The term “corporate” is heard a lot in the business world. Corporate structure, corporate law, corporate identity, etc. It basically means association with a corporate entity. A corporation is different from a company in all aspects. For starters they are much larger. Also, they are a separate legal entity from their owners, that are its shareholders. How did these corporations become so large? The short answer is: they planned it. If you own a company and all your long-term plans include surviving or increasing profits, chances are you’ll stay small. It takes extensive planning and cooperation between every department to achieve your company’s vision. This is called a corporate strategy. Having a vision of greatness isn’t enough. Anyone can see where they are and imagine where they want to end up. The trick is to be able to imagine the steps in between. So what exactly is corporate strategy?
What Is Corporate Strategy?
It’s basically a corporation wide direction of a business and how they plan to achieve it. When a company has a business goal, all the departments have to work together to achieve it. In the end any slight change in the direction or scope of a company has a ripple effect on all departments and operations. This is why a strategy has to include a sub-strategy for every department, with internal plans within the department.
Most corporate strategies are related to the size of the business. Why? Because in the end the point of starting a business is to make profit. Increasing in size is one sure way to substantially increase profit. However, not all strategies are aimed at up-scaling, but we’ll get to that.
The difference between a plan and a strategy is that a plan is temporary and small scale. A strategy, on the other hand, encompasses everything, from product management, to marketing, to distribution. Corporate strategies in the end are meticulously detailed steps towards a larger picture.
Different Approaches to Corporate Strategy
It’s true that every company needs to plan its moves if they want to get anywhere. But that means first they need to figure out where they want to go. There’s no skeleton key that solves all problems or guarantees increase in profits. Strategies are customizable to every company and even within a company it changes according to the current situation. Here are some examples:
1. Mergers and Acquisitions
One of the most powerful actions a company can take is to decide to take over or partner up with another business. It’s a guaranteed boost in company size. There are many different types of mergers and acquisitions, it depends on the direction of the step. However, there are two main types.
- Vertical move: This is when a company acquires another company in another part of the supply chain of a certain product. This in turn is divided into upstream and downstream acquisitions. Upstream acquisition means a business acquires another in the earlier steps of the product’s supply chain. Like when a meat processing factory takes over the cattle farms. Downstream, on the other hand, is like if that meat factory buys a fast food chain.
- Lateral move: This is when a company acquires a similar company, most commonly a competitor, in an effort to join forces and increase their operations.
Although, mergers and acquisitions are very beneficial for a business, they are a nightmare when it comes to day to day operations. This means changing everything from advertising to production. Such a move is considered a corporate strategy not only because of the move itself, but because of the steps needed to be taken to ensure its success.
2. Market Penetration
In any competitive market, it’s all about who has the bigger piece of the pie. For that reason, companies use any means necessary to expand their customer base. A competitive market means that there are already too many companies fighting over the same group of customers. In other words, the market is already saturated. Market penetration strategies are adopted by new or expanding businesses for just that. But how?
Simply lowering prices isn’t going to guarantee a surge in sales and profits. People’s loyalty to a certain brand isn’t driven entirely by price. For example, there are other soda companies than Coca-Cola and Pepsi with much lower prices but still can’t compare to their massive sales. Another problem might be that the low prices mean less profit to cover the overheads if sales aren’t increased as expected.
Market penetration is a corporate strategy that requires simultaneous attacks on many fronts. Massive amounts of data have to be collected on both the company history and competitors. New marketing campaigns need to be designed. The product itself may need to undergo some changes to allow for the new prices to be applicable and acceptable.
3. Market Expansion
Sometimes in a product life cycle, the product sales reach a dead end. Meaning that no matter what we do to refurnish the product, sales just reached as high as they get. In those cases, a corporation might seek opportunities in another market entirely. This is a natural part of any corporation because in the end there is probably no one owner to be satisfied by the company’s size. Successful companies are always looking to be more.
There are many ways for a business to expand its market. For instance, a product can be re-purposed for other uses and marketed for them. Sometimes a product can be developed with additional features to appeal to another set of users. Another way is to launch an entirely different in another market that has a higher growth potential. The key here is to find which approach works best for your business.
Although no company goal would aim at decreasing the size of the business, downsizing is still an effective, widely used corporate strategy. Sometimes “shedding the waste” can actually increase profits. Correcting previous mistakes like overproduction can save the life of a bleeding business.
Of course, extensive planning and collaboration isn’t exclusively important to large corporations. In fact, small businesses and startups need it more to survive in markets already saturated with competitors. However, the scale of any move in a large corporation is much more noticeable and will have more impact on much more people.
That being said, a “growth strategy” is the small business equivalent for a “corporate strategy.” The only difference is the size of data and the amount of interdepartmental communication needed.
Small businesses usually resort to market penetration strategies in the beginning to gain an advantage over their older competitors. Startups on the other hand usually create new markets and their strategy should be the development and maintenance of that market. Both share a need to creatively appeal to people via marketing campaigns like guerilla advertising.
Plan for Tomorrow and the Day After
Markets are constantly changing and constant planning is required for a company to simply keep its footing. If you own a computer hardware company, for example, there will be new competitors every day. This means a constant dilution of your market share. So even if your company is the leading one in the field and well established, you still need to keep planning to get bigger and increase your sales. That’s why in the business world there is no staying still; you’re either growing or you’re falling behind.