Corporate Strategy

What Is Corporate Strategy?

Corporate strategy uses a portfolio approach for making decisions, where it guides how a company creates value through its various businesses. Unlike a business strategy, which focuses on decisions for a single business, corporate strategy takes a broader view, considering how different businesses within an organization interact and contribute to overall success.

To create a corporate strategy, a company needs to assess how several companies fit together, impact one another, and how the headquarters/parent company is constructed to use human capital and processes.

It defines the end goal towards which a company should direct itself to. The decision determines all key activities and strategies in each business part.

It is mainly the firm’s blueprint for achieving growth. It also makes the extent and timing of the firm’s growth clear. It is focused on business products, markets, and business line choices.

The organization’s competitive functional strategies are designed to integrate with the corporate strategy to let it achieve its long-term goals. 

It is referred to as the key steps taken to gain a competitive advantage by the selection and management of a business mix that competes in multiple industries or markets for products.

Corporate strategies are expected to help a firm earn high profits and returns and generate shareholder value. It addresses the multi-business issues entirely.

A good corporate strategy has a set of goals that are defined and quantified. It has a clear understanding of the industry and a proper roadmap clarifying the path while linking all the factors together to ensure the company is prepared for any unforeseen circumstances. 

Understanding Corporate Strategy

A company’s management needs to understand and comprehend how a competitive advantage must be achieved in business areas where the company functions and helps understand what business operations need to be conducted. 

The organization’s senior managers and company executives must decide where a corporate strategy can be optimized and ensure the strategies are unified with the company’s key corporate strategy. 

Most multinational organizations and conglomerates have departments for a corporate strategy. 

Key investment decisions are made at the top management level. M&As are also a vital aspect of a company’s main corporate strategy. It aids in determining the right set of businesses and how they need to diverge into a common portfolio. 

For corporate-level strategies, management needs to understand how to achieve competitive advantages in all lines of business in the operating firm and which companies they need to be in.

It involves selecting a set of firms and then determining how the organizations need to be integrated into a whole as a portfolio. Major investment decisions are made at the top management level.

It is only necessary when the organization functions and has business operations in 2 or more business segments through independent business units with diverse business-level strategies that must be conjoined to form a consistent corporate-level strategy. 

Corporate level strategies deal with resource allocation and resource transfer from one business to another. These decisions are taken in a way that organizational objectives will be achieved. These strategies lend overall guidance to business operations. 

These strategies connote a company's overall direction, which involves its growth attitude and business line variety.

It has significantly improved over the last few decades.

It is concerned with a company's overall business scope and purpose to meet the crucial expectations of stakeholders such as investors, customers, governments, and employees. It is influenced by investors in the company and is a guide for strategic decision-making. 

For the company to succeed, a good organizational strategy mandates a strong foundation and the capability to grow with ever-changing market trends. Companies can usually face several difficulties when they build and implement corporate strategies. 

Types of Corporate-level Strategy

When designing a company's corporate-level strategy, managers must identify the best ways to distribute resources that serve the company's needs to achieve the set objectives. 

It can also help the organization derive a contingency plan, where preparation is needed to work in unforeseen circumstances.

The main types of corporate-level strategy are:

1. Stability strategy

A stability strategy is characterized as a strategy where a company retains its corporate-level present strategy and effectively continues to focus on its current products and markets. 

The organization continues to develop its current business and product markets while it maintains the existing effort level; until it is satisfied with gradual yet incremental growth.

It does aim to invest in new plants, gain and improve market share, or enter new geographical territories.

Organizations select this type of a strategy when the industry in which the company operates or the economy’s state is in turmoil or when the industry deals with little growth.

They also choose this strategy when they confront an expansionary period where they are supposed to consolidate their strategic operations before starting another round of expansion.

2. Growth strategy

Firms choose a growth strategy when their viewpoints on resource availability and historical financial performance are combined. The most prevalent growth strategy at a corporate level is diversification. 

Diversification is when a firm enters into new activity lines through internal or external modes. The main reason a firm pursues diversification is to generate value by either achieving economies of scale and scope or through market leadership. 

A firm theoretically chooses diversification due to government restrictions, problems in operational performance, and uncertainty about cash flow forecasts. 

Diversification is a risk management tool, and its successful optimization decreases an organization’s vulnerability to the consequences of competing in a particular market. 

Risk plays an important role when choosing such a strategy. Therefore a constant evaluation of risk is associated with a firm’s tendency to achieve a strategic competitive advantage in the relevant market. 

An internal development within an organization can either be by increasing investments in new goods and services, customer segments, or geographic markets, including international expansion. 

Diversification is achieved by external means, either by acquisitions or joint ventures. Concentration can be achieved either through vertical or horizontal integration. Vertical integration occurs when an organization dominates a function that was provided by a supplier. 

