Corporate strategy is a well-defined, long-term plan designed by the top level management with an objective to achieve company goals and gain a competitive advantage over other business while providing value to both customer and shareholders. In addition, corporate strategy is a multi-level strategy implemented by a company to create corporate values and provide direction to the company. It also refers to the company’s vision and strategy to beat its competition and become a market leader.
As every organization has a limited amount of resources, it is necessary for them to prioritize the use of resources and make efficient use of them. Corporate strategy encompasses the decision related to efficient and effective use of organizational resources and increasing the output in an organization. Apart from this, a corporate strategy is made with an objective of increasing profits, capturing new markets, scaling a business and diversifying it. Thus, corporate strategy can be understood as a strategy level that is concerned with overall growth and development of the company.
Components of Corporate Strategy
There are various important components of corporate strategy that management of the organization emphasizes on. The following are the major components.
This is the first component of corporate strategy where the executives set the high-level direction of the organization by setting the vision, mission and corporate values. The company should take into consideration about 4 to 6 years while making the vision and goals of the company in order to increase the higher level of commitment and teamwork while creating a vision for a company, the fundamental objective should be to respond to how leadership sees the company evolving in the future.This component is the guiding factor for any type of strategy. This decides what the organization should vouch for and what are the considerations for it. Here, organizations clarify the intent of its operation.
The next component of this strategy is setting the objectives of the company which describe what the company will do to fulfill its mission. Setting strategic objectives helps the company to measure its progress. Objective setting stages the future of the organization This provides a sense of purpose and direction. The management should clearly communicate these objectives to employees so that everyone will be focused on the top priority tasks and work under the same objectives of the company.
Resources are scarce in nature. Another important component is allocation of resources. This component of corporate strategy is concerned about the decisions regarding the efficient and effective allocation of capital and human resources in the organization towards the staged goals and objectives. Resource allocation consists of planning, organizing and leading the resources in a way that helps to achieve a company’s strategic goals.
There are multiple factors that equally contribute to attaining the company’s goals. This requires the distribution and management of equitable amounts of resources to those factors. Implementation of such strategies require huge infusion of huge amounts of resources hence corporate resource allocation is an important component in corporate strategy.
Prioritization or strategic tradeoffs refers to the balance between risk and return and ensures that the company is pursuing the desired level of risk management and return generation. This is one of the challenging aspects of corporate strategy because it is not always possible to take advantage of all the possible opportunities and every business decision almost carries a certain degree of risk and the companies need to take care of these factors to come up with the optimal strategic mix. Also, the corporate strategy holds a significant importance, strategic prioritization becomes a careful decision.
As not all the opportunities lead to good results and not all the risks last forever, executives or decision makers need to carefully consider the strategic opportunities and threats to achieve the objectives of corporate significance.
Types of Corporate Strategy
Corporate Strategy can be anything that is made at an executive level. There are different types of strategies that are designed at the executive level. Some of such corporate strategies are:
Executives make this strategy with an objective to gain perpetual growth and improved performance. When an organization is performing evenly and enjoying success, the corporate strategy of stability is adapted to maintain the current market position. Stability strategy is a safer approach from the corporate level as it is less risky, less experimental and inexpensive strategy.
This is an aggressive strategy adapted at the corporate level. In such strategies, companies aim to expand the presence in the market, increase the profit and focus for faster growth. For this, companies enter a new market, innovate its product and service and reimagine its services. Expansion strategies include concentration, diversification, integration, cooperation and internationalization.
The Retrenchment Strategy is the opposite of the expansion strategy. Executives go for this strategy when companies are not up to the mark and are looking for revamping their business model. Turnaround, Divestment and Liquidation are three retrenchment strategies. This is adapted to regain the position in the market or to collapse the business.
In this strategy, executives combine two or more strategies to fulfill the requirements of the company. An organization may face multiple situations which require different treatments. In such situations, companies go for a combination strategy to cater all the needs and requirements.
Importance of Corporate Strategy
Corporate strategy indicates the future success and health of the company. Following are some of the reasons for the importance of corporate strategy in an organization.
Offers strategic direction to the business
Corporate strategy helps to differentiate the conceptual needs and goals of an organization and utilize the resources and core competence of an organization to reach these goals. Corporate strategy also ensures ownership and establishes the overall value of a business by defining the value system.
Helps the company to adapt
Business or corporate environment is ever changing in nature. There are multiple factors which influence the business environment. The primary response as the change in the environment is reflected through corporate strategies. Hence, corporate strategies are important as they help organizations to adjust and adapt to the changing scenario of business.
Adaptability has now become a new way to have a competitive advantage. Those who adapt, survice. Hence, corporate strategies are important to have this advantage. Corporate strategy increases the understanding of the organization and helps to analyze the strategic goals in relation to opportunities or threats present in the business organization.
Corporate strategies guide both human and nonhuman activities in an organization. Such strategies guide organizations to the desired goals and motivate individuals to work for it. Corporate strategies provide clear direction and purpose to the organization
Corporate strategy motivates the employees to work towards achieving a certain goal. With strategies, they feel that their organization has a clear direction and purpose. Due to this clarity in where the organization is heading, the managers and employees can make proper decisions for the company to reach its goals.
Prepares contingency plans
Corporate strategy can help the organization to prepare appropriate contingency plans to execute whenever the need arises. It helps the company to avoid greater risk or loss if anything uncertain happens in the business.