What is strategy? The Three Levels of Strategy: Corporate, Business and Functional

What is strategy

Why is strategy crucial for business development or anything you plan for the future? Strategy is an essential technique that helps us monitor, track and evaluate our growth process and allows us to compare progression. For example, if you are running a digital marketing company, the business-level strategy will help you develop the company based on competitive analysis. Moreover, the business-level strategy will help plan for future business development.

What about the corporate-level strategy? It is a crucial strategy where we will be planning for the long-term future based on the company. 

If top management chooses and develops the strategy badly, it will significantly influence the productivity of staff in virtually every department of the company. The corporate level, the business level, and the functional level are the three levels of the three levels of business strategy. The so-called “Strategy Pyramid” is a visual representation of these three levels of strategy when taken together. Compared to business and functional strategies, corporate strategy is distinct.

business level strategy

What Is Strategy?

A strategy is the main, holistic, and externally focused idea behind how a business will accomplish its goals. Making decisions about what to do is the process of formulating a strategy, and carrying out all the tasks required to carry out the plan is the process of putting the strategy into action. 

The two processes are interconnected from the perspective that implementation should offer the knowledge required to adjust the strategy regularly; both can succeed with the other. 

However, it is crucial to distinguish between the two because each procedure often involves a separate set of individuals. In general, the organization’s leaders create the strategy, and everyone is responsible for carrying it out.

To understand the Internal and External Environment Factors That Affect Business, you can refer to the Business Review Today blog to better understand the outside environment’s impact and how to manage it.

Levels of strategy: corporate, business and functional:

Corporate-level strategy

It involves choosing the best possible group of companies and figuring out how to incorporate them into a corporate whole or portfolio. Top management often makes significant investment and divestiture decisions at this level. M&A transactions are an essential component of business strategy. 

This level of strategy is only necessary when a firm operates in two or more industries through numerous business units, each of which has a distinct business-level plan that must be synchronized to produce a coherent corporate-level strategy. Because of this, multinational corporations (MNEs) or conglomerates are more likely than small- to medium-sized enterprises (SMEs) to employ corporate strategy.

The corporate strategy addresses issues related to  fundamental questions:

  • Where will we be a competitor in the market? The Hortalezas, for example, claim to be in the fitness industry, but it is clear from the opening case that they are only referring to a few specialized wellness industries.
  • How can corporate companies like us improve the value of our numerous business lines? 
  • For instance, senior management could coordinate collaborations and learning by employing fresh products developed by the Splash Research Institute. 
  • It can also gather market intelligence through retail establishments for health and beauty care. 
  • Market intelligence can advise Splash about the brands that are doing well, and some may make for ideal acquisition prospects like Splash did with the Hygienix brand family. 
  • A brand of antibacterial skin care products is called Hygienix. Corporate strategy focuses on how two or more owned enterprises cooperate and share resources to create value. How can expanding our clientele or entering a new market help us compete in our existing ones?

In addition to selling more of its items through HBC stores, Splash can learn a lot from the Hortalezas’ experience with the HBC merchants on what new products to develop through the Splash Research Institute.

Example Samsung

Let’s use Samsung as an illustration. Samsung is a corporation of numerous strategic business units (SBUs) that produce various products. Samsung sells everything from cellphones to cameras to TVs, microwaves, refrigerators, washing machines, and even chemicals and insurance. 

Each product or strategic business unit needs a business plan to compete within its own industry. At the corporate level, however, Samsung must choose whether to answer more fundamental issues such as, “Are we going to pursue the camera industry in the first place?” or “Should we concentrate on the television screen market or increase our investment in the smartphone industry?

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Business-level strategy

The business-level strategy is what most people are familiar with and focuses on how to compete and obtain a sustained competitive edge over competitors. Understanding a firm’s external environment is crucial before responding to these concerns. 

We can utilize Porter’s Five Forces and PESTEL Analysis as external analysis frameworks at this level and internal analysis frameworks like Value Chain Analysis and the VRIO Model. 

Once the thorough strategic analysis has been completed, top management can move on to developing the strategy by utilizing frameworks like the Value Disciplines, Blue Ocean Strategy, and Porter’s Generic Strategies. The business-level strategy’s ultimate goal is to establish a competitive edge by providing real value to customers and standing out as a distinctive and challenging competitor in the market.

Functional-level strategy

The question, “How do we assist the business-level strategy within functional departments, such as Marketing, HR, Production, and R&D?” is central to functional-level strategy. 

These tactics frequently try to increase the efficiency of a company’s internal departmental operations. Workers in these divisions frequently discuss their “marketing strategy,” “human resource strategy,” or “R&D strategy.” These plans should align with the overall corporate strategy to the greatest extent possible.

