. For example - a hospital brings new heart surgical technology( change in technology) New Horlics with new supplements.( change in product or customer function), A bank provides special treatment to its industrial account holders (new approach to customer group)
- Retrenchment Strategy: Total or partial withdrawal from one or more businesses. For Example - Only specialty treatment by a hospital instead of general treatment earlier.
Combination Strategy: Adapting strategy based on market conditions
Why Corporate Strategy
Strategic management is basically needed for every organization and it offers several benefits.
- Universal:Strategy refers to a complex web of thoughts, ideas, insights, experiences, goals, expertise, memories, perceptions, and expectations that provides general guidance for specific actions in pursuit of particular ends. Nations have, in the management of their national policies, found it necessary to evolve strategies that adjust and correlate political, economic, technological, and psychological factors, along with military elements. Be it management of national polices, international relations, or even of a game on the playfield, it provides us with the preferred path that we should take for the journey that we actually make.
- Keeping pace with changing environment: The present day environment is so dynamic and fast changing thus making it very difficult for any modern business enterprise to operate. Because of uncertainties, threats and constraints, the business corporation are under great pressure and are trying to find out the ways and means for their healthy survival. Under such circumstances, the only last resort is to make the best use of strategic management which can help the corporate management to explore the possible opportunities and at the same time to achieve an optimum level of efficiency by minimizing the expected threats.
- Minimizes competitive disadvantage: It minimizes competitive disadvantage and adds up to competitive advantage. For example, a company like Hindustan Lever Ltd., realized that merely by merging with companies like Lakme, Milk food, Ponds, Brooke bond, Lipton etc which make fast moving consumer goods alone will not make it market leader but venturing into retailing will help it reap heavy profits. Then emerged its retail giant “Margin Free’ which is the market leader in states like Kerala. Similarly, the R.P. Goenka Group and the Muruguppa group realized that mere takeovers do not help and there is a need to reposition their products and reengineer their brands. The strategy worked.
- Clear sense of strategic vision and sharper focus on goals and objectives: Every firm competing in an industry has a strategy, because strategy refers to how a given objective will be achieved. Strategy’ defines what it is we want to achieve and charts our course in the market place; it is the basis for the establishment of a business firm; and it is a basic requirement for a firm to survive and to sustain itself in today’s changing environment by providing vision and encouraging to define mission.
- Motivating employees: One should note that the labor efficiency and loyalty towards management can be expected only in an organization that operates under strategic management. Every guidance as to what to do, when and how to do and by whom etc, is given to every employee. This makes them more confident and free to perform their tasks without any hesitation. Labor efficiency and their loyalty which results into industrial peace and good returns are the results of broad-based policies adopted by the strategic management
- Strengthening Decision-Making: Under strategic management, the first step to be taken is to identify the objectives of the business concern. Hence a corporation organized under the basic principles of strategic management will find a smooth sailing due to effective decision-making. This points out the need for strategic management.
- Efficient and effective way of implementing actions for results: Strategy provides a clear understanding of purpose, objectives and standards of performance to employees at all levels and in all functional areas. Thereby it makes implementation very smooth allowing for maximum harmony and synchrony. As a result, the expected results are obtained more efficiently and economically.
- Improved understanding of internal and external environments of business: Strategy formulation requires continuous observation and understanding of environmental variables and classifying them as opportunities and threats. It also involves knowing whether the threats are serious or casual and opportunities are worthy or marginal. As such strategy provides for a better understanding of environment.
