Levels of Strategy05/03/2020
Strategic Management Levels: Corporate, SBU and Functional Strategies
In a multi-business enterprise, having several SBUs, there would be three levels of strategy, viz., corporate strategy, SBU strategy and functional strategy. In enterprises which do not have SBUs, there will be only two levels of strategy, i.e., corporate strategy and functional strategies.
- Corporate Strategy:
Corporate strategy is the long-term strategy encompassing the entire organisation. Corporate strategy addresses fundamental questions such as what is the purpose of the enterprise, what business/businesses it wants to be in (portfolio strategy) and how to expand/get into such business/businesses (for example – by establishing greenfield enterprises or by M&As).
In other words, “corporate-level strategic management is the management of activities which define the overall character and mission of the organisation, the product/service segments it will enter and leave, and the allocation of resources and management of synergy among its SBUs.”
Corporate strategy is formulated by the top level corporate management (board of directors, CEO, and chiefs of functional areas).
- SBU Strategy:
SBU-level strategy, sometimes called Business Strategy or Competitive Strategy, is concerned with decisions pertaining to the product mix, market segments and manoeuvring competitive advantages for the SBU.
While corporate strategy decides the business portfolio (i.e., the types of business), the competitive strategy decides the strategy/strategies to succeed in the chosen business/businesses.
SBU strategy has to conform, obviously, to the corporate philosophy and strategy.
In short, “the SBU-level strategic management is the management of an SBU’s effort to compete effectively in a particular line of business and to contribute to overall organisational purposes.”
The responsibility for SBU strategy is with the top executives of the SBU who are normally second-tier executives in the corporate hierarchy. In single SBU organisations, senior executives have both corporate and SBU-level responsibilities.
- Functional Strategies:
Functional-level strategies are strategies for different functional areas like production, finance, personnel, marketing, etc. In other words, “functional-level strategic management is the management of relatively narrow areas of activity, which are of vital, pervasive, or continuing importance to the total organisation.”
Functional-level strategy is the responsibility of functional area heads.