Corporate strategy is essential for companies to thrive in competitive markets. It refers to the overall, long-term plan of action designed to achieve defined business goals and strengthen the firm’s position. A corporate strategy aims to leverage core competencies, allocate resources efficiently, and guide managerial decisions. For over half a century, theorists have explored frameworks for strategic planning and management.
In this article, we will explore the key concepts and components that enable organizations to formulate and execute a corporate strategy successfully in the dynamic business landscape of the 21st century.
What Is Corporate Strategy?
Corporate strategy refers to a long-term and thoroughly designed plan conceived to help a company gain a competitive advantage and fulfill its vision. The purpose of a corporate strategy is to set clear goals and objectives to improve the company’s performance on a financial and operating level.
Pioneers like Alfred Chandler, Igor Ansoff, and Michael Porter shaped foundational concepts. Today, corporate strategy encompasses everything from growth tactics to stability approaches to reinvention models. By analyzing their internal and external environments, companies craft strategies to capitalize on opportunities and combat threats.
Why Is Corporate Strategy Important for Businesses?
Corporate strategy provides a roadmap for how a business can leverage its strengths, overcome its weaknesses, capitalize on opportunities, and mitigate threats. A corporate strategy considers the company’s position in the marketplace and industry to determine the best path forward. It involves defining the business’s mission, vision, values, target markets, and competitive differentiators.
Additionally, corporate strategy focuses on resource allocation, operational efficiency, synergies between business units, and shareholder value creation. By taking a high-level approach, corporate strategy aims to maximize the overall value of the enterprise. It sets the tone and direction for more specific functional strategies related to marketing, operations, finance, HR, and other areas.
While business strategies focus on individual units, corporate strategy takes a holistic view across the organization. Effective corporate strategy articulates where the company is headed and how it will get there.
Here’s a summary of the seven most relevant reasons why creating and implementing a corporate strategy is important for a company:
- Helps develop a competitive edge: With a corporate strategy, a business can find ways to differentiate itself from its rivals. This includes emphasizing the product’s top features, investing in customer service, building partnerships, boosting brand awareness, and setting optimal pricing.
- Assists companies in identifying new opportunities: businesses can anticipate and take advantage of upcoming changes in the market that may affect their operations and performance down the road by analyzing the state of the industry and the overall economy. This includes shifts in the political, economic, technological, and customer landscape. Strategic planning enables a company to capitalize on existing opportunities and prepares it for potential challenges.
- Aligns the company’s efforts with its vision: An effective corporate strategy helps align the organizational goals with its long-term objective. This gives employees a sense of purpose and unified direction. A business’s vision should be inspiring, future-oriented, and unique to the company.
- Creates a better definition of what success is: Corporate strategy provides a clear criterion to evaluate the success of the business.
- Optimizes resource allocation: With corporate strategy, prioritizing resources is easier as decision-makers can rapidly identify the areas and efforts that will contribute the most to accomplishing the business’s short and long-term goals.
- Helps refine business models: Strategic planning helps reevaluate target customers, sales channels, and processes to keep the model aligned with corporate objectives.
- Encourages innovation: A clear strategy can be a great catalyst to put the best minds in a company to work to come up with the best ideas out there.
Types of Corporate Strategy
Four different types of corporate strategies can be implemented depending on what the business is trying to achieve. Most strategies fall into these four categories. In this section, we will be explaining what they consist of and what kinds of actions are typically taken by businesses to implement these strategies.
#1 – Growth Strategies
Growth strategies aim to expand the company’s business through means like entering new markets or increasing market share.
- Market development: expanding into new geographic markets or market segments (Example: Netflix expanding internationally).
- Product development: introducing new products or services (Example: Amazon moving into cloud computing services).
- Diversification: expanding into new industries by acquiring or starting up new business units (Example: Virgin Group’s diverse business portfolio).
- Integration: growing by acquiring companies up or down the supply chain (Example: Disney acquiring Marvel and LucasFilm).
#2 – Stability Strategies
Stability strategies focus on maintaining the company’s current business operations without significant change.
- Market penetration: seeking increased market share for current products in current markets (Example: Coca-Cola’s enduring market dominance).
- Status quo: continuing current operations without major shifts (Example: UPS keeping to its core delivery business model).
