Overview of Corporate-Level, Business-Level, and Business Unit Level Strategic Planning
In the hierarchy of strategic planning, there are three levels that are important to have in place:
Corporate-level strategy
Business-level strategy
Business unit level strategy
While all of these strategy levels are important, there are significant differences between the three. A corporate-level strategy is focused on growth and profits through things like expansion or divestment, while business-level strategy is focused on elements to compete in the marketplace, such as pricing strategy. Business Unit strategy is specific to the operations of individual departments, such as marketing, R&D, etc.
In this article, I will provide an overview of each of the three levels of strategy and examples of how you can incorporate them into your business.
Corporate-Level Strategies Determine the Overall Direction of the Company
Corporate-level strategy is the highest level of strategic planning in an organization. It deals with the overall direction of the company and how it will compete in different markets.
The goal of corporate-level strategy is to create shareholder value by growing the company and increasing its profitability. To do this, organizations must carefully consider their overall direction and how they will compete in different markets. The decisions made at the corporate level will have a significant impact on the company as a whole, so it is important to get it right.
When developing a corporate-level strategy, organizations must first identify their core competencies. These are the skills and capabilities that give the company a competitive advantage in the marketplace. Once the core competencies have been identified, the company can then decide which markets to enter and how to best compete in each one.
Organizations must also carefully consider their organizational structure when developing a corporate-level strategy. The way the company is structured will impact the way it operates and how decisions are made. The organizational structure should be designed to support the implementation of the corporate-level strategy.
The corporate-level strategy is a critical part of any organization. It sets the overall direction for the company and determines how it will compete in different markets. By carefully considering their core competencies and organizational structure, organizations can develop a sound corporate-level strategy that will help them achieve their goals and create shareholder value.
Diversification and divestment are two prime examples of corporate-level strategies, both of which I will highlight below.
Diversification is an Example of a Corporate-Level Strategy
Using a corporate-level diversification strategy can benefit a firm in a number of ways. First, it can spread the employment risk of the firm across multiple segments. Second, it can reduce the cost of surmounting internal entry barriers. Third, diversification can generate ongoing competitive advantage.
In order to implement a successful diversification strategy, a company should consider its scope, including product, geographic, and vertical integration. Diversification can involve entering new markets or launching new SBUs. It can also include a combination of both related and unrelated diversification.
Diversification can also result in a higher return on investment. Companies can increase their returns by reinvesting cash into different businesses. However, it can also result in a low rate of return. Diversification can create shareholder value, but only if the industry is structurally favorable enough to support profitable returns over the long term. Diversification can be used to restructure industries or to develop a sustainable competitive advantage in new industries.
Diversification requires companies to build new skills. When a company expands into new markets, it needs to learn how to reach new customers and build strategic relationships. It also requires hiring capable people with relevant experience and forming strategic partnerships. However, it can be challenging for a company to diversify quickly and successfully.
Diversification requires a large amount of money and risk. Companies should plan for the potential downside of new diversification and evaluate their success and failure rate before implementing the strategy. For instance, companies like Starbucks and Coca-Cola have tried to diversify into other industries without any success. These attempts have incurred high costs in terms of marketing and executive time.
In the case of a company with no specialized skills, it may be wise to focus on its business units. This is because they can help it build a strong foundation for new ventures. Diversification can also help a company to leverage its existing capabilities and reduce integrating costs.
Divestment is an Example of a Corporate-Level Strategy
Divestment is a strategic business decision, often made to remove non-core assets from an organization. Its advantages and limitations are diverse. For example, the divested company can lose credibility with its investors, and its clients and vendors may shift to a competitor. In addition, divestiture is a costly process. The company must pay for professional experts, severance payments, and asset transfer fees. The process is also complex, as it involves restructuring the business entity.
The reasons for divesting can be varied, but one common reason is the need to focus on core areas of business. For instance, a firm may want to maximize its return by diverting resources from a marginally profitable line of business. A divestiture can also be an attempt to reduce a parent company's overall costs. In these cases, the parent company will likely earn more money.
