Business Strategy And Operations – August 29, 2020 April 14, 2021 Lars de Bruin 12 Comments Business Strategy, Corporate Strategy, Functional Strategy, Strategy Hierarchy, Levels of Strategy, Strategic Management, Strategy, Pyramid Strategy
Strategy is the basis of every decision made in the organization. If the strategy is poorly selected and developed by senior management, it will significantly affect the effectiveness of employees in almost all departments of the organization. In our previous article “What is a strategy?!” we have tried to define and explain what business strategy means and what is not considered part of strategy. In this article, we break strategy down into three different parts, or “Strategy Levels.” These three levels are Corporate Level Strategy, Business Level Strategy and Functional Level Strategy. Together, these three levels of strategy can be described in the “Strategy Pyramid” (Figure 1). A company’s approach is different in business strategy and functional strategy. Although Company-level strategy is at the top of the pyramid, we begin this article by first explaining Business-level strategy.
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Business level strategy is familiar to most people and includes questions such as “How do we compete?”, “How do we achieve a (sustainable) competitive advantage over our competitors?” for the questions. To answer these questions, it is important to first have a good understanding of the business and its external environment. At this level we can use internal analysis frameworks such as Value Chain Analysis and VRIO Model and external analysis frameworks such as Porter’s Five Forces and PESTEL Analysis. Once a good strategic analysis is done, top management can continue to formulate strategy using frameworks such as Value Disciplines, Blue Ocean Strategy, and Porter’s Generic Strategies. Ultimately, business-level strategy aims to achieve competitive advantage by being a unique and hard-to-imitate player in the competitive landscape, offering real value to customers.
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Functional Level Strategy “How do we support business level strategy across functional departments such as Marketing, HR, Manufacturing and R&D?” Regarding the question. These strategies are often aimed at improving the efficiency of company operations in divisions. In this section, workers often refer to “Marketing Strategy”, “Human Resource Strategy” or “R&D Strategy”. The goal is to align these strategies with the larger business strategy as much as possible. If the business strategy is focused, for example, on offering products to students and young people, the marketing department should target these people as accurately as possible through marketing campaigns by choosing the right (social) media channels. Technically, these solutions are very efficient and are therefore NOT part of the strategy. As a result, they should be called tactics rather than strategies.
However, in corporate-level strategy, management must consider not only how to achieve competitive advantage in each area of business in which the company operates, but also which businesses they should enter first. It’s about choosing the best set of businesses and figuring out how to integrate them into a corporate whole: the portfolio. Usually, major investment and disinvestment decisions are made at this level of top management. Mergers and acquisitions (M&A) are also an important part of the company’s strategy. This level of strategy is only necessary when working in two or more business areas across different business units with different business-level strategies that need to be aligned to develop an internally consistent strategy at the company level. Therefore, corporate strategy is often seen in multinational enterprises (MNEs) or conglomerates rather than in small and medium-sized enterprises (SMEs).
Let’s use Samsung as an example. Samsung is a conglomerate consisting of many strategic business units (SBUs) with different product lines. Samsung sells smartphones, cameras, televisions, microwave ovens, refrigerators, washing machines, even chemicals and insurance. Every product or strategic business unit needs a business strategy to compete successfully in its industry. However, at the corporate level, Samsung is asking, “Should we continue with the camera business first?” should solve fundamental questions such as or “Is it better to invest more in the smartphone business or focus on the TV business instead?”. The BCG matrix or the GE McKinsey matrix are both frameworks for portfolio analysis and can be used as tools to identify this.
The most common level of strategy is Business Strategy, and it exists in strategic business units with the goal of gaining a competitive advantage in a particular market. If the company has several SBUs, there should be an overall Corporate Strategy that connects all SBUs through the corporate configuration. Here, top management has to make decisions about resource allocation and where to invest and where to withhold. Finally, the Functional Approach is present in departments such as Marketing, HR and Manufacturing. Ideally, we should turn to tactics rather than strategies because of the operational nature of the decisions made in these departments. Alternative strategies are developed to determine the direction of human and material resources of the business for the greatest possibility of achieving the chosen goals. Strategy is a comprehensive concept, so it is often used in different ways.
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But this distinction creates a major problem when some writers focus on the same endpoints (mission, goals, objectives) and the means to achieve them (policies and plans). However, others focus on the means rather than the ends in the strategic process.
Strategy refers to defining the purpose or mission and key long-term goals of the business and allocating resources and adopting courses of action necessary to achieve these goals.
Policies are general statements that guide managers’ thinking to make decisions. They provide a broad framework within which decisions are made.
However, it refers to the direction in which human and material resources are used to increase the chances of achieving the chosen goals.
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The main function of strategies and policies is to integrate and guide plans. But one of them alone cannot ensure the achievement of the organization’s goals.
Strategic planning seems like a simple exercise; it analyzes the current and expected future situation, determines the direction of the company and develops ways to achieve the goal.
In fact, strategic planning is a very complex process that requires a systematic approach to identify and evaluate external factors and align them with the firm’s capabilities.
Strategy formulation involves determining the ways in which an organization can achieve its objectives, weaken competitors, achieve competitive advantage, and ensure the organization’s long-term survival.
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In a diversified company with different business lines under one umbrella, strategies start at four levels.
Corporate strategy is developed at the highest level of top management of a diversified company (in our country, a diversified company is known as a group of companies such as Alphabet Inc.). Such a strategy outlines the company’s overall direction for its various businesses and product lines.
For example, P&G’s corporate strategy may be to acquire large Canadian paper companies to become the undisputed market leader.
Corporate-level strategy is a set of strategic alternatives chosen by an organization that manages its activities in several industries and markets at the same time.
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It is a business-unit-level strategy developed by the division’s senior managers. This strategy focuses on strengthening the company’s competitive position in terms of products or services.
Business strategy includes all actions and strategies to compete with competitors and management methods to respond to various strategic issues.
According to Hitt and Jones, business strategy consists of the action plans adopted by strategic managers to use the company’s resources and unique capabilities to gain a competitive advantage over its competitors in the market.
A business strategy is often developed in line with a company’s strategy. The main direction of business strategy is product development, innovation, integration (vertical, horizontal), market development, diversification, etc.
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And competitive advantage comes from strategies that lead to some uniqueness in the market. Competitive strategies for winning are based on sustainable competitive advantage.
Business strategy refers to actions taken by managers to improve the company’s market position by satisfying customers. Improving market conditions means taking action against competitors in the industry.
Thus, the concept of competitive strategy (as opposed to cooperative strategy) has a competitive orientation. The goal of competitive strategy is to win the hearts of customers by satisfying their needs and ultimately to outperform competitors (or competing companies) and gain competitive advantage.
The success of the competitive strategy depends on the capabilities, strengths and weaknesses of the company and the capabilities, strengths and weaknesses of competitors.
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In the course of doing business, companies face many strategic issues. Management has to deal effectively with all these issues to survive in the market. Business strategy deals with these issues in addition to competition.
A business-level strategy is a set of strategic alternatives that an organization chooses when doing business in a particular industry or market.
So, production strategy, marketing strategy, advertising strategy, sales strategy, human resource strategy, inventory strategy, financial strategy, training strategy, etc.
A functional approach is included