What is Corporate Level Strategy?
Corporate-level strategy is the top-level strategy that is formulated by the top management. The aim of such strategies is to achieve corporate objectives.
Corporate-level strategy is also called grand strategy. This strategy sets the overall direction of the company and the management of its business or product portfolio. It deals with the question of “what business are we in?”
Grand strategy is concerned with managing various business units and product lines for maximum value. In doing so, corporate headquarter plays the role of the organizational “parents” in that they must deal with various products and business units as their “children”.
As each business unit or product line has its own competitive strategy that is used to obtain its own competitive advantage in the market, the corporate strategy aims to coordinate these different strategies so that the organization as a whole succeeds as a “happy family”.
Popular definitions of corporate strategy,
- Corporate-level strategy is concerned with the overall purpose and scope of an organization and how value will be added to the different parts (business units) of the organization. – Johnson and Scholes
- The corporate strategy states a company’s overall direction in terms of its general attitude towards growth and the management of its various business and product lines. – Wheelen & Hunger
It is related to the acquisition of new business, expansion, market development, additions or divestments of business units, plants, or product lines, and joint ventures. It manages the flow of financial resources towards different business units.
And, attempts to obtain synergy among various business units so that the corporate whole is greater than the sum of its individual business unit parts.
Characteristics of Corporate-Level Strategy
The major characteristics/features of corporate strategy are mentioned below.
Top Management Decision
Corporate strategy is formulated by the top management of the company. Based on the corporate strategy, other strategies such as business and functional are formulated.
Top managers, founders, board members, and executives have an important role in the formulation of corporate strategies. In doing so, they should consider the overall growth and future possibilities.
The corporate strategy is far-reaching. It considers how the long-term goals of the organization will be achieved most effectively and efficiently.
It affects the overall direction of the company. The far-reaching actions may include stability, scaling up, and retrenchment decisions.
Obviously, the corporate strategies are set keeping in mind the long-term goals. While setting longer strategies the organization’s resource base and capabilities are considered.
Uncertain in Nature
Corporate strategy is also uncertain in nature. The future is uncertain and this strategy talks about future actions and possibilities. To survive in the uncertain future, the organization also needs to have a backup of resources and skilled minds to take the right decisions.
The business environment is always dynamic, it never remains static for a long time. As so the corporate strategies need to be strong enough to align with the dynamic nature of the marketplace.
Types of Corporate Level Strategy
Strategic alternatives or options at the corporate level are often of four types. They are:
A stability strategy is when your company stays in the current state as it is and decides to go as it was going. Under this strategy, the company does not bring any significant changes in its products, markets, strategies, and activities.
In doing so, the companies decide to go through the existing business practices. Businesses that are happy with their current success usually follow this strategy.
Stability can be very useful in the short run. It often includes no change, profit, and investigation strategies. In a positive way, this strategy is less risky but it might lose opportunities if it does not change.
A growth strategy is when your firm seeks to expand its business operations, investments, and so forth to increase market coverage. It is an attempt to go ahead with a stability strategy.
In the growth strategy, the organization usually looks to see growth in market share, sales, profit, assets, and considerable growth in all of these.
This strategy seems fit when an organization’s products are in the growth stage of the product life cycle. The firm can achieve growth by expanding its operations as well as through mergers, acquisitions, and strategic alliances.
Market penetration, product development, market development, and diversification are the main methods to get success from a growth strategy.
The retrenchment strategy is when your company attempts to retrench (cut or reduce) some of its product lines or business units or other factors to reduce cost and achieve financial stability.
Usually, companies adopt a retrenchment strategy when the competition is very high or in the decline stage as such some of their business units do not perform well as expected.
This strategy is suitable in a highly uncertain environment but doing so reduces the profits. Within this strategy, turnaround, captive company, divestment, and liquidation strategy are applied.
The combination strategy is a mixture of the abovementioned stability, growth, and retrenchment strategies. A company may go for a mixed strategy when it has to stabilize some business units, some expand, and some retrench.
Generally, large business organizations with multi-business follow this combination strategy.
Importance of Corporate Level Strategy
Corporate strategy is the foundation of an organization’s purpose. It sets the direction of an organization as a whole and it also states what to do in next-level strategies.
It serves the decisions regarding the flow of financial and other resources to an organization’s product lines and business units. In addition, the major importance of corporate strategy may be pointed out below.
- Sets the overall direction of the organization.
- Effective means to allocate organizational resources to a firm’s different business units.
- Builds synergy with the organization.
- Increase the overall efficiency of the organization.
- Pushes your organization to be proactive.
- Tries to make your business more durable.
- May increase market share and profitability.
- Builds a strong base to survive in long term.
Analytical Tools for Corporate Level Strategy
There are a number of analytical tools that can be used for developing different strategic options at the corporate level. Out of them, the two most important tools are mentioned below.
Boston Consulting Group (BCG) Matrix
BCG/Growth-Share matrix is the simplest way to portray a company’s portfolio of investments. It was developed by Boston Consulting Group. The BCG matrix examines strategies in terms of market share and market growth.
The four cells of the BCG matrix are:
- Stars – These are those business units that have rapidly growing markets with large market share.
- Cash Cows – these are those business units that have high market share but low market growth rates.
- Dogs – These are business units with low market share and low growth rates.
- Question Marks – These business units have the potential to grow market share and growth rate.
The General Electric (GE) – Mckinsey Matrix
GE matrix is a systematic approach for multi-business organizations to prioritize their investment among their different business units.
GE matrix is developed with the assistance of Mckinsey & Company Consulting. It studies strategies based on market attractiveness and competitive position.
Hence, corporate level strategy/grand strategy is the foundation to set on where the business is going and setting overall direction to actually get there with collective efforts of an organization as a whole building synergetic effect.