Business Strategy Key Points – Corporate strategy uses a portfolio approach to strategic decision making by looking at all of the company’s businesses to determine how to create the most value. To develop a corporate strategy, a company must consider how the various businesses it owns fit together, how they influence each other, and how the parent company is structured to optimize human capital, processes, and management. Corporate strategy is built on top of business strategy, which deals with making strategic decisions for individual companies.
There are several important components of corporate strategy that focus on organizational leadership. The main tasks of the company’s strategy are:
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Resource allocation in a company usually focuses on two resources: people and capital. In an effort to maximize the value of the entire company, leaders must determine how to allocate these resources to different businesses or business units so that the whole is greater than the sum of its parts.
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Organizational design involves ensuring that the company has the necessary corporate structure and related systems to create maximum value. Factors leaders should consider are the role of corporate headquarters (centralized vs. decentralized approach) and individual and business unit reporting structures – vertical hierarchies, matrix reporting, etc.
Portfolio management looks at how business units complement each other, correlate, and decide where the firm will “play” (ie whether or not the business will go in).
One of the most challenging aspects of corporate strategy is balancing risk and return within a company. It is important to take a holistic view of the entire integrated business and ensure that the desired level of risk management and return generation is implemented.
Corporate strategy is different from business strategy because it focuses on how to manage resources, risk and return in the company, rather than looking at competitive advantage.
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Leaders responsible for making strategic decisions must consider many factors, including resource allocation, organizational design, portfolio management, and strategic trade-offs.
By optimizing all of the above factors, leaders can hopefully create a business portfolio that is worth more than the sum of its parts.
Thank you for reading CFI’s Introductory Guide to Corporate Strategy. To continue learning and advancing your career as a financial analyst, these additional CFI resources and guides will be of great help:
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Structured Query Language (SQL) What is Structured Query Language (SQL)? Structured Query Language (known as SQL) is a programming language used to interact with databases…. Strategy execution is the implementation of strategic plans to achieve organizational goals. It includes the structures, systems and day-to-day operational goals that make your team successful.
Even the best strategic plans can fall apart without proper execution. In fact, poor execution is more common than you think. According to research by Bridges Business Consultancy, 48 percent of organizations fail to achieve at least half of their strategic goals, and only seven percent of business leaders believe their organizations are very good at implementing strategy.
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“If you’ve seen the news recently, you’ve probably seen business stories with great strategies that failed,” says Harvard Business School professor Robert Simmons, who teaches the Strategy Execution Course. “In any case, we found a well-formulated but poorly executed business strategy.”
How can you equip yourself and your team to implement the plan you’ve created? Here are five keys to successful strategy execution that you can use in your organization.
Research in the Harvard Business Review shows that 71 percent of employees at low-performing companies believe that strategic decisions are predictable, compared to 45 percent of employees at high-performing companies.
Creating a strategic plan before starting implementation ensures that all decision makers and teams are aligned with the same goal. This creates a shared understanding of the broader strategic plan across the organization.
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Strategy does not stagnate – it must evolve with new challenges and opportunities. Communication is important to ensure you and your colleagues start on the same page in the planning process and stay aligned over time.
One of the obstacles many companies face in effectively implementing strategy is that employee roles are not designed around strategy.
This can happen when employees are hired before a strategy is formulated or when roles are defined to align with previous company strategies.
In Executing Strategy, Simmons argues that work is optimized for high performance when it is aligned with an organization’s strategy. He created the Job Design Optimization Tool (JDOT) that individuals can use to assess whether jobs in an organization are designed to successfully execute strategy.
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“Each range can be adjusted to be narrow or wide or anywhere,” Simons writes in the Harvard Business Review. “I’m thinking of adjustments made on sliders, like you might find on music amplifiers. If you set the settings right, you can design a project where talented individuals can successfully execute your company’s strategy. But if you set the settings wrong, it will be difficult for effective employees.
When it comes to strategy execution, the power of clear communication cannot be overlooked. With a staggering 95 percent of employees having little or no knowledge of company strategy, communication is a skill that needs to be improved.
Strategy execution depends on the day-to-day tasks and decisions of each member of your organization, so it’s important to ensure that everyone not only understands the company’s broader strategic goals, but also how each individual is responsible for achieving those goals.
Data reported in the Harvard Business Review shows that 61 percent of staff at high-performing companies believe that field and line employees are given the information they need to understand the fundamental impact of their work and decisions. In organizations with poor execution, only 28 percent believe this to be true.
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To improve organizational performance and empower employees, train managers to communicate the impact of the team’s day-to-day work, address the organization at all-employee meetings, and develop a culture that celebrates milestones in achieving big strategic goals.
Strategy execution depends on continuous evaluation of progress towards goals. To effectively measure organizational performance metrics, define numerical key performance indicators (KPIs) during the strategic planning phase. Numerical goals are a clear measure of success for you and your team, so you can regularly monitor and track your performance and assess whether any changes need to be made based on that progress.
For example, your company’s strategic goal is to increase customer retention rates by 30 percent by 2024. By recording changes in customer retention rates on a weekly or monthly basis, you can track data trends over time.
If your track record shows that your customer retention rate is decreasing every month, it could be a sign that your strategic plan needs to be changed because it is not driving the change you want. However, if your data shows consistent month-over-month growth, you can use these trends to reasonably predict that you’ll hit your 30 percent growth goal by 2024.
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While innovation is an important driver of your company’s growth, don’t let it get in the way of executing your strategy.
To capitalize on innovation and maintain control over the implementation of your current strategy, develop a process for assessing new challenges, obstacles, and opportunities. Who makes the decisions that can direct the focus of your strategy? What are the non-negotiable parts of the strategy? Answering these questions in advance can provide clarity during execution.
Also, remember that a stagnant organization has no room for growth. Encouraging employees to think, experiment and take calculated risks with strategic initiatives in mind.
Setting strategic goals, formulating plans and executing strategies require different skills and have their own challenges. Remember that the best formulated strategy can be poorly executed, consider improving your execution skills before setting strategic goals and creating a plan. Developing these skills can have a lasting impact on the future performance of your organization.
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Are you interested in designing systems and structures to achieve your organization’s strategic goals? Explore our eight-week Strategy Execution course and other strategy courses to sharpen your strategic planning and execution skills. To find the HBS Strategy course that’s right for you, download the free flow chart.
Catherine Cote is the Marketing Coordinator at Harvard Business School. Before joining HBS, he worked at an early-stage SaaS startup where he discovered his passion for content writing, and at a digital consulting agency, where he specialized in SEO. Catherine holds a B.A. from Holy Cross, where he studied psychology, education and Mandarin Chinese.