#3 – Retrenchment Strategies
Retrenchment strategies aim to improve efficiency or profitability by eliminating units or activities that are not contributing anything positive to the financial performance of the company.
- Turnaround: major changes to reverse economic declines and return to profitability (Example: IBM’s historic turnaround under Lou Gerstner).
- Divestiture: selling off business units or product lines (Example: eBay spinning off PayPal into a separate company).
- Liquidation: closing unprofitable business units or the entire company (Example: Blockbuster’s eventual liquidation due to the rise of streaming).
#4 – Reinvention Strategies
Reinvention strategies transform the business model through radical innovation and new technologies.
- Business model innovation – a fundamental redesign of how the company creates, delivers, and captures value (Example: Uber’s ride-sharing platform).
- Disruptive innovation – introducing groundbreaking products or services that disrupt well-established firms (Example: iPhone disrupting mobile phones).
- Digital transformation – leveraging digital capabilities to reinvent the business (Example: Netflix pivoting from DVD rentals to streaming).
Key Components of a Successful Corporate Strategy
There are certain elements that every corporate strategy must have to make sure it has been adequately conceived and can be successfully implemented in an organization.
In this section, we outline seven of the most relevant ingredients that make a corporate strategy coherent, effective, and easily transmissible to employees and other stakeholders.
#1 – Mission and Vision Statements
A clear vision and mission statement serve as the foundation for the corporate strategy. The vision defines what the company aspires to become in the long run. It paints a picture of the desired future state. The mission explains the company’s purpose and reason for existing. It identifies the needs the company aims to serve.
An effective vision and mission statement provides direction, energizes employees, and helps distinguish the company from competitors. They ensure everyone is working towards common goals. The vision and mission should reflect the core values and culture of the organization.
#2 – SWOT Analysis
SWOT stands for strengths, weaknesses, opportunities, and threats. Analyzing its internal strengths and weaknesses enables a company to leverage its competitive advantages while preparing and coming up with contingency plans to mitigate its vulnerabilities.
Meanwhile, examining the external opportunities and threats helps the company capitalize on emerging trends while preparing for the challenges that the overall industry and economy are experiencing.
A SWOT analysis gives businesses insights into their competitive landscape. It highlights the areas that are most critical for strategic decision-making.
#3 – Core Competencies
A corporate strategy must identify and develop the core competencies that allow a company to thrive. Core competencies are capabilities that are critical to a business achieving its goals and performing better than competitors. These are areas where the company excels and adds unique value.
Core competencies may involve technical expertise, proprietary technologies, exceptional service, and other differentiators. They enable a company to expand into new markets and applications. Core competencies help guide resource allocation decisions to build and sustain the firm’s competitive advantage. Companies should invest to enhance competencies that underpin their long-term success.
#4 – Strategic Objectives
Setting strategic objectives transforms the vision into specific and measurable goals that outline how the company will successfully deploy its corporate strategy. These objectives provide clarity on the key initiatives and help outline the organization’s needs to accomplish its goals within the next 3 to 5 years.
They guide resource allocation and operational planning. Example objectives include desired financial performance, market share gains, product development, and geographical expansion.
Strategic objectives should be limited in number, align with core competencies, provide clear and measurable goals, and balance short and long-term aims. Tracking performance versus objectives enables the business to gauge progress and make adjustments when needed.
#5 – Resource Allocation
A corporate strategy must determine how financial, human, and other organizational resources should be allocated to pursue the firm’s strategic goals. Resources should allow the company to build its competitive advantage and become a leader or a major force at least in its target market.
Effort and capital allocation depend on an initiative’s potential to create value. Leaders have to make decisions related to investing in new products, entering new markets, research and development, acquisitions, technological improvements, and more. To be effective, they have to prioritize where these resources should be allocated to better contribute to accomplishing the firm’s vision.
Resources may need to be redeployed based on changes in the internal or external environment. Portfolio management techniques help optimize how resources are spread across various business units.
#6 – Implementation Plan
An implementation plan details how the corporate strategy will be operationalized. It delineates the concrete steps, responsibilities, timeframes, budgets, and key performance indicators that will be needed to execute the corporate strategy.
