In this pill, we introduce the different typologies of business strategy and the phases that compose it. We will try to go a little beyond the purely theoretical theme, giving some concrete examples so that, at the end of this brief reading, you may be able to distinguish the different levels of strategy and understand which ones are applicable in your reality.
Strategy and strategic objectives
The company strategy is a plan for profitable growth that:
- identifies the direction and scope of the firm’s action or business unit
- aims to achieve longer-term performance than competitors (with respect to objectives)
- integrates a coherent set of strategic decisions.
Goals are a fundamental key to guide the strategy: the target to which the identified direction points!
At the enterprise level, three interconnected levels of strategy are generally identified: corporate, business and operational.
In terms of corporate strategy, it is defined in which sectors and markets the company will compete.
At this level, the management examines the overall portfolio to assess whether it is balanced or not and decides in which business unit it is appropriate to invest more. Basically, the corporate strategy is concerned with defining:
1) the general strategic objectives of the company and the guidelines (usually in terms of investments or disinvestments) to be provided to each strategic business unit (to achieve these objectives)
2) the resources to be allocated to achieve these general objectives (in terms of budget and human resources).
The management of the corporate strategy is usually based on portfolio matrices that allow, among other things, to make appropriate assessments on possible diversification of the offer. Diversification usually occurs in two possible ways:
- internal – internal organic growth through the development of new strategic business units
- external – mergers and acquisitions (M&A)
Consider, for example, the diversifications (and therefore the underlying underlying corporate strategies) of companies such as the Virgin Group (which operates in various areas such as: entertainment, clothing, music, airline, financial services, etc.) or the Samsung group (which produces very different products such as: appliances, smartphones, microelectronics, etc.) or Amazon (with its online sales platform, home automation systems, financial services, publishing and entertainment products, the AWS cloud platform and the related services, etc …).
Business Unit Strategy
The purpose of a strategy defined at the level of business units is to create and maintain a competitive advantage in the specific market: that is, the macro guidelines (of the corporate strategy) are set in specific objectives that the company aims to achieve with the resources and budget, made available.
Taking the example above of Amazon, the AWS company, Amazon Web Services, is in charge of defining the strategies necessary to compete with Google Cloud, Microsoft Azure and IBM Cloud Computing. In turn, AWS has several Business Units and each of them applies different strategies, but to pursue the same business objective (to make the AWS offer even more profitable). The Amazon Web Services EMEA Business Unit, for example, deals with product and service strategies dedicated to business clients in Europe, Middle East and Africa, while Amazon Web Services Worldwide Public Sector implements targeted business development strategies for the offer aimed at public administration globally.
Each functional unit of the business unit declines the management strategy in operational strategies aimed at achieving the strategic objectives of its area. At this level the functional managers define the operational strategies to reach their goals … and strive strenuously to get a bigger slice of budget to get them 🙂
Examples of operational strategies can be marketing and sales strategies for a product on a specific channel (pricing, promotion, etc …).
Obviously, the classic three-level subdivision of the business strategy is applied to large and structured departments. And in the case of smaller companies like SMEs and Startups? In this case, we speak of only two levels of strategy, Business and Operational. At the business level, the company defines the direction it wants to take to reach its business objectives and the resources it wants to put in place, while at the operational level it defines the strategic actions necessary to achieve the objectives. Each strategy obviously involves risks and opportunities that each manager should identify and monitor to ensure the effective achievement of the objectives. We will talk about this and much more in the next Strategy Pills.
See you at the next pill!