What is Corporate Strategy?
A corporate strategy refers to a companywide strategy aligned with the company’s vision and objectives, aiming to create value and increase profit. It considers an organization’s overall nature, ecosystem, and ambition. It aligns with the optimum utilization and allocation of resources.
It can work as a blueprint for the whole organization to minimize risk and maximize the growth and expansion of the organization by bringing effective administration, management, and centralization of business operations. Furthermore, it aims to attain long-term growth by gaining competitive advantages.
Table of contents
- Corporate strategy definition portrays it as strategies applied at various levels of an organization concerning its goals and long-term growth.
- It is a structural approach to maximize its profit and provides a complete overview helpful in problem identification and control of operations.
- There are four types: stability, combination, retrenchment, and expansion strategy.
- It is different from the business strategy because business strategy surrounds and focuses on a specific business unit.
Corporate Strategy Explained
Corporate strategy portrays a general strategy in a company and focuses on its business portfolio to add more value. Its planning involves focusing on the organization’s structure and identifying the problems in different business areas. The responsibility for appropriate strategy formulation lies with the top-level managers of the company. They discuss, analyze and finalize strategies to move forward in the market.
The main pillars of corporate strategy are the allocation of resources, organizational design, portfolio management, and prioritization (strategic trade-off). Resource allocation involves the efficient allocation of human and capital resources. Organizational design explains how the organization operates to achieve its aims. Portfolio management strategies involve optimizing the portfolio per the company’s strategic objectives. Finally, prioritization or strategic trade-off demands the design of an optimal strategic mix by balancing risk and return to meet the company’s objectives.
Financial Modeling & Valuation Course (25+ Hours of Video Tutorials)
Common types of the corporate strategies are the following:
- Strategy to maintain the current market share and position by continuing to serve in the same industry with the same product line and services.
- It occurs when a company performs fairly and reasonably well in its sector and chooses to gain stability.
- The main objective of organizations through such strategies is to gain perpetual growth and improved performance in the long run.
- It is common because it is less risky and inexpensive as no new or out-of-box planning needs to be executed.
- It gives importance to sustainable and modest growth.
- The strategies focus on entering new markets, innovating and introducing new products and services, etc.
- Methods include expansion through concentration, diversification, integration, cooperation, and internationalization.
- It aims to expand market share, obtain increased profit, and achieve faster growth.
- It helps companies dominate the market, withstand competition, gain competitive advantages, and in certain market conditions, expansion strategies help companies survive.
- It benefits society through innovation.
- It is highly rewarding and adds value to the company.
- It is the opposite of an expansion strategy. It helps reduce the loss made by restructuring the strategies, cutting off loss-making divisions or businesses, etc.
- The main types of retrenchment strategies are turnaround, divestment, and liquidation.
- It is formulated when companies observe that they must revamp their business model, sell certain assets to generate cash flow, etc. Enterprises may stop a product line due to low demand and high-cost manufacturing.
- It is the least utilized strategy as it is only regulated as protective measures in a survival mode when the company faces a strong market crisis and seeks to regain profitability.
- Another important type of corporate strategy is the combination strategy. It occurs when a company combines other strategies instead of focusing on a single strategy.
- It is common with entities like MNCs and other large organizations. When the different business units or divisions perform different activities, the parent entity will utilize different strategies for the units.
- The acquisition of Instagram by Facebook in 2012 for $1 billion exemplifies a form of expansion strategy using horizontal integration. It was an important corporate strategy for Facebook since it successfully erased one of the market competitions. In addition, Facebook continues to make strategic acquisitions. For example, Facebook acquired WhatsApp in 2014, paying $19 billion to buy WhatsApp. Another example of an expansion strategy from Facebook is the acquisition of CRTL-labs, a startup developing a wristband translating neuromuscular signals into digital signals or machine-interpretable commands hence controlling digital devices by the human brain. It helps Facebook to boost its brain-machine interface projects.
- Let’s consider the case of Walmart, one of the American MNCs famous for its chain of hypermarkets, discount department stores, and grocery stores. However, they are now focusing beyond the retail sector for future growth. Their expansion strategies include the launch of Walmart+, a subscription-based service offering various benefits like free shipping and unlimited grocery deliveries, opening 20 health clinics offering highly affordable medical services, and launching a fintech startup to offer affordable financial products.
Corporate Strategy vs. Business Strategy
|Corporate Strategy||Business Strategy|
|The whole organization is the subject||Surrounds a specific unit|
|It includes top-level decision-making to develop strategies in line with the company’s vision and objectives||Business strategies are developed at the business unit level|
|Streamlines the company in achieving its long-term objectives||Importance is given to achieving the objectives of business units|
|Designed for the company’s growth and profit||Designed to increase customer base and attain a competitive edge|
|The decision-making majorly involves the people from top-level management like the CEO, COO, and MD||The decision-making involves mostly middle-level managers|
|Long-term in nature||Short-term in nature|
|Expansion through vertical integration is an example||Product differentiation is an example|
In an organization, strategies are tiered into three sections: corporate, business, and functional. The corporate level is filled with the following:
– Stability strategy
– Expansion strategy
– Retrenchment strategy
– Combination strategy
It refers to a business unit of a large business or corporation, and it is managed separately. Strategic business units or SBUs are examples of profit centers and are responsible for making a profit by focusing primarily on product offerings and market segments.
Examples include vertical integration decisions, strategies to maintain current market share, acquisitions to enter a new sector, strategies to increase profit, and methods to reduce loss.
This has been a Guide to what is Corporate Strategy and its definition. We explain its levels, examples, types, and vs. business strategy. You can learn more from the following articles –