Let’s explore the main types of corporate strategy. But what is a corporate strategy? How do they differ from other business strategies? We’ll take a closer look below…
Corporations and Armies
Corporations and armies have a lot in common. All factual jokes aside, both are hierarchical, organisational entities that consist of a number of members. Members offer their skills and competencies to the benefit of the whole organisation. Most importantly, both armies and corporations have leaders who deal with everything related to decision making. Therefore, they need a strategy to reach their goals by making the right decisions at the right time.
So, both armies and companies need a strategy to:
- Use their resources in the most effective way
- To establish a favourable position.
In today’s world, the business environment is less predictable than ever. For that reason, analytical reasoning and strategic positioning are the most valuable assets a company should have.
Types of Corporate Strategy: Definition
Corporate strategy is concerned with how companies create value across different businesses and products. Surely, that requires strategic investment in resources, designing a company portfolio, and “architecting” the organisation’s structure. More directly, a corporate strategy determines the scope of a company’s activities and the manner in which a company’s business processes support company goals. All that’s related to the expansions of a business, whether internally or externally, is considered part of the corporate strategy.
Types of Corporate Strategy: Ingredients of a Successful Corporate Strategy
Before tackling the different types of corporate strategy, let’s discuss what makes a corporate strategy successful. Is there a secret recipe that successful corporates use? If yes, what are the ingredients? By studying brands with established types of corporate strategy, such as Zara, Disney, and Coca-Cola, one finds that there are some common factors that contribute to the success.
These are the essential components of a corporate strategy:
1. Simple, Consistent, Long-Term Goals
This is the basis of every strategy ever made, in business or in any other aspect. All types of corporate strategies build upon business objectives. Business objectives and goals represent the destination that the company is trying to reach. Without it, the ship is just lost at sea or moving haphazardly. This is, by no means, the way to establish a strong business organisation.
A good point to remember is that within a corporate strategy, there are good objectives and bad ones. Not all objectives are fruitful. There are some characteristics of good business objectives. These apply to all types of corporate strategy. Business objectives must be: simple, consistent, and long term.
Objectives must be simple because all employees on different levels must fully understand them. Simple objectives also keep your efforts and targets focused and specific. Complex objectives just confuse decision makers and employees, and consequently, disperse your organisation’s effort.
If you take a look at any of the huge brands, who have been there for more than 100 years, you will find one common quality between them all: consistency. Consistency is how consumers identify and relate to a brand. That’s why, all corporates must maintain a consistency for their objectives. Nike has had “Just Do It” as its slogan since 1988, and it’s still relevant and consistent with all its marketing and growth strategies. Your objectives should have this kind of consistency.
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The difference between goals and objectives is that goals are short-term targets. That’s one thing your objectives shouldn’t be. Objectives need to be long-term and realistic in order to be consistent. If your company’s objectives aren’t long-term ones, you’ll find that you need to change them very often. That way, you won’t achieve consistency.
Be far-sighted when it comes to setting objectives. Contemplate where you want your business to be in twenty, or even fifty years. Think about potential expansions and make your objectives universal, yet realistic.
2. Allocate Resources Correctly
After defining goals and objectives, all types of corporate strategy must allocate the company’s resources. This is an essential step to determine what kind of resources the company has, and how to make the most out of them.
In addition, a corporate strategy should also qualify the resources for the objectives set. Do they match each other? What are the resources missing? And how can you enrich these resources and add new ones without exceeding the budget?
Resources are also the intermediate step that connects objectives to competitive advantage. Every company has specific advantages regardless of its size. There are different types of resources; they could be human, like experienced management and a highly-skilled staff, or financial. Your resources could be your physical location or premium product attributes, or even a market with growing demands. Other resources are emotional or even educational.
3. Competitive Advantage
Competitive advantage results from the combination of a company’s resources with its capabilities. When these are optimally combined, they produce either a price-based competitive advantage or a differentiation-based advantage. Different companies fight for the same customers, market share, and revenue. Therefore, when building up different types of corporate strategy, you should study both the external and internal circumstances.
Competitors are always looking for ways to differentiate themselves. Cost structure, branding, the quality of products, the distribution network, intellectual property, and customer service are the most important advantages that companies thrive to excel at in order to become market leaders.
One thing to pay attention to is that your competitors are not just similar companies and products. Anything that fulfills the need that your customers have is your competition. For example, brick and mortar retailers thought that their competition was with other brick and mortars, until Amazon showed up.
4. Business Portfolio
A business portfolio is a company’s set of investments, holdings, products, and brands. It’s an essential component of different types of corporate strategy. Your business portfolio focuses your strategies and identify specific business questions.
What Are the Benefits?
The first business question it should answer is about benefits. What is the real benefit your product provides? It must be something that your customers truly need and that offers real value. Remember, you can have the fanciest product attributes but if they don’t fulfill a true need, they don’t mean anything.
