Corporate strategy is a broad-ranging strategy level that is mandatory for every big organization. It involves the approach in which the decision and strategy are implemented to create the most value for the organization.
To apply this strategy one must look that how different businesses they own fit together and how they affect each other.
In addition to this, you must consider the structure and the core aspect of the parent company to optimize human capital, processes, and governance.
Components of Corporate Strategy
Basically, there are four components of corporate strategy that a leader of any organization focuses on.
- Allocation of resources
- Organizational design
- Portfolio management
- Strategic tradeoffs
In this section, we are going to describe the component briefly. So, let’s get started.
1. Allocation of resources
Whenever it comes to the allocation of resources the firm usually focuses on two resources: people and capital.
To maximize the value of the firm or organization leader must identify how to allocate these resources to a different business unit.
Keynotes related to the allocation of the resources
- Determine the core competence and assured that they are well distributed across the firm
- According to priority move leaders to the place, they needed the most and add the most value
- Make sure that the supply of talent is distributed appropriately to all business
- To get the highest risk-adjusted return, allocate the capital across the different businesses.
- Allocating capital among internal and external opportunities
2. Organizational design
The organization design involves that the firm has required corporate structure and related system accurately to create the maximum amount of value.
The factors include in this organizational design are the role of corporate head office, reporting structure of the individual, business unit, matrix reporting, etc.
Keynotes related to the Organizational design are:
- Identify how much autonomy should be given to the business unit
- Determining whether a decision should make from top-down or bottom-up
- Business unit influence on the strategy
- Identify how large initiatives and commitments can be divided into smaller projects
- Integrate business units and function in such a way that there are no redundancies
- Setting the governor structure
- Setting reporting structure
- Identifying the appropriate delegation of authority
3. Portfolio management
- It consists the way business unit complement each other, their correlations, and decides where the firm will “play”.
- Determining what business to be in or to be out of
- Managing risk and reducing correlation of result across businesses
- Supervising the competitive landscape and ensuring that the portfolio is well balanced
4. Strategic tradeoffs
This is one of the most challenging aspects of corporate strategy in which balancing of tradeoff among risk and return of the firm is considered.
Following are some of the important factors for strategic tradeoffs
- Right product differentiation
- Many competitors take a copycat strategy by analyzing other risk-taker and modify it slightly
- Being aware of strategies and associated risk across the firm is very important
- The degree of autonomy business unit has crucial importance in managing this risk
- Higher the risk strategies you implement higher the possibility that you will get a higher return. So, if the strategy is well executed then it will give you a higher return.
- If you opt to swing for the fences then it will create more strikeouts, so it is very crucial to have the appropriate number of options in the portfolio.
The structure of incentive plays an important role in how much risk and how much return manager seek
It is important to divide the responsibilities of risk management and return generation so each can be chased to the desired level
It also helps to manage multiple overlapping timelines starting from a short-term risk/return to a long-term risk/return.
How corporate strategy is different from business strategy?
The Business strategy involved strategic decisions which include the choice of product, competitive advantage, customer satisfaction, etc.
While corporate strategy involves the overall objective and scope of business to fulfill stakeholder’s expectations.
Corporate strategy is created by the top-level management while business strategy is created by middle-level management.
The focus of the corporate strategy is to maximize profitability and business growth while business strategy focuses on getting success in the marketplace.