Horizontal integration is when a company expands products into new geographical locations or increases its product and service range in its current markets.

3. Retrenchment strategy

Many organizations experience declining financial performance caused by market erosion and poor decision-making by the company’s top management. 

Managers then respond to the deteriorating financial performance by selecting corporate strategies that help them restructure their attempt to turn around the company by improving its competitive standing or divest the business without a turnaround possibility. 

A turnaround strategy is a form of a retrenchment strategy that focuses on operational enhancement when the state of a financial decline is not at an extreme. 

4. Combination strategy

A combination strategy is when a range of generic strategies can be used combinedly and sequenced. For example, a growth strategy is followed by a stability strategy or pursued simultaneously in various parts of the single business unit. 

A combination strategy is created to mix and combine growth, retrenchment, and stability strategies while applying them across a range of the organization’s business units. 

Nestle’s Corporate Strategy

Nestlé was established in 1866 as an Anglo-Swiss milk company. It is now the largest health and nutrition company in terms of sales and geographical presence, with locations in 84 countries and over 230,000 employees.

Nestlé’s corporate mission is to help people live better lives. It tailors its products to cater to the individual tastes and preferences of consumers in various target markets around the globe using research and R&D.

Nestlé aims to meet the needs of its consumers daily by selling its products at a high quality and using its advertising and marketing strategies with the key objective of delivering the best quality products.

Its corporate strategies are retrenchment, growth, and stability strategies that change according to the various business needs and the changing market environment.

Nestlé has achieved immense success in its market share, financial performance, competitive advantage in the health and wellness industry, and product variety by using growth strategies constantly.  

It uses horizontal and vertical integration growth strategies and diversification strategies to enhance its competitive position and overtake competing rivals. It has entered new markets horizontally to reduce operating risk while vertically improving its supply chain practices. 

Nestlé does not optimize any growth strategies in the event of unprecedented circumstances. It continues to use stability strategies and waits till market conditions are ideal to continue to prosper in the market. No new operational projects are being undertaken. 

Retrenchment strategies are the least ideal option for Nestlé. It eliminates products that do not perform well and brands that have no profitability generation for the company to increase its operational efficiency. 

COVID-19 and corporate strategy 

COVID-19 has coerced big companies to reassess almost every business aspect. It has also confirmed the importance of the function of strategy. 

Before COVID-19, organizations operated in a vastly unprecedented, complicated, and dynamically ever-changing environment.

A company’s ability to identify and adjust to these various conditions has become a crucial source of achieving a sustainable competitive advantage before the rise of the global pandemic. 

With the responsibility of shaping a company’s corporate strategy and identifying the important shifts in a market, organizations were already positioned and prepared to play a crucial role in achieving value from disruptive forces such as COVID-19.

Thus, in this case, the COVID-19 pandemic has only stated the significance and importance that companies need to instill in order to navigate the rapid change and unseen uncertainty. 

Fundamental alterations and structural changes that were seen as being far away now appear likely to occur more rapidly and sooner than predicted otherwise.

Companies are using R&D rapidly and innovating quickly to find ways of enhancing learning and sacrificing sophistication for speed and more quantity with more changes incoming.

In a rapidly and dynamically evolving environment, strategy functions must focus on observing around the corner of the next change to position their organizations for success in the long term and push company growth. 

The challenge remains on how to effectively do so in a vastly unique COVID-19 environment that is now widely referred to as the world’s new normal. 

Organizations that can strategically identify market trends and adjust their strategic processes will be able to generate corporate strategies that create value for the organization and drive growth to achieve sustainable success following the new normal. 

Summary

As seen throughout this article, strategy is defined as how a particular objective will be measured and achieved. It navigates the relationship between the starting and final points of a business goal using the available resources. 

The three levels of strategy are:

• Corporate strategies.

• Competitive strategies.

• Functional strategies. 

Corporate strategies are associated with a company’s broad, long-term goals, which set the overall direction for the organization to follow. 

Competitive strategies give a solution as to how a firm will compete in a particular business or industry and, thus, involve determining how a company will compete within every line of business it has.

Functional strategies are also known as operational strategies, and these are the short-term goal-oriented decisions and actions taken by the organization’s various functional departments.

There are many approaches to developing a stability strategy, including a holding strategy, stable growth, harvesting strategy, or profit strategy. The growth of businesses demonstrates a realignment of business operations to different market environments. 

This is achieved using intensive expansion, both horizontal and vertical integration, diversification, and international operations. 

Companies that deliver superior customer value to their consumers are those that re-evaluate and revisit their corporate strategy to improve areas for delivering the targeted results and positive outcomes. 

Thus, a strong corporate strategy is essential for business survival, continuity, and success. It is not only a definition of a company’s mission or vision but also a roadmap for organizations to thrive amid unprecedented situations.

Researched by Haniya Ahmad Wasim I Linkedin

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