Strategies at various levels of management
Corporate Strategy
- Corporate strategies represent the highest level of strategy within an organisation. They define the organisation’s overall direction and provide a high-level framework for achieving its objectives. Typically, a select group, including the CEO and top management, is responsible for crafting these plans.
- Generally, this group is involved because they deeply understand the company and the strategic business knowledge needed to steer the organisation in the right direction.
- A corporate strategy typically has a broader scope than other strategy levels. Strategies at this level tend to be more conceptual and forward-looking than business and functional-level strategies. They usually encompass a timeframe of 3 to 5 years.
A corporate strategic plan generally encompasses the following:
- The vision for the organisation
- The company’s values
- The Strategic Focus areas
- The strategic objectives
- The most important KPIs
Example 1: Apple Inc.’s corporate strategy includes the vision of creating innovative products, their core values, strategic focus areas like user experience, and specific objectives such as market leadership in technology.
Example 2: Google’s corporate strategy emphasises values such as “Don’t be evil,” focusing on developing search and advertising technologies, and sets specific objectives for expanding market reach.
Business Strategy
- The business-level strategy is the second level in the hierarchy of strategies, positioned beneath the corporate strategy. It functions as a method to attain the specific objectives of individual business units. This level of strategy is especially pertinent for organisations that consist of multiple business units.
- In cases where an organisation has multiple business units selling products or services across different industries, business-level strategies should be developed by the heads of these business units and middle managers within each unit.
It is crucial to involve managers from various units in the strategy process because:
A. It increases buy-in:
Managers who have had the opportunity to contribute to the creation of the strategy feel involved in the decision-making process. Consequently, they are more inclined to embrace the strategy and actively participate in its execution.
B. It improves ownership:
When employees have the chance to contribute to strategy development, they are more inclined to take ownership of its successful execution.
Example 1: Starbucks, a global coffeehouse chain, has a business strategy to expand its product offerings beyond coffee by introducing new items like food, merchandise, and digital services.
Example 2: Amazon’s business-level strategy includes diversifying into various business units, such as e-commerce, cloud computing, and streaming services, to capture a broader market.
Functional Strategy
- Functional strategy operates at the operational end of an organisation. It involves decisions made by employees and is often described as tactical decisions. These decisions focus on how various functions of an organisation contribute to the higher-level strategies. Functions include marketing, finance, manufacturing, and human resources.
- The functional strategy provides specific objectives for each function. It guides day-to-day work, ensuring the organisation moves in the right direction. The functional strategy level is probably the most essential level of strategy, as it influences daily operations and provides alignment with higher-level goals.
Example: Toyota’s functional strategy in manufacturing focuses on implementing lean manufacturing principles and continuous improvement to achieve high-quality production.
Types of Strategies
- Corporate Strategy
- Concentration Strategy
- Integration Strategy
- Diversification Strategy
- Retrenchment Strategy
1. Corporate Strategy
A corporate strategy is a multi-level strategy a company employs to define its goals, structure, and approach to attain them. Depending on the size and nature of the business, the strategy may be formed to increase profits, sell a business, or expand to new markets. It aims to achieve the most profitable allocation of resources and organisational structure.
Example: Microsoft’s corporate strategy includes diversifying its software and services portfolio to include cloud computing and artificial intelligence, aiming to remain a technology industry leader.
Importance of a corporate strategy
A corporate strategy is crucial because it can provide insights into the company’s future success and overall health.
Here are some reasons why a corporate strategy is essential:
- More significant company overview: This strategy centres on the entire company rather than individually considering each business unit.
- Organisational rearrangement: It can help re-engineer an organisation radically if required.
- Problem identification: A corporate strategy helps identify existing or potential problems in an organisation that could impede its ability to achieve its goals.
- Prevent counterproductive measures: It can help prevent the implementation of any other plan or strategy that can be counterproductive or not viable for the company’s healthy growth.
- Guidance for business strategies: A corporate strategy gives a starting point to build individual business unit strategies.
- Contingency plans: It can help the company create appropriate contingency plans to implement when needed.
Example 1: Coca-Cola’s corporate strategy prioritises market expansion, diversification of beverage offerings, and sustainability practices, helping it maintain its position as a global beverage leader.
Example 2: Tesla’s corporate strategy focuses on innovation in electric vehicles, solar energy, and energy storage, positioning it as a leader in sustainable transportation.
Types of corporate strategies
The primary aim of formulating a corporate strategy is to distribute its resources in the best way to derive maximum returns and achieve the company’s goals.
Here are the different types of corporate strategy:
A. Stability strategy
A stability strategy is often preferred by many companies that are currently satisfied with their market position.
They continue to delve into the same market and sell the same product. Still, they may incorporate research, development, and innovation into existing products. This type of strategy ensures a continuous flow of revenue. The company may try to engage their target market by presenting offers and trials.
Example 1: The Steel Authority of India has adopted a stability strategy because of overcapacity in the steel sector. Instead, it has concentrated on increasing its various plants’ operational efficiency rather than expanding. NTPC and ONGC have also adopted a stability strategy instead of expansion.