In addition, many times target consumers get so confused that they don’t understand the real benefit a product or service offers. So, make sure that your differentiators really speak to the needs of consumers and that they’re clear enough for them.
Who Is Your Target Market?
Secondly, there’s the persistent questions of who your target market is. Although this question is a part of every type of business strategy, it’s still one of the most daunting questions for businesses to answer. Often, business owners say that they target everyone with their products.
They are usually wrong, except in some rare cases. Very few businesses truly target everyone; and even if they do, they usually have different strategies to reach different segments. Therefore, you must know exactly who your consumers are, what they need, and how you can make their life easier. This is how big corporates create demand and build up a base of loyal customers.
5. The Role of Corporate Leadership
Similar to armies, leadership is one of the most important factors in corporates. Leaders are the ones who make decisions that affect the company’s core functions: budgets, product development, workforce, etc. For that reason, different types of corporate strategy should identify the criteria of managers and leaders. It should also identify their different roles and authorities.
Moreover, a corporate strategy should allocate the internal structure and hierarchy of the company. The different levels of management and each department’s structure and role. Every employee in the company must understand how the company is formed. That helps them identify themselves and know exactly how every employee’s work affects the entire corporate strategy.
Types of Corporate Strategy
Types of Corporate Strategy #1: Growth Platform Strategy
Growth platform strategies seek to scale revenues to the next level of profits. Corporates achieve that through four different growth strategies: market penetration, market development, product development, and diversification.As the names imply, the market penetration strategy works by persuading your existing customers to buy more of your existing products. This is the least risky growth strategy.
The next strategy is market development; the business targets new markets with its existing products. This requires a deep analysis of the new customers you’re trying to target. The third one is product development which obviously creates or acquires new products to fulfill the needs of existing consumers that you know so well.
Finally, there’s the most risky diversification strategy, where a corporate develops a new product for a brand-new market. When Disney expanded from being a cartoon company to theme parks and resorts. This is an example of diversification where a company tackles a completely different product with brand new target consumers.
Types of Corporate Strategy #2: Global Strategies for Expansion
Cost leadership is one of the types of corporate strategy that allow companies to expand. In cost leadership, a firm sets out to become the lowest-cost producer in its industry. Huge brands such as McDonald’s and Walmart have adopted this strategy and it has made them market leaders. Normally, companies achieve that through economies of scale, preferential access to raw materials, or even technological innovation. Although small companies may not have access to these methods, they can still use some techniques to employ cost leadership.
For instance, a small business could use one specific product or service segment as a “loss leader” strategy to get consumers in the door with a great, low-price offer and then cross-sell the high-margin products in the process.
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In a differentiation corporate strategy, the business aims to differentiate itself by targeting a very specific segment with a unique product. The reward is usually a higher price for a special product. Sometimes, big brands who operate in different parts of the world adopt a cultural-specific product that appeals only to a specific region or country.
For instance, if you walk into a McDonald’s in Hawaii, you’ll get a local flavor of rice and Portuguese sausage for breakfast, a common local item which isn’t available in other regions. See Also: Strategic Marketing
This is one of the types of corporate strategy that ensure the company cuts down costs. By sourcing raw material from specific regions at lower prices, or even outsourcing staff from countries with lower wages, companies are able to reduce costs and qualify for a cost leadership strategy. Moreover, sometimes companies use that as a differentiation point, where raw materials are especially brought from their origin.
Types of Corporate Strategy #3: Consolidation and Cooperative Strategy Partnerships
Business consolidation is the combination of several business units or several different companies into a larger organization. It refers to mergers and acquisitions. It’s one of the very successful types of corporate strategy. Consolidation allows a company to expand to new spaces and markets without having to build things up from scratch. Additionally, it enables companies to use economies of scale and minimize costs. Moreover, mergers and acquisitions deal with selling off brands and companies that no longer align with the organization’s vision.
Partnerships are popular, effective, and they fit small-sized companies as well. In business, winning isn’t only about pushing away all competitors. Winning also involves knowing when to make alliances and benefit from them. Examples are everywhere. Barnes & Noble houses a Starbucks. Uber offers Spotify services as part of its services. Ford has an entire Eddie Bauer premium line of trucks and SUVs. These are all cooperative partnerships.
Corporate Strategy VS Business Strategy
Corporate Strategy is the management plan formulated by the highest level in an organisation, to direct and operate the entire business organisation. It alludes to the master plan that leads the firm towards success. Meanwhile, a business strategy is more of an internal strategy to execute and strengthen the performance of the organisation.
So, while the corporate strategy defines the mission, the objectives, and the overall structure, the business strategy focuses on the plan that meets those objectives. Therefore, the business strategy usually has goals, which are short-term.
The business strategy is executive and governing, whereas the corporate strategy is decisive and legislative. On the other hand, top level management are the ones responsible for the corporate strategy, meanwhile, a business strategy is built by middle level management.
Ultimately, types of corporate strategy are numerous. Every business must use those that best suit the company’s size, objectives, and values.
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