Corporate Strategy Framework (see figure below)
In developing corporate strategy, the first task is therefore to assess the current level of fit between the characteristics of the parent and its businesses (Exhibit 2). What is different and unusual about the parent? How do most senior managers think about their roles? What „mental maps“ do they have regarding business success, appropriate responses to problems, and the nature of unexploited opportunities in the businesses? What systems and processes link the parent with its businesses and how are they used in practice? Understanding the characteristics of theusinesses is equally important. In contrast to traditional portfolio matrix views, our focus is not on the businesses per se (such as whether they are in growth areas or have advantaged positions), but on the influence, positive and negative, that a parent is likely to have on them. All businesses will have some improvement opportunities, but which of these opportunities could be realized only with the help of a parent? What is the underlying reason why business-level managers need help in addressing a particular opportunity? What is the nature of the help they need? Successful parents have clear insights regarding these questions, but there is no magic formula. Different parents have different insights: the chosen role of the parent at Canon is completely different from that of Hanson or Unilever. However, successful parents all seem to focus on a small and internally consistent set of insights that enable them to become specialists. This contrasts significantly with less successful parents, which are less focused and less clear about their own roles. While they attempt to add some value through budget reviews, an„informed second opinion,“ or the pursuit of general synergies, in reality their intervention is often unhelpful or distracting. Without specific insights about how it can add value, the parent is likely to destroy it. But simply having insights is not enough. The fit must extend from intention to behavior. BTR, a widely diversified international group, provides an example. While many companies may share BTR’s insights about improving attention to productivity and product profitability in mid-tech, stable businesses, few have the relevant parenting characteristics to deliver against these aspirations. BTR itself has developed skills and tools that make it unusually capable in this particular role. Its profit-planning system, ratio packages, and review process have been fine-tuned over many years. Of equal importance is its cadre of battle-hardened group chief executives – a resource that is hard for others to replicate. The company’s culture is noted on the boardroom clock: "Think of rest and work on."
source: Arthur D Little
The Importance of Corporate Strategy
The importance of a corporate strategy hinges on its being an effective means to allocate a company’s resources, establish business expectations and improve a company’s competitive position, as well as increase shareholder value to something beyond the sum of its physical assets.
- Allocates Company Resources: A corporate strategy is a tool a company uses to limit the allocation of its resources to the best available business investment opportunities. During strategic planning and budgeting processes, a company assesses the performance of each business unit. Based on its findings, the company acquires and divests assets and revises resource allocations. Leaders allocate company resources according to the desirability of each business unit’s market opportunities, which determines its planning priorities.
- Establishes Expectations: A company conveys its corporate strategy to individual business units to drive performance and establishes the expectations of internal and external stakeholders, or those with an interest in the success of a company. Corporate objectives focus on key areas, such as market standing, productivity and profitability, for which measurable objectives are set, such as achieving a particular market share or financial return on investments. It’s through expectations that stakeholders align their activities with strategic goals and assume particular roles to ensure a corporate strategy is carried out successfully.
- Improves Competitive Position: The corporate strategy is concerned with a company’s growth and profit performance. Consequently, the strategy decides the businesses in which a company competes and how the business units structure and manage their activities to improve a company’s competitive position.
- Adds Shareholder Value: Relying on a company strategy, business units can increase investor value to something beyond the sum of its physical and intellectual assets. By making rational strategic choices about the business a company plans to pursue, the allocation of its resources, the use of organizational capabilities and business unit competitive advantages, the probability increases that business unit activities succeed in increasing a company’s value.
Corporate Strategy vs, Business Strategy
The fundamental differences between corporate and business strategy are explained in the points here under:
- Business Strategy can be viewed as the strategy designed by the business managers to improvise the overall performance of the firm. On the other hand, Corporate Strategy is the one expressed in the mission statement of the company, which describes the business type and ultimate goal of the organization.
- Business Strategy is framed by middle-level management which comprises of division, unit or departmental managers. Conversely, corporate strategy is formulated by top level managers, i.e. board of directors, CEO, and managing director.
- The nature of business strategy is executive and governing, whereas the corporate strategy is deterministic and legislative.
- While the business strategy is a short term strategy, corporate strategy is a long term one.
- The business strategies aim at selecting the business plan to fulfil the objectives of the organization. As against, the corporate strategy focuses on the business selection in which the company wants to compete in the marketplace.
- Business strategy is concerned with a particular unit or division. Unlike corporate strategy which focuses on the entire organization, comprising of various business units or divisions.
The business strategy focuses on competing successfully in the market place with other firms. On the contrary, corporate strategy stresses on increasing profitability and business growth.
- Business Strategy has an introverted approach, i.e. it is concerned with the internal working of the organization. In contrast, Corporate Strategy uses extroverted approach, which links the business with its environment.
- At the business level, strategies which are employed by the organization includes, Cost Leadership, Focus and Differentiation. On the other hand, at the corporate level, the strategies used are Expansion, Stability and Retrenchment.
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- The Need for Corporate Strategy Pondicherry University
- Corporate Strategy Framework Marcus Alexander, Andrew Campbell, and Michael Goold
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- Key Differences Between Business Strategy and Corporate Strategy Differences
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- How to Evaluate Corporate Strategy Seymour Tilles
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- Great Corporate Strategies Thrive on the Right Amount of Tension Carsten Lund PedersenThomas Ritter