Example 2: McDonald’s stability strategy involves maintaining a consistent menu while occasionally introducing new products and promotions to keep customers engaged.
B. Expansion strategy
The expansion strategy suits a firm that has already established its foothold within a certain market and aspires to grow in other markets or expand its product offerings. They may want to develop and sell new products, increase their market share or internationalise a business that has already saturated the domestic market. Expansion may involve the diversification of the business functions and, thus, a more significant allocation of resources. This strategy results in greater returns compared to the company’s previous performance. It can also mean more growth opportunities for the employees.
Example 1: A restaurant chain opens new locations in cities or countries.
Example 2: Apple’s expansion strategy includes entering new markets, such as wearables and digital services, to diversify revenue sources and enhance its ecosystem.
C. Retrenchment strategy
Sometimes, an organisation retreats from its current position or performance to prevent itself from becoming insolvent. This may occur during an economic recession or crisis or if the initial business plan fails to produce the desired results. A company may implement a retrenchment strategy at various levels and in different business areas. For example, a company may decide to completely stop the production of a particular product and thus eliminate all associated costs. This can reduce the number of employed staff or its fixed assets and variable costs.
Example 1: Mahindra and Mahindra sold off its M-Seal brand of adhesives to Pidilite (makers of Fevicol).
Example 2: General Electric’s retrenchment strategy involves divesting non-core businesses, such as appliances, to focus on core industries like aviation and healthcare.
D. Combination strategy
A combination strategy encompasses elements from the three preceding types: stability, expansion, and reduction. A company opts for a combination strategy after thoroughly evaluating the advantages and disadvantages of each product or business unit. In cases where the retrenchment strategy proves beneficial for certain businesses that are not yielding sufficient returns compared to the effort and costs involved, it is employed. Meanwhile, other products or businesses performing well can receive additional support through an expansion or stability strategy.
Example 1: Reliance Industries started as a manufacturer of textiles. However, due to inefficiencies in distribution within the market, the company was forced into opening retail stores for its products using the trade” Vimal”.
Example 2: Procter & Gamble’s combination strategy combines stability in its core brands (like Pampers) with expansion into new product categories to capture various consumer needs.
2. Concentration Strategy
A concentration strategy involves focusing on a specific group of clients, a particular product, or a specific geographic market. The primary goal is to allow the business to concentrate its efforts on expertise, innovation, and efficiencies within the chosen area of concentration.
Examples 1: McDonald’s, Starbucks, and Subway are three companies that heavily depend on concentration strategies to establish themselves as dominant players.
Example 2: Nike’s concentration strategy focuses on athletic footwear and apparel, allowing it to dominate the sports apparel market.
There are three sub-strategies:
- Market Penetration
This concerns acquiring a more significant percentage of the existing market for the firm’s current products. This is typically done through extensive marketing campaigns.
Example: Samsung’s market penetration strategy involves aggressive marketing campaigns and partnerships to gain a larger smartphone market share.
- Market Development
This involves selling existing products in new markets. One popular approach to entering new markets with existing products is exploring new sales channels.
Example 1: A brick-and-mortar retail store might enter a new market by selling online.
Example 2: Amazon’s market development strategy includes expanding into new geographical regions to reach untapped customer segments.
- Product Development
This involves creating new products to sell or deliver within the existing market. These products or services offered may be related. The critical aspect is that they are new to the company and cater to the products within their current market space.
Example: Apple’s product development strategy introduces new iterations of iPhones and MacBooks to cater to evolving customer preferences.
3. Integration Strategy
Integration strategies are methods that businesses employ to improve their competitiveness, efficiency, or market share by extending their presence into new domains. These areas may encompass aspects like supply, distribution, or competition. Each area requires a different integration strategy, and there are several types that businesses can use.
Example 1: ExxonMobil: Most oil companies, such as ExxonMobil, adopt a vertically integrated model and own the entire supply chain. The company’s Upstream unit explores, develops, and produces oil; the Downstream unit refines, markets, and transports it.
Types of Integration Strategies
The two main types of integration strategies are vertical and horizontal. Companies can pursue each strategy in multiple ways.
- Vertical integration
Vertical integration occurs when a company gets control over its product’s production or distribution processes. This allows the company to expand its power in the market by lowering its costs and increasing the reach of its product. A company can pursue this strategy in three primary ways.
Integration strategies are methods that businesses employ to improve their competitiveness, efficiency, or market share by extending their presence into new domains. These areas may encompass aspects like supply, distribution, or competition.
- Backward integration:
Backward integration occurs when a business gains control over its product’s supply chain by integrating with its suppliers or producing intermediate goods.
- Forward integration:
A company pursues forward integration when it gains control over the distribution of its finished product.
- Balanced integration:
A company may want to gain the advantages of backward and forward strategies. If it does, it can pursue balanced integration.
Example: Apple’s vertical integration involves control over the entire product lifecycle, from designing processors to retailing products.
- Horizontal integration
Horizontal integration is another competitive strategy that businesses use to increase their power in the market. Unlike vertical integration, horizontal integration involves gaining control over other companies that provide similar products or services. This helps the business increase in size or expand into a new area or market.
