Business strategy and corporate strategy are two terms that are often used interchangeably, but they actually refer to different levels and types of strategic decision making. In this article, you will learn how to differentiate between them and why it is important to understand their implications for your organization.
Business strategy is the plan of action that a specific business unit or division follows to achieve its goals and objectives. It defines how the business will compete in its market, serve its customers, and create value for its stakeholders. Business strategy is usually aligned with the corporate strategy, but it also reflects the unique capabilities, resources, and opportunities of the business unit. Some examples of business strategy are product differentiation, cost leadership, market segmentation, and innovation.
Business strategy has a shorter time horizon than corporate strategy and describes how a specific business unit could achieve its goals. This level is more relevant for an organization that has multiple business units.
Corporate strategy is the overarching plan of action that guides the entire organization and its portfolio of businesses. It defines the vision, mission, and values of the organization, as well as the scope, direction, and allocation of resources across the businesses. Corporate strategy also determines how the organization will manage its relationships with external stakeholders, such as investors, regulators, and society. Some examples of corporate strategy are diversification, vertical integration, mergers and acquisitions, and corporate social responsibility.
This level is also called the portfolio level, as it describes the overall plan that includes strategic investments across a group of business units.
Both business strategy and corporate strategy are essential for the success and sustainability of an organization. They provide a clear and coherent framework for making strategic choices and setting priorities. They also help to align the actions and behaviors of the employees and managers with the goals and values of the organization. However, they also have different implications for the performance and risks of the organization. For instance, a business strategy that focuses on innovation may require more investment and experimentation, while a corporate strategy that focuses on diversification may reduce dependence on a single market or industry.
A corporate strategy that focuses primarily on growth may be difficult to sustain in the long term, as there are economic and demographic limits on the supply of materials, labor, and demand. Regulation may also constrain the amount of growth that an organization can achieve.
One of the key challenges for any organization is to align its business strategy and corporate strategy in a way that creates synergy and value. This means that the business strategy should support and complement the corporate strategy, and vice versa. To achieve this alignment, the organization needs to have a clear and shared understanding of its vision, mission, and values, as well as its strengths, weaknesses, opportunities, and threats. It also needs to have a transparent and collaborative process for developing, communicating, and reviewing its strategies, as well as a robust and flexible system for measuring and evaluating its results.
In order to differentiate between business strategy and corporate strategy, you can ask yourself questions to identify the level and type of strategic decision making. For instance, consider the scope of the strategy - is it focused on a single business unit or division, or does it cover the entire organization? Also, consider the goal of the strategy - is it to achieve a competitive advantage in a specific market, or is the aim to create a long-term vision and direction for the organization? Additionally, think about the key elements of the strategy - is it based on the capabilities and resources of the business unit, or is it based on the vision, mission, and values of the organization? Lastly, determine who are the main stakeholders of the strategy - is it aimed at satisfying customer needs and expectations, or is it aimed at creating value for investors, regulators, and society?
To apply your knowledge of business strategy and corporate strategy, you can use some frameworks and tools that help you analyze and formulate your strategies. For instance, the SWOT analysis is a tool that assesses the strengths, weaknesses, opportunities, and threats of your business unit or organization. It can help you identify your competitive position and potential areas for improvement or growth. Additionally, Porter's five forces is a framework that evaluates the competitive forces in your industry. It can help you determine the attractiveness and profitability of your market, as well as the sources of competitive advantage or disadvantage. Ansoff matrix is another framework that evaluates the growth options for your business unit or organization. Lastly, the balanced scorecard is a tool that measures and manages your performance across four perspectives: financial, customer, internal process, and learning and growth. This tool can help you align your objectives, indicators, targets, and initiatives with your strategy.
The corporate and business levels fail to fully address the organization's relationship with society. A higher level of strategy, the enterprise level, focuses on this relationship and incorporates the organization's mission and purpose while acting as a framework for the other strategy levels.