by The corporate strategy follows the portfolio approach to make a decision where you look at all of the company’s businesses and analyze how to generate maximum value out of it.
Corporate strategies are arguably the most essential and broad-ranging strategy level within an organizational strategy.
Different Between Corporate and Business Strategy
Corporate strategy, on the other hand, is the top management plan concerning the whole organization. It’s the master plan that directs the company towards success. The more appropriate corporate-level strategy is, the more it would increase the chances for the success of your organization.
Business strategy is a specific plan of action that a company devises to achieve a certain target or goal of the organization. The business strategy usually follows the concerns of the corporate strategy that impacts the whole company. It helps the company to attract new investors so that they could invest their capital. Moreover, it assures creditors about the financial health of the organization.
Components of Corporate Strategy
Resource Allocation
Resources allocation comprises of dealing with two major resources; capital and people. The leader has a task to utilize these resources so efficiently in order to improve the value of the organization, and how and where to distribute these resources in various quantities in different departments. Some of the key factors in resource allocation are as follows;
People
Knowing the strengths and capabilities of the company’s staff and distribute them across the organization in different departments
Changing the position of leader depending on the feasibility and where they could perform better and add more value
Making sure the availability of the talent across the organization
Capital
Distributing financial resources across various business divisions where they could generate more
Revenue
Exploiting external opportunities like mergers and acquisitions while efficiently distributing capital internally and externally.
Design
Organizational design means making sure that the company has a proper system and structure in place that could generate value. The leader should consider following the centralized or decentralized approach and the reporting system of the individuals and business divisions. Some of the main factors in the organizational design are as follows;
Head Office
- Determining that how much independence a business unit should have.
- Whether the Decision-making process should be up or down the hierarchical chain.
- How much influence business units should have on the strategy.
Reporting Structure
- Diving the responsibilities and commitment of the large initiative into smaller divisions
- Combining various business functions and units, so that there are no redundancies left.
- Maintaining a balance between risk and responsibilities
- Selecting a proper delegating authority
- Setting up management and reporting structure
Management of Portfolio
Portfolio management is about finding a correlation among business divisions that complement each other. Some of the factors in portfolio management are as follows;
- Making a decision about the field of business you want to be in.
- Minimizing the risk factor through diversification of the resources and decreasing the result correlation.
- Generating a new strategic option by looking for new opportunities.
- Balancing the portfolio according to the market trends.
Strategic Tradeoff
A strategic tradeoff is about finding a balance between the risk and return. You must also have a critical view of your business whether your company is meeting the required results or not. Some of the main factors relevant to the strategic tradeoff are as follows;
Risk Management
- The risk usually relies on the strategy that the company chooses to follow:
- Product differentiation is also very risky; it could lead you towards winning everything or losing it.
- When a company follows the copycat strategy by modifying the market experimented product.
- You should be familiar with the strategy and associated risks.
- You should differentiate in some areas like cost leadership and follow the copycat strategy in the other.
- The independence of various business divisions.
Return
The high-risk strategy usually pays off higher return, the cost leadership and product differentiation could pay off a lot in the long term.
Incentives
- Incentives are very important when it comes to divisional managers that how much risk and return, they should take.
- Separate the revenue generator and the responsibilities of the risk-takers, so that they could perform better.
- Manage and maintain the various short term/long term and risk overlapping.