Example 1: One of the most notable examples of horizontal integration was Facebook’s acquisition of Instagram in 2012 for a reported $1 billion. Both companies operated within the same industry (social media) and had similar production stages in their photo-sharing services.
Example 2: Facebook’s horizontal integration includes the acquisition of Instagram to strengthen its presence in the social media industry.
4. Diversification Strategy
Diversification is a strategy to expand market share or enter new markets by launching or acquiring new products or services. This can involve licensing, mergers, or acquisitions and often focuses on innovation and market disruption.
Example 1: An example of a diversification strategy is General Electric. Initially, the company primarily focused on electrical goods. However, over the years, they expanded their operations by acquiring and creating businesses in various industries, including aeronautics, rail, power plants, gas, and kitchen appliances.
Example 2: Alphabet Inc. (Google’s parent company) diversifies its portfolio by investing in companies related to artificial intelligence, autonomous vehicles, and life sciences.
Types of Diversification Strategy
Diversification strategies are of 3 types.
- Concentric diversity
Concentric diversity is a growth strategy that involves introducing new or acquired products closely related to existing products or the company’s core competencies. This approach enables the company to utilise its resources and leverage its strengths when introducing a new product. Typically, these new products closely relate to existing products or product lines, capitalising on brand awareness and customer loyalty. It commonly targets previously identified market segments that have not been fully addressed.
Example 1: When Coca-Cola launched its bottled water, it used concentric diversification. However, even though the products use related technology, the marketing efforts often differ. You can also use operational competence to achieve concentric diversification.
Example 2: Disney’s concentric diversification includes acquiring companies like Pixar and Marvel, which align with its entertainment core.
- Horizontal diversification
Horizontal diversification involves introducing new products to a new market segment, often forming a new business. However, these new firms and products are designed to appeal to an existing customer base. Similar to concentric diversification, the latest products closely relate to existing products. Success in this strategy relies heavily on customer loyalty for existing products transferring to the new products and business. For example, a company specialising in laundry detergent, Company A, may venture into the market to sell washing machines. Customers’ recognition and loyalty for the detergent may extend to the washing machine business.
Example 1: The Tata Group is present in the Air Asia and Vistara aviation industry. This is an excellent example of horizontal diversification. Vertical diversification, too, entails companies expanding their operations from one area of the market to another.
Example 2: Samsung’s horizontal diversification involves entering markets like home appliances and semiconductors to complement its consumer electronics business.
- Conglomerate diversification
Conglomerate diversification entails launching new products or product lines that have no direct relation to the company’s existing products, resources, or core competencies. In this strategy, the company typically aims to capitalise on any existing brand recognition or customer loyalty in the new market. For instance, consider Company A, which primarily sells electronics but decides to enter the clothing and apparel market.
A transnational firm aims to find a middle ground between a multi-domestic and global strategy. This approach involves striving for cost efficiency while adapting to local preferences in different countries.
Example 1: Prominent fast-food chains like McDonald’s and Kentucky Fried Chicken (KFC) maintain consistent brand names and core menu items across the globe. However, they also make adjustments to cater to local preferences. For instance, in France, McDonald’s offers wine on its menu, aligning with the French tradition of wine consumption, which is integral to their culture. In Saudi Arabia, McDonald’s serves a McArabia Chicken sandwich, and its breakfast menu excludes pork products like ham, bacon, or sausage, respecting local dietary preferences and customs.
Example 2: Berkshire Hathaway’s conglomerate diversification includes investments in diverse industries like insurance, energy, and retail.
5. Retrenchment Strategy
A retrenchment strategy helps an organisation reduce operations or cut expenses to achieve financial stability. It is typically adopted in response to economic downturns, losses, or legal issues. There are three types: liquidation, turnaround, and divestment.
Example: IBM implemented a turnaround strategy by refocusing on its core strengths in cloud computing and artificial intelligence, shedding non-core businesses.
Types of Retrenchment Strategy
- Liquidation
An organisation sells off its assets or closes a business unit in liquidation. Liquidation is the worst form of retrenchment strategy and causes loss of business, opportunity, employment, and brand recognition.
Businesses opt for this strategy due to continuous loss, unstable political conditions, corporate conflicts, poor management, and other factors.
Example: Borders Group adopted liquidation when it faced bankruptcy, closing all its stores.
- Turnaround
Turnaround is retreating from previously incorrect decisions and turning a loss-making business unit into a profitable one.
Businesses often ignore some operations or units, causing them to sink into losses. However, they use a turnaround retrenchment strategy to bring the loss-making unit back on track when they realise their mistakes.
Example: Ford employed a turnaround strategy to recover from financial losses by restructuring and introducing successful vehicle models.
- Divestment
In divestment, the organisation downsizes its operations or sells a business unit to focus on its core issues and uses the money to grow its core business.
Note that divestment is different from liquidation. In liquidation, an organisation sells its unit and closes the door, while in divestment, they sell a non-strategic business and get money for strategic investment in their core business.
Example: General Motors used divestment by selling its unprofitable European operations to focus on its core North American market.
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