Corporate strategy: an essential for business growth

Posted on 14th November 2018

Posted in Business

The Importance of Corporate Strategy
The Importance of Corporate Strategy
The Importance of Corporate Strategy

A strategy is vital at all levels of business. From individuals to departments and from brands to businesses, each can and should have its own strategy – a high-level game plan that outlines how they are going to achieve a specific, overall aim.

A well thought-out strategy is many things to a business. It’s a unique positioning statement, a growth plan, a way to achieve a point of competitive advantage over other companies in the market. It’s also a communication tool and a way to keep focus, to ensure sustainability, to tell the difference between opportunity and distraction, and so much more.

At the very highest level in an organisation is the ‘corporate strategy’. So, what is corporate strategy, and how is it different from other business or departmental strategies?

Corporate strategy explained

Almost any business can be split into ‘portfolios’, whether they be business units, regions, departments, brands, types of clients, alliances and more. The development of a corporate strategy involves the coordination of these portfolios toward a certain end goal, one that always includes the creation of value. A corporate strategy is essentially about how the shape of the company itself can add value.

The corporate strategy outlines the direction of the business as a whole by defining its overall scope in terms of how various operations of the company will work as a team towards an end goal. It defines the way various businesses within the corporation, or specific departments, or global territories, or brands, etc., will interact and relate in order to achieve the desired aim, reach a position of greater value and create growth.

Obviously, corporate strategy has a great deal to do with organisational design, including the head office’s role, reporting structures, levels of autonomy and high-end project management processes. But that’s not all. It also encompasses the allocation of resources, specifically capital and people, to the various parts of the organisation.

Another area of focus is the size, shape and make-up of the portfolio. Which markets, both type and geographic, does the company wish to do business in? What opportunities is the organisation currently missing as a result of its present shape? What does this mean for the creation or mitigation of risk?

And speaking of risk, a firm focus of any corporate strategy must be around how much risk, and for what level of return, the organisation is comfortable with. This is a key driver of many other decisions within the business, including diversification of portfolios, placement of key people and whether the company goes for absolute product differentiation, as opposed to improving on a product or service with which the market is already comfortable.

What is the importance of corporate strategy?

Before the corporate strategy has even been signed off there is enormous value in the act of its development. This is because the development of a corporate strategy requires a clear understanding of how the various portfolios, or business units, are related. It involves clarity around the interaction of the different units, how they are configured, what synergies are being exploited and what other opportunities are available, as well as potential implications of various changes at a local and global level.

Such an understanding of an organisation’s parts and structure and the various inter-relations of each part allows executives to analyse and evaluate the shape of the business itself.

Importantly, a strong corporate strategy creates great clarity around scope, particularly around what a business should not become involved in. This includes markets, products, services, regions and departments.

Should the business, for instance, go to the effort and expense of employing and training a marketing team, or is this better outsourced to a third party? Should it specialise in one particular product or service or should it diversify its offerings? Should it move its head office into the new growth region or would it be better to open a branch office that enjoys a high level of autonomy? Does each region require its own HR, finance or marketing department or can the needs of each be satisfied by the efforts of head office? What needs to be sold off, and what needs to be bought?

Perhaps of greatest importance is the fact that corporate strategy is absolutely necessary for the strong and aligned development of business, brand and departmental strategies. If they are not all driving toward the same goal, they are likely working against each other.

Corporate strategy in fast-changing times

Gone are the days when the direction of a business could be decided upon, then implemented over decades. Such is the pace of change, disruption and advancement that shapes of entire industries are in a constant state of flux. Look at the music industry for a clear example of the seemingly endless effects of technologically driven change.

As industries change shape and as new technologies, such as machine learning and artificial intelligence, continue to create new opportunities and destroy traditional ways of doing business, organisations must constantly fine-tune their design, too. Sometimes this simply means altering a particular process, but sometimes it means re-shaping the entire business in order to compete in a completely new field.

Start-ups and small businesses are typically able to operate comfortably in such an environment of rapid change. A thorough, regular approach to corporate strategy can help a larger business to do the same.

Rather than concentrating on competitive advantage, as a business strategy does, corporate strategy creates an environment in which excellent strategic decisions can be made and, in itself, adds value to the organisation.

Just as a great coach is able to outline a strategy for a sporting match, turning a group of individuals into a powerful and focussed team, corporate strategy turns a scattered and diverse group of business units into a single entity whose purpose is to work toward the same goal. That’s a powerful advantage in today’s business environment.

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