Implementation plans help convert strategic thinking into strategic doing. They enable coordination and communication across the enterprise. Plans should anticipate potential risks, obstacles, and mitigation tactics. Progress should be continually monitored, with adjustments made as conditions dictate. A thoughtful implementation plan is indispensable in actualizing the corporate strategy to deliver results.
#7 – Risk Management
Since corporate strategies aim for long-term, transformative outcomes, they inherently carry risks. Risk management evaluates the potential downsides of moves like entering new markets, acquiring competitors, or launching innovative products. It identifies the risks that could undermine the corporate strategy’s success.
Qualitative and quantitative risk assessment techniques help gauge the probability and potential impact of negative outcomes on the organization’s well-being. Risks can be ranked to prioritize mitigation efforts on serious threats first.
Mitigation tactics range from avoiding these risks, reducing the likelihood or their consequences, transferring some risk exposure, or accepting some level of risk. Risks must be closely monitored and contingencies must be defined to take action rapidly if they materialize.
Examples of Successful Corporate Strategies
Still not sure how companies successfully implement corporate strategies? In this section, we share with you four examples – one for each of the types of strategies we outlined earlier – so you can get acquainted with how this works in the real world.
Growth Strategy Example: Amazon
Amazon (AMZN) utilizes multiple growth strategies to expand its e-commerce empire. A key approach is diversification into new industries. Beginning as an online bookseller, Amazon has developed numerous new business units. This includes Amazon Web Services (AWS), its highly profitable cloud computing division.
AWS has become the backbone of many websites and apps. Amazon Prime revolutionized loyalty programs and shaped consumer expectations on shipping. The acquisition of Whole Foods and the rollout of Amazon Fresh grocery delivery displays market development into physical retail and food. Amazon’s growth strategy has made it the most valuable retailer worldwide and expanded its total addressable market to several trillions of dollars.
Stability Strategy Example: The Coca-Cola Company
For over 130 years, Coca-Cola has pursued a stability strategy centered around its iconic soda product. While gradually expanding its beverage portfolio, Coke’s strategy focuses on reinforcing its core brand identity and maintaining its leading market share. Despite new health trends and competition, Coke remains committed to its namesake carbonated soft drink.
It invests heavily in brand marketing like its “Open Happiness” campaign. The company has penetrated markets globally, making Coke ubiquitous worldwide. While not transforming its underlying business model, Coca-Cola has achieved durable success by executing a stability strategy that leverages the strength of its time-tested brand.
Retrenchment Strategy Example: General Electric
Once one of the world’s most valuable brands, GE stumbled in the 2010s before initiating a major retrenchment strategy. The company had become bloated and unfocused from decades of diversification. To streamline, GE returned to its industrial roots by divesting its financial services and media assets.
It also shed struggling units like appliances and locomotive manufacturing. GE’s turnaround plan aimed to make it a more specialized industrial company focused on aviation, healthcare equipment, and energy infrastructure. By divesting over $200 billion in businesses, GE pared down its portfolio to refocus on core competencies. Though still recovering, the retrenchment strategy has helped GE reduce debt and simplify operations.
Reinvention Strategy Example: Netflix
Netflix (NFLX) exemplifies a reinvention strategy that leveraged digital technologies to disrupt incumbent firms. Launched as a DVD rental service, Netflix capitalized on the growing ubiquity of high-speed internet and mobile devices. It transformed its business model by pivoting to on-demand video streaming, upending established players like Blockbuster.
Netflix then reinvented media consumption and viewing behavior through binge-watching. Its user interface and recommendation algorithms keep subscribers engaged for hours. By embracing emerging technologies and radically changing how customers access and watch content, Netflix reinvented home entertainment and became a global media leader.
How to Design a Corporate Strategy for Your Business?
Turning a corporate strategy into an actionable plan can feel like an overwhelming task. To help our readers out, we have outlined a set of steps that must be taken to develop and implement a corporate strategy for their businesses, starting with conceiving its vision and mission.
Step #1 – Define the business mission and vision
The first step to creating a corporate strategy is drafting a vision and mission statement for the business. The mission statement should be concise and should easily communicate what the company does, what kind of product or service it delivers, and what differentiates it from the competition.
Meanwhile, the vision should be bold, it should have a long-term focus, and it should be easy to identify when the company has achieved it. It is what the business is trying to achieve within the next 3 to 5 years.
