19/3/2023 0 Comments
Effective Corporate Strategy
A corporate strategy is essentially the playbook of a company. It not only defines the strategic goals, it outlines the way in which an organisation achieves those goals. Without this roadmap, organisations can stumble around in the dark.
Each corporate strategy will contain key corporate strategic components that can be referred back to at each juncture: what is our vision, what are our objectives, what do we need to invest in to make this happen, what areas need to be prioritised above others. A well thought out plan will guide an organisation through significant periods – good and bad – and give it the tools to measure its success.
What Is Corporate Strategy?
Corporate strategy is the underlying set of goals and principles that guide a company’s decision-making and business operations. Corporate strategists look at a business on a broad level, focusing on strategic goals and market positioning. Corporate strategic management helps a company decide what markets to enter and its relationship to other market players.
This focus makes corporate strategy slightly different from business strategy, which makes business-level decisions—like budgeting and personnel hiring—that serve the company’s broad organisational mission statement. Meanwhile, the daily operations of a company’s business units are governed by managers tasked with functional strategy. Corporate strategy rarely dips into minutia: It examines organisational structure on a corporate level and leaves day-to-day decision-making to key executives and managers.
Why Is Corporate Strategy Important?
Every year, business schools turn out new classes of graduates trained in strategic management. Meanwhile, businesses hire our strategy consultants to guide them in their upper tier strategic planning. This is because a company’s strategy determines whether it will have a competitive advantage over its rivals or whether it will flounder for a lack of value creation.
Every other part of business leadership—budgeting, growth strategies, financial portfolio strategies, asset allocation—can potentially thrive under a wise corporate strategy. These initiatives can also collapse, with executives and managers unable to perform their jobs, if the highest level strategic planning fails to address the realities of the current market. Poor corporate decisions can cost the company market share and opportunities. Investors and shareholders know this, and their valuation of a company tends to reflect their opinion of a company’s strategic decision-making.
4 Elements Of Corporate Strategy
Corporate strategy sets the framework for a business’s structure and objectives. The scope of corporate strategy can be broken into four main categories.
1. Strategic vision: The highest level of corporate strategy states a company’s mission statement, its perceived role in the marketplace, its business model, and its key corporate values. This vision, which is set by shareholder representatives and top management from the executive team, affects all stakeholders in the company.
2. Strategic objectives: A corporate strategy must include the specific initiatives the company will take on within its business units. This includes determining how much differentiation will exist among those units. Will the company use vertical integration in the name of cost leadership, where a company outcompetes its rivals by maximising the value of expenditures? Or will it embrace diversification, operating various businesses that may not directly interact with one another?
3. Corporate finance and resource allocation: With a vision and objectives laid out, corporate strategists must determine how they will allocate company resources. When a company is up and running, corporate leadership may examine growth through mergers and acquisitions or contraction via divestitures. These will reshape the business’s downstream financial decisions.
4. Opportunity costs and risk assessment: Corporate leaders and management consultants must also address the tradeoffs to embracing a particular strategy—accepting that any business venture comes with risk and opportunity costs. Day-to-day risk management will be handled by executives tasked with business strategy or managers tasked with functional strategy.
3 Types of Corporate Strategies
Corporate leaders typically pursue one of three corporate-level strategies for leading their companies: stability strategies, growth strategies, or retrenchment strategies.
1. Stability strategy: A stability strategy seeks to hold on to marketing share, maintain current company direction, and maximise return on investment and shareholder value. Companies embarking upon a stability strategy rarely engage in mergers or enter new industries. They do seek steady growth, but at slow, sustainable rates. Stability strategies work well for companies that are currently meeting their short-term business goals and are mostly focused on staying power.
2. Growth strategy: A growth strategy will examine aggressive expansion into new markets and new industries. It may roll out new products at a faster cadence. It may examine diversifying the company’s current portfolio via a merger or acquisition of an existing business. In the financial services industry, a growth strategy could also involve pursuing a bolder investment strategy, both for the company and its clients.
3. Retrenchment strategy: When a company feels it needs to shrink, or when it feels weighed down by underperforming sectors, it embarks on a retrenchment strategy. This can involve divestment, layoffs, or store closures. Companies retrench to focus on their core competencies and give themselves a new chance at corporate success. Sometimes conglomerates become decidedly more profitable when they embrace a smaller footprint with fewer individual business units.
For us, at Gestaldt, a strategy is all about deploying resources effectively and making choices. So, when we work with an organisation we frequently think about how can we help an organisation take the limited resources it has and deploys that in the most effective way. Often that starts with the problem. What is the problem your company is trying to solve? or in another way, what is your mission and vision? Frequently we find when we work with a company that they haven’t defined the problem they are trying to solve. They don’t have a very clear mission or vision, and they haven’t gone through the thinking to ensure that what they are doing really resonates with their customers.
Focusing on the short term, medium term, and long term. We can put together very clear action plans to help your organisation go after those strategic opportunities and deliver on the strategy that we have built together.
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