The sales department should choose the right (social) media platforms for their marketing campaigns if, for instance, the business strategy calls for supplying items to students and young adults. Technically speaking, these choices are entirely operational and DO NOT constitute a strategy. Therefore, it is preferable to refer to them as tactics rather than strategies.

There are a few things to consider as you work on your functional strategies:

  1. Recognize that the initiatives and measurements at this level are the most in-depth. The question “How are we doing toward attaining a specific objective?” can be answered using measures. You can find the essential activities we can do to further our objectives by using projects (or initiatives). Every level of your strategy should have measures and projects, but the functional level should have the most specific ones. A RACI matrix can be used to make sure that everyone is aware of who is in charge of finishing your tasks and where they can turn for assistance or guidance.
  1. Make sure your functional strategy’s objectives lineup with those of the organization as a whole. The most senior individuals of your organization establish the corporate goals, which direct decision-making. If your projects and ambitions are in line with the objectives of the senior executives, you will have their backing. Additionally, you’ll be able to understand how your efforts influence the success of the business as a whole.
  1. Avoid being “measure happy.” We’ve seen businesses measure hundreds of data sets at the functional level. However, bear in mind your longer-term objectives and measure the factors that will allow you to assess your progress toward those objectives. 

International strategy

Corporate strategy determines which markets, including foreign countries, a corporation competes in. “International Strategy,” which analyzes the different categories of international strategy, is specialized in this way. Even if a business doesn’t export its products or services, it may have a global outsourcing or offshoring strategy. Importing is the process of purchasing goods or services from another country and selling them. Penzeys Spices, for instance, offers herbs and spices that it buys from all over the world but only has retail stores in 23 states.

But only small businesses engage in such behavior. Even though Kohl’s Corporation, one of the biggest discount retailers in the nation, only operates in the United States, most of its merchandise is imported.

When a company outsources, the vendor takes over the entire process (such as accounts payable). The vendor takes charge of the business and manages it as it sees fit. 

The final product is what the Corporation pays the outsourced vendor for; the vendor’s method of completing that task is up to the vendor. The contractor who outsources the task may carry it out locally or abroad (also known as offshoring).

When a company offshores, it relocates a job from its home country to a different one, usually with lower labor costs. Working with a nondomestic third party overseas is known as outsourcing. It is specialized in how corporate strategy directs the decision of which markets, including various countries, a corporation competes in. The section under “International Strategy” discusses the many forms of international strategy.

 Even when a firm doesn’t sell products or services outside its home country, its international strategy can include importing, global outsourcing, or offshoring. Importing involves selling products or services in one country that are sourced in another. Penzeys Spices, for instance, sells herbs and spices that it buys from all over the world, yet it has retail outlets in only twenty-three states. However, such activity is wider than small companies like Penzeys. 

Kohl’s Corporation, one of the largest discount retailers in the country, has stores exclusively in the United States, but most of its products are sourced overseas. In outsourcing, the company delegates an entire process (e.g., accounts payable) to the outsource vendor. The vendor takes control of the operation and runs it as it sees fit. 

The final product is what the Corporation pays the outsourced vendor for; the vendor’s method of completing that task is up to the vendor. The contractor who outsources the task may carry it out locally or abroad (also known as offshoring). Offshoring is the process through which a firm transfers a function from its home country to another, typically at a reduced cost. International outsourcing is the practice of outsourcing work to a foreign contractor.

The Fundamentals of SWOT Analysis

Early in the 1970s, Ken Andrews created the SWOT analysis. The organizational analysis of S and W is an audit of a company’s internal operations and includes the appraisal of a company’s strengths and weaknesses, or S and W. 

On the other hand, environmental analysis involves looking at external opportunities and dangers to the organization and over which the corporation has less influence. A company asks four fundamental questions about itself and its environment while performing a SWOT analysis:

  • How can we help?
  • What are our goals?
  • What are our options?
  • What do others anticipate us to do?

Strengths and Weaknesses

When strategizing, evaluating an organization’s strengths and weaknesses is an excellent place to start. Generally speaking, effective plans maximize advantages and reduce disadvantages caused by any weaknesses.

Opportunities and Threats

After considering what you have just learned about competitive advantage and sustained competitive advantage, it is easy to see why the external environment is a critical input into strategy.Opportunities assess the enticing outward components that form the basis for a company’s existence and expansion. 

What opportunities do the market and its surroundings present for the company? External forces that could undermine the strategy or the business are examples of threats.

Threats are also external; while managers frequently have no control over them, having contingency plans to handle them can be helpful.

  • Strengths and opportunities (SO)
  • Strengths and threats (ST)
  • Weaknesses and opportunities (WO)
  • Weaknesses and threats (WT)

Now that you have understood types of business strategy, corporate level strategy, business level strategy, types of strategic management, functional level strategy and what are corporate strategies. So, to learn more about the business strategy, you can stay tuned by reading our business review today’s blog.