Sometimes, a business will need to sell off non-core assets to avoid bankruptcy. In such cases, divestments can be an excellent way to focus on what is important to its business. Another common reason for divestments is political or social pressure. A divestiture in the fossil-fuel industry, for instance, may be a response to pressure from political and social groups.
Another reason divestitures are popular is to inject cash into a company. As a result, a divestiture is the opposite of an acquisition. It allows a firm to focus on its core business while also serving its corporate strategy. Typically, the process is handled by professionals within the company's Corporate Development department.
Divestment has many advantages and disadvantages, and the best divestors approach the divestiture process with the same rigor and planning as the sale of an asset. They set up sell-side teams that are constantly screening the company portfolio for potential divestiture candidates and figuring out the timing of the divestiture process. Moreover, they employ members with specific skills to help them implement divestitures effectively.
When divesting, CEOs should consider whether the business is a core one or a non-core one. Non-core companies don't drive a company's strategy and do not create long-term value for its stakeholders. In addition, nearly half of CEOs find it difficult to explain divestments to their stakeholders. Consequently, divestiture messaging should be persuasive and demonstrate that the business has been analyzed in terms of its long-term profitability.
Business-Level Strategy Determines the Competitive Advantage
Business-level strategy is the process of determining the path an organization will take to become more profitable. This strategy should focus on providing value to customers and utilizing the organization's core competencies. There are many different types of business-level strategies. Some are complex, while others are relatively simple.
One type of business-level strategy is cost leadership, which focuses on low prices. Firms that use this approach lower their costs and pass on the savings to their customers. Others focus on differentiation by offering products or services with unique features valued by customers. In addition, focus strategies include focusing on a specific market to provide a unique product or service.
While cost leadership is advantageous, it also creates certain limitations. Cost leaders do not spend a great deal of money on advertising, while Walmart spends a lot of money on advertising. Furthermore, cost leaders must not drop their prices below the average return of the next-most-efficient industry competitor.
In order to create a sustainable competitive advantage, business-level strategies must start with customers. This means identifying a target market, attracting customers, and making sales. Successful organizations develop strategies that address these three questions. Customers are the lifeblood of any organization, and they must be satisfied in order to remain successful. By analyzing the needs of customers, successful businesses can learn how to provide the best possible products and services for them.
A business-level strategy can be anything from entering a new market to increasing brand exposure through social media. Once an organization has defined its business-level strategy, it can break it down into tactics and specific tasks that can be performed by its marketing team. As an example, an office supply company may use a business-level strategy to sell paper and writing utensils, and ink cartridges to offices. This strategy also applies to office furniture, such as desks and cubicles.
Once a firm has a clear idea of who it wants to serve, it can then decide how best to serve that customer. The firm should develop products to meet specific customer needs, which are called core competencies. These core competencies provide a firm with its competitive advantage.
Business Unit Strategy Determines the Operational Plan
Business units are divisions within a company. A business unit strategy defines what each division does and contributes to the corporate level strategy. Often, business units work with multiple divisions or departments to accomplish their goals. The number and complexity of the business units is dependent on the company's size and structure. A business unit strategy can help identify areas of the business where the organization excels.
The business unit strategy must take into account the competitive landscape. Competitive analysis should include an analysis of the core competencies of competitors and how these can best serve the customer's needs. In this analysis, the company should also consider its USP (Unique Selling Point) and consider the market opportunities that are available.
Business units can be divided into two types, strategic and operational. A strategic business unit is an independent entity that reports directly to the company headquarters, is focused on its target market, and is large enough to have its own support functions. Strategic business units are most effective for organizations with multiple products or a product-based structure. Examples of companies that utilize a strategic business unit include Proctor and Gamble and LG.
Developing an operational plan is crucial for optimizing the performance of business units. By making sure that each unit understands its impact on the organization, an effective operational plan ensures that managers and workers are working toward the same goals. In addition, an operational plan will help companies track and review their performance. It will also help them to improve their policies and adapt to new consumer demands.