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Step #2 – Analyze your current situation
The next step is to analyze the status of the business at the moment. This can be accomplished by drafting a SWOT analysis. This tool helps decision-makers assess where the business stands by identifying its strengths and weaknesses (internal factors) and opportunities and threats (external factors).
A typical strength would be something like “A strong sales team with a positive track record of exceeding monthly quotas”. Meanwhile, a weakness could be “low inventory turnover rates”.
In addition, opportunities are advantageous trends that, if exploited, can be turned into strengths or improve the business’s performance. An example of an opportunity would be “The rise of artificial intelligence can help us automate some operating processed and save the firm a sizable amount of money annually”.
Finally, threats are factors beyond the company’s control that can negatively affect its performance. An example of a threat would be: “Rising custom duties may result in significant price increases that will undermine our ability to compete with local manufacturers”.
Step #3 – Set forth the business’s strategic objectives
By using the outcome of the SWOT analysis, companies can draft their strategic objectives. The goal at this point is to first identify ways to use the firm’s strengths to take advantage of existing opportunities in the marketplace.
In addition, some objectives should be drafted that aim to reduce or eliminate the firm’s weaknesses in crucial areas or develop new strengths – i.e. launching a new product, completing a funding round, or patenting a new technology.
Finally, some companies may make it a priority to reduce the impact that external factors – threats – can have on their performance and turn that into a strategic objective.
Step #4 – Come up with an action plan
Once these objectives are established, it is time to draft a road map that will consist of directing the company’s efforts toward the achievement of these goals. An action plan should be conceived with each strategic objective as the source. Then, a step-by-step approach should be outlined.
The responsibilities of each department and area of the company must be clearly defined along with the expected outcome for each action. There should also be responsible people that can be summoned at any point in the process to account for what has been done, which initiatives remain to be executed, and what the timetable is to deliver what they have been tasked to.
Step #5 – Allocate resources
Companies have limited resources and these must be adequately allocated to make sure that they contribute the most to achieving the firm’s vision. The action plans set forth previously will require human, financial, and other types of resources to be materialized.
It will be the general manager’s or head of corporate strategy’s responsibility to determine how resources will be spread across the organization to keep moving forward.
Step #6 – Create a risk management plan
Not everything goes always as planned. Risks and negative outcomes should be considered a part of the journey. Preparing for them is the best way to mitigate their impact.
This can be achieved by drafting a contingency plan for each action or objective. Contingencies can be illustrated as Plan A, Plan B, and Plan Cs or they can be alternative objectives that may substitute existing ones if the latter turns out to be unfeasible.
Step #7 – Monitor progress and make adjustments
A corporate strategy typically has a long-term view. Along the way, there will be obstacles, deviations, and progress may advance at a slower pace than expected. Managers must keep track of how things are going by tracking vital metrics and KPIs by creating dashboards that they can rapidly check to have a clear picture of how actions are being turned into advancements toward the strategy’s core objectives.
These dashboards will deliver insightful information and signals that indicate if adjustments need to be made to the corporate strategy so the business keeps moving forward.
Is a Holistic Corporate Strategy Essential for Your Business?
An effective corporate strategy is critical to a business´s success and survival in the long run. Without a coherent strategy, companies lack direction and risk falling behind rivals that have strategic plans in place.
A corporate strategy provides a roadmap to guide decisions and allocate resources to build competitive advantages. It enables firms to identify opportunities in the market while shoring up weaknesses and mitigating external threats. Even stable companies need a strategy to maintain their position.
Crafting a strategy requires keen business insights and analytical skills. Leaders must objectively evaluate their firm’s position and options while making choices to maximize value creation. They must anticipate economic, technological, and industry-specific changes on the horizon.
Devising a corporate strategy also demands creativity to envision new products, business models, or markets. Whether created internally or with the assistance of an external advisor, a corporate strategy should come from someone who knows all of the ins and outs of the industry. For large enterprises, having a Chief Strategy Officer or strategic planning team would be ideal if this is financially possible.
In today’s highly dynamic business landscape, corporate strategy is essential to steer organizations through disruption. With technology and markets in constant flux, companies must continually assess their strategic plans. A nimble strategy enables both startups and established firms to seize opportunities for the future.
Read more: How to Allocate Resources Effectively