Corporate Level Strategy Guides the Organization as a Whole

Corporate level strategy covers the strategic scope of the organization as a whole. For most organizations, the corporate strategic plan is the only strategic plan required.

Often strategy at the corporate level is simply referred to as corporate strategy, or in unified companies the corporate business strategy.

The process that produces it is called corporate strategic planning, or sometimes simply corporate planning.

In a few situations however, it may be justified to speak of corporate level strategy to distinguish it from other kinds of planning.

Strategy Levels

In the first case, the organisation may be multidivisional in nature to the extent that in principle or even in law, separate parts of the enterprise could operate as viable entities in their own right.

These ‘group structures’ may undertake strategic planning as group exercise where under the corporate level strategy, each separate subsidiary or division has its own strategic planning process and strategic plan. In these cases however, one of the most significant inputs to each divisions’ strategic planning is the output of the corporate strategic planning. These outputs from corporate level strategy are usually in the form of performance targets for the divisions. The subsidiary units cannot ignore them.

The corporate business strategy may also set down a small number of other factors that the divisions, or strategic business units as they may sometimes be called. These might include guidance on market definition, including geographic scope. For example the subsidiaries of a multinational bank may be defined by the country in which they operate. In this case the corporate business strategy would set profit targets for each country bank. The corporate strategy would yield to the country banks as to the strategies they pursue in generating these profits. The country level banks would have their own business unit level strategies.

In the second case corporate level strategy is used to distinguish it from the many other plans and planning processes that get the term ‘strategic’ in their names. The word strategy has acquired a kind of aura that seems to make many people want to use it, regardless of how actually strategic the matter at hand is in relation to the overall performance of an organisation. Therefore, we can end up with strategic plans for every level, part and functional process in the organization.

Here we emphasize the use of strategic plan as far as possible according to this definition.

Strategic planning is a systematic, formally documented process for deciding the handful of key decisions that an organisation, viewed as a corporate whole, must get right in order to thrive over the next few years.

However, because of this wide spread usage in a variety of contexts we also use the description ‘corporate level strategy’ or ‘corporate strategy’, and refer sometimes to ‘corporate strategic planning’ to make it clear we are not talking about all these other partial or ‘non-corporate’ forms.

Because the successful implementation of corporate level strategy relies on cooperation and alignment across the organization as a whole, it is useful to distinguish the various levels of strategy.

Corporate level strategy and other levels of planning

Let us illustrate the place of strategic planning in the overall set of plans involved with corporate strategic planning, according to this sequence -

Note when we say business unit, it may also, among other designations, be known as strategic business unit strategy or divisional strategy. Moreover, functional strategy may apply to cross-divisional or cross-functional processes, or major projects. Confusing isn’t it!

Decisions in corporate level strategy

Remember that at the beginning we said that corporate-level strategies address the entire strategic scope of the enterprise. This is the "big picture" view of the organization and may include deciding in which product or service markets to compete and the geographic boundaries of the organizations’ operations.

For multi-divisional organizations or enterprises, how capital, staffing, and other resources are allocated is usually established at the corporate level. Additionally, because market definition is usually the domain of corporate-level strategy, the responsibility for diversification, or the addition of new products or services to the existing offerings, also mostly comes within the responsibility of corporate-level strategy. In addition, whether to compete head on with other companies or to selectively establish cooperative partnering arrangements, or ‘strategic alliances’, is a decision for corporate-level strategy, while requiring ongoing input from business unit or divisional level managers.

Corporate level strategic questions

So crucial questions addressed by corporate-level strategy, among other possibilities may include:

  1. What should be the scope of operations; i.e.; what businesses should the firm be in? And where should it be in business?
  2. How should the organization allocate its resources its various existing lines of business or business units?
  3. What level of diversity should exist in the business as it moves into the future? Are there other activities the enterprise should be in or are there current activities that should be targeted for stopped or sold off to others?
  4. What should be the nature of this diversity or how diversified should the organization be? Should it diversify in similar product or service markets, or into completely different areas; becoming a more conglomerate entity.
  5. How should the firm be organized? What will be the boundaries of the enterprise? How will these boundaries impact relationships among parts of the business, with suppliers, customers and other interest groups? How will the organizational functions such as product development, production, distribution finance, marketing, sales customer service, etc. fit together? Are the accountabilities for each business clearly identified? Which will be carried out in-house, and which will be contracted out?
  6. Should the firm enter into cooperative, mutually beneficial relationships or alliances with others? If so, on what basis? If not, what impact might this have on future organizational performance?

As these questions show, corporate strategies address the long-term direction for the organization as a whole. Corporate strategies deal with plans for the entire organization and change as the capabilities of the organization develop and as the environment of the organization changes.

Top management has primary decision making responsibility in developing corporate strategies and these managers are directly responsible to providers of capital to the organization, whether shareholders, donors, members, and so on depending on the type of organization . The role of the governing board of is to ensure that top managers actually act to address these owner or primary beneficiary interests.

