Levels of Strategy
Strategy can be defined as the effective path to achieving organizational goals and objectives in the best possible way. In organizations, there exist three levels of strategy namely corporate level, business level, and functional level.
All levels of strategies have a significant role in achieving the overall targets of the organization. In a simple sense, the functional level strategy helps business-level strategy and business to corporate-level strategy and corporate to achieve vision and mission – they all are linked and managers need to carefully set strategies at each level.
Failure to develop an appropriate strategy means failing to run the organization. Here, we will know three levels of strategy, and their sub-level strategies in detail.
The three levels of strategy are:
- Corporate level strategy
- Business level strategy
- Functional/Operational level strategy
These strategies can also be studied with a “hierarchy of strategy”, like Abraham Maslow’s Hierarchy where corporate-level strategy is at the top of the hierarchy, business-level strategy at the middle, and functional level strategy at the bottom.
Now. let’s understand in detail,
Corporate Level Strategy
Corporate level strategy is the uppermost level of strategy made by top-level management which sets the overall direction of the organization. It addresses the question of what business are we in?
The corporate level strategy attempts to obtain synergy among employees, product lines, business units, and other components of the organization believing that the whole is greater than the aggregate of individuals.
The corporate strategy works based on what the organization wants to achieve overall and sets strategies following the overall goals and objectives. Corporate-level strategies are set deriving ideas from vision and mission statements.
Small and large multinational corporations can both benefit from corporate strategy. Corporate strategy in a multi-business organization is concerned with geographic coverage, diversity of products/services or business units, and resource distribution to various segments or units of the firm.
As the organizational parent, the corporate headquarters works with diverse products and business units as children. These business units are coordinated at the corporate level so that the company as a whole succeeds as a family. As a result, it was determined that corporate-level strategy is linked to an organization’s total scope and development. Its constant goal is to bring value to various product lines and enterprises.
For making an effective corporate strategy the manager can go for its four different types such as stability strategy, expansion strategy, retrenchment strategy, and mixed strategy.
The stability strategy is a strategy that tries to keep an organization’s existing activities going without making any significant changes in direction. Maintaining existing products, markets, and operations is a priority. A stability strategy can be beneficial in the short term, but it can be harmful if used for an extended period of time.
The growth strategy aims to increase sales, assets, profits, or a combination of the three. It allows businesses to take advantage of the growth curve and lower the per-unit cost of products sold, resulting in higher profitability. Due to the increased availability of financial resources, organizational procedures, and external links, larger organizations tend to endure longer than smaller companies.
Both stability and expansion strategies are in aggressive nature but retrenchment is a defensive nature of strategy. A retrenchment strategy is a business approach that tries to diminish a company’s size or diversity.
It also entails cutting costs in order to maintain financial stability. It is used to limit the diversity of the company’s operations or to reduce the overall scale of the company’s operations. A retrenchment plan entails exiting specific markets or discontinuing specific products or services.
When an organization operates in a variety of environments, separate strategic business units and products follow a combination strategy. In other words, a firm is said to be implementing a combination strategy if it uses stability, expansion, and retrenchment strategies in its many strategic business units at the same time. It is primarily used to solve a variety of environmental issues.
Business strategy is the most common level of strategy we are discussing probably all of us heard about it. Business level strategy is the which is designed to use the best use of organizational competencies to gain a long-term competitive advantage over competitors.
Business strategy deals with the question of how do we compete? It aims to how to best successfully compete with competitors so that competitive advantage will be gained.
It steers a strategic business unit (SBU) in the direction of competitive advantage. A strategic business unit is a division of an organization that has a separate district external market for goods and services from the other strategic business units.
It could be a distinct business or product such as Samsung selling smartphones, cameras, TVs, microwaves, refrigerators, etc. The corporate strategy is followed by a business-level strategy. As a result, there should be a clear link between SBU and business strategy.
Every distinct SBU requires different strategies to compete in the market. A manager can usually go for a cost leadership strategy, differentiation strategy, and focus strategy in order to get a competitive advantage against competitors. In other words, these are the types of business-level strategy, they are:
Cost Leadership/Cost Reduction Strategy
The cost leadership/cost reduction strategy is a step in producing goods or services with attributes that customers find acceptable at a lower cost than competitors.
This strategy typically involves selling standardized goods or services to the industry’s cost-conscious clients. Cost leaders focus on lowering their costs in comparison to their rivals.
The differentiation strategy is an endeavor to produce goods or services that buyers perceive as unique (at a reasonable cost). Differentiators, unlike cost leaders, target clients for whom value is created in a way that sets the firm’s offerings apart from the competition. As a result, product innovation is crucial to a differentiation strategy’s success.
The focus/niche strategy entails producing goods or services that cater to the needs of a specific competitive segment. Firms use their core capabilities to fulfill the demands of a certain industry segment, a different segment of a product line, a different geographic market, or a specific customer group when they use a focus strategy.
Functional Level Strategy
The functional level strategy also called operational level strategy is developed to run effectively the day-to-day activities of the organization. Most operational strategies are no longer than one year.
The functional level strategies aim to deal with the question of how do we support the business-level strategy? A number of functions are carried out regularly to effectively run the business as different functional departmental are created – production department, HR department, marketing department, customer service department, etc. functional strategy aims to bring effectiveness in such functional areas.
At the functional level, resources, work pressure, information, and manpower are integrated to bring effectiveness to the business and corporate-level strategies. Functional strategies are for short time usually less than one year. These strategies are related to capability, efficiency, customer service, product quality, and marketing. All these functional strategists support the business level and ultimately the corporate level strategy.
Production Strategy, marketing strategy, finance strategy, human resource strategy, and research & development strategy – all are very important say parts or types of functional level strategy. Effectiveness on all these functional types is required to run shorter activities of the organization smoothly.
All these three levels of strategy are crucial to set appropriately considering the organizational capability and desired goals. While developing strategic decisions or different strategies a manager should not forget each level of strategy helps other levels otherwise desired goals will be difficult to achieve.