What is Corporate Strategy?
Corporate strategy concerns itself with the entirety of the organization, where decisions are made with regard to the overall growth and direction of a company. Corporate strategies are arguably the most essential and broad-ranging strategy level within organizational strategy.
The Components of Corporate Strategy are:
- Objective Setting
- Allocation of Resources
- Strategic Trade-offs (Prioritization)
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 strategic 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.
Use this free corporate strategy template to quickly start the development of your own corporate strategy.
The corporate, business and functional level strategies
A complete organizational strategy is divided into three distinct levels.
They are separated based on the concerns and goals of the three hierarchical organizational elements. It’s where they take their name as well:
The corporate strategy level refers to the highest level of strategic planning. In this article, we dive deeper into it, but it’s useful to understand the other strategic levels as well and how they are related.
The business strategy level is the strategic level that mediates the abstract strategic goals of the corporate strategy, with the needs and capacities of the business unit level.
It takes a corporate-level strategic goal and turns it into a practical strategic goal based on business-level knowledge and experience.
The functional strategy 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.
For example, the functional level of a telecom company like Vodafone might be a district or even a store. At this level of strategic planning, general strategic goals are reduced to concrete strategic measures.
Corporate strategy vs Business strategy
Every company has a corporate level strategy, no matter its size.
That’s not true for the business strategy level. Only organizations big enough to have multiple business units should be concerned with a business strategic plan.
It’s not that it doesn’t benefit other organizations, it just merges with the functional strategy level.
The business strategy is the first grounding attempt to the company’s strategic plan. It inserts the first dose of reality and challenges the corporate strategy from the context of the capacity and the needs of the business units.
To move from corporate planning to business planning is to take a step from the abstract plane towards the concrete reality.
How the three strategy levels relate to each other
The information flow on the three strategy levels is not unilateral.
While there is a hierarchical order, each level of decision making involves two-way influence.
Take, for example, a manufacturing business. A 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.
Understanding how the three strategy levels communicate helps you build a solid strategic plan.
What are the benefits of a Corporate Level Strategy?
The benefits of a well defined corporate strategy for an organization increase as the organization scales.
It’s possible for small or even medium sized businesses to get by without investing time in developing corporate strategy.
However, as the needs of an organization grow, it becomes increasingly necessary to attack the strategic planning process in a manner that reflects the complexity of that organization.
In the end though, corporate strategy benefits any organization, regardless of scale.
1. Corporate strategy offers your business strategic direction
Without differentiation between the abstract needs and goals of an organization which is 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.
2. Corporate strategy allows you to adapt
It increases the understanding of your organization. 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.
3. Corporate strategy improve decision making
It motivates your 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 organization has a clear direction and purpose.
How is Corporate Strategy Implemented?
Corporate strategy is characterized by its dynamic nature.
In response to the needs and the environment of a business, your corporate strategy must reflect an optimal approach to these variables. Thus, it’s helpful to divide corporate strategy into three 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 that 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 organization. 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 organization.
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 Mission
Reducing 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 for your mission and your mission will be a point of reference against which goals and strategies can be measured.
Follow our guide for an in-depth explanation of the process of writing a vision statement.
Describe Your Company’s Values
The vision statement of your organization 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. To get a good sense of the process of ascertaining and defining your company values, read our guide.
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 the strategic objectives.
They will represent a more concrete and specific example of what you want to achieve, with stated deadlines and objectives.
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 track and adjust the strategic objectives 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 planning 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 plan a well structured corporate strategy will quickly yield benefits that are quantifiable and provide insights into the operation of your organization as a whole.
Download our guide on “How to write a strategic plan” that hundreds of companies use to kick off the development of their organizational strategy.