Business-Level Strategies

Business-level strategies are similar to corporate-strategies in that they focus on overall performance. As distinct from corporate-level strategy, however, they focus on just one instead of a range of businesses. The corporate level strategy of a multi division operation is like a strategy for managing an investment portfolio.

Business units are usually individual enterprise-like entities oriented toward a particular industry, product or service type, and or market. Business-level strategies are thus primarily concerned with these things:

  1. Managing unit activities so they conform to organizational corporate level strategies, sometimes including cooperation with other business units to achieve ‘strategic synergy’.
  2. Developing distinctive capabilities, resources, and competitive advantage in each unit.
  3. Identifying product or service-market opportunities and developing strategies for succeeding in each.
  4. Monitoring the business industry environment so that strategies conform to the needs of the markets at the current stage of development.

In a single-product company, corporate-level and business-level strategies are the same. Business-level strategies look at the business unit strengths, weaknesses, opportunities, and threats; much like corporate-level strategies, except the emphasis in business-level strategies is on the specific product or service, not on the corporate level investment portfolio. Business-level strategies thus contribute to corporate-level strategies. Corporate-level strategies attempt to deliver benefits to the primary beneficiaries, such as increasing the wealth of shareholders through profitability of the overall corporate portfolio, and business-level strategies are concerned with:

  1. matching their operations with the overall objectives of corporate-level strategy while simultaneously
  2. navigating the environment in which they are active in such a way that they are among the better performers in their industry.

Functional-Level Strategies

Functional-level strategies are concerned with managing the functional areas of the organization, such as product or service development and design, marketing and sales, finance, human resources, production, research and development, etc., so that each function upholds contributes to individual business unit strategies and the overall corporate-level strategy.

Functional strategies are primarily concerned with these matters:

  • Efficiently deploying specialists within the functional area.
  • Integrating activities within the functional area
  • Making sure that functional strategies link effectively and efficiently with business strategies and the overall corporate-level strategy.

Conclusion -
Corporate Level Strategy Guides the Organization as a Whole

Strategies for an organization may be classified by the level of the organization responsible for the strategy. Corporate-level strategies concern top management and address strategic issues of facing the organization as a corporate whole.

Business-level strategies deal with major business units or divisions of the corporate portfolio. Business-level strategies are generally developed by upper and middle-level business unit managers, in negotiation on key targets with the top corporate managers, and are intended to help the organization achieve its corporate level strategy.

Functional or business process strategies address issues usually faced by lower-level managers and deal with strategies for the major organizational functions such as marketing, finance, production, and research, which are considered important to achieving the business strategies and enabling the corporate-level strategy.

Useful Resources

One approach to corporate level strategy that clarifies the task is the "Parenting Advantage Model".

This is a value management approach for the multi-division enterprise. The model describes how a parent company can help create value.

In their article, "From Corporate Strategy to Parenting Advantage", Goold, Campbell and Alexander assert that the parent company, or group headquarters unit, should not only add value to the individual business units, but add more value than any other potential parent - they call this parenting advantage, and explain it further in their book:

Corporate-Level Strategy: Creating Value in the Multibusiness Company

Goold, Campbell, and Alexander list four forms of parental value creation:

  1. Stand-alone influence – each subsidiary is viewed as a separate profit centre. Using basic performance targets, the businesses are controlled and monitored. Value creation is enabled by making strategic decisions such as the appointment of managers and approving major capital expenditures.
  2. Linkage influence - value is created by improved co-operation and synergy benefits.
  3. Central functions and services – corporate value is created through the provision of administrative and managerial services to the business units.
  4. Corporate development – value creation through portfolio management.

Which type of influence is best to improving value creation? The answer depends on the corporate purpose, history, and ethos and upon the balanced use of parenting influence levers such as; control and empowerment, flexibility of autonomy for business units versus synergies from cooperation among them, and portfolio management versus development of business unit core competence.

In these materials the authors develop a framework, which they use to analyse what they see as ‘the parenting advantage’. The framework addresses two key questions: Which businesses should an enterprise own? What ‘parenting approach’ will get the best performance from those businesses? To determine the alignment among the set of businesses owned and the parent or corporate headquarters, corporate level strategy steams should look at four major aspects:

  • critical success factors of the business,
  • parenting opportunities in the business
  • characteristics of the parent, and the
  • financial results.

Then, to decide the businesses to retain, and which to stop or divest, they should put them into five classes, being those that:

  • align strongly
  • fit in some respects;
  • may fit in some ways and have little potential;
  • have a risk of value destruction; and
  • fit parenting opportunities but not critical success factors.

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Useful recent research
The Organization practice of The Boston Consulting Group has recently done useful research on how the corporate headquarters can create value by shaping organizational behavior and interactions, raising operational capabilities, and improving overall performance.

They have presented their findings in the report First Do No Harm: How to Be a Good Corporate Parent.