Corporate strategy is an overall plan to guide a company’s growth, profit, and long-term objectives. It is developed at the highest level of the organization, usually by senior managers or executive boards.
To create a successful corporate strategy, companies must assess their current performance and environment to determine where they should concentrate resources and efforts.
There are several common strategies used to achieve business goals:
1) Cost Leadership Strategy:
Cost leadership is one of the corporate strategies aimed at achieving overall cost leadership in an industry.
In the situation where companies compete in an industry in which the customers are highly influenced by price, cost leadership assumes strategic importance.
Therefore, it is important that the board of directors understands its cost and cost drivers. They must also be fully cognizant of exactly what constitutes their target customers’ quality.
The essential task is to deliver the requisite level of quality at the lowest possible cost, which allows the pricing strategy of penetration price.
Suppose the organization could attain a lower cost level than that of each of its competitors. In that case, it could sustain time of falling prices, and thus the lower prosperity better than its competitors, thereby ensuring long-term survival.
Cost leadership might enable the organization to pursue the policies of penetration on pricing.
If the Board of Directors could estimate the total market size, then it is possible to determine what share of the market they would require to realize revenue and profit targets.
2) Differentiation Strategy:
Product differentiation involves the use of multiple products, each of which is branded and subject to the promotion.
Using this corporate strategy, the competitor must out of necessity compete in many areas and strive to overcome brand loyalty through reductions in the selling price of their product offerings.
Product differentiation involves the identification of the features for which the customers are willing to pay. Product differentiation may be related to the product image, quality, reliability, durability, or post-sales support in terms of after-sales service availability and quality.
Where products differentiation can be achieved it may enable the board of directors to implement a pricing strategy based on market skimming, which involves setting a relatively high price stressing the attractions of the new features such as robustness, durability, and perceived quality attaching to those with a genuine interest in the product or its association attraction.
Reaction and support are thus solicited from the ‘top end of the particular market.
If the launch is successful in this ‘cream-skimming’ exercise, and the decision has been taken to invest in the possible, then the appeal of the new product can be enlarged through a shift in advertising and a reduction in price.
The price reduction can be made in stages to coincide with the supply-side increase as new resources come into use. One of the price requisites for the successful operation of a pricing strategy based on the market is difficult for competitors to come up with a similar product quickly with which they can undercut the price being charged by the organization.
If the organization can successfully archive product differentiation it may also be possible to implement a pricing strategy based on premium pricing.
Such a strategy would involve pricing its products above the price of the competitor’s products on a permanent basis.
Such a strategy will depend on potential buyers perceiving that the product is different and superior to the competitor’s products.
3) Focus Strategy:
Niche marketing targets markets in which the company can focus on cost and quality to meet the needs of customers who comprise a specific market.
In this corporate strategy, directors could target its products at the specific market segment, which comprises relatively well-off people willing to pay a premium for its unique feature.
It is quite conceivable that such a policy might be aimed at a particular geographical region where relatively well-off people live.
An organization might meet a need of such a niche segment of the market better than its competitors simply by the concentration of the specific focus on a narrow target market than those of market competitors.
Cost leadership would allow the organization to develop a cost-focused strategy providing niche customers with a lower-priced product than competitor offerings.
Obviously, such a niche mark would have to be sufficiently large to enable the desired levels of profitability to be attained.
Why Having the Correct Corporate Strategy is Important?
Having the correct corporate strategy is essential for businesses to be successful. It allows companies to identify and capitalize on opportunities, allocate resources efficiently, and navigate an ever-changing business environment.
With the right corporate strategy, businesses can stay ahead of their competition and maximize their potential.
Here are some of the key reasons why having a good corporate strategy is so important:
- Establishes Goals – A well-planned strategy helps define clear goals that provide direction and help guide decision-making. This defines long-term and short-term objectives that must be achieved to reach these goals.
- Aligns Resources – A good corporate strategy enables businesses to identify areas where they need to allocate resources to achieve desired results. This helps ensure they invest their time, effort, and money into the most crucial aspects of the business.
- Reduces Risk – An effective strategy helps businesses reduce risk by minimizing exposure to external factors, such as marketplace changes or economic conditions, which can hurt operations if not managed correctly. Additionally, it eliminates unnecessary costs or inefficient processes that can put undue strain on resources.
- Increases Profitability – A clear action plan lets companies take full advantage of available opportunities, anticipate customer trends, provide more value over competitors and increase profits.
- Improves Employee Morale – A carefully laid out corporate strategy offers employees a sense of purpose and direction within the company which often increases morale, productivity & overall employee satisfaction.
Top 10 Limitations of Corporate Strategy
Corporate strategy is one of the most important aspects of any business, as it helps define an organization’s overall direction and objectives.
However, some things could be improved in a corporate strategy that should be considered when planning for a successful future.
Here are the top 10 rules of corporate strategy:
- Conflict of Interest: A conflict of interest can arise when different divisions within a company have other goals or interests that don’t align with the company’s overall objectives. This can make it difficult for a unified strategy to be achieved.
- Limited Resources: Corporate strategy requires resources to be allocated effectively to succeed. If limited resources are available, this can limit the number and type of strategies that can be implemented.
- Inability to Adapt Quickly: Change is inevitable, and companies must adapt quickly to stay competitive in today’s marketplace. However, if a company’s corporate strategy is too rigid, it may not be able to keep up with changing trends and conditions in its industry or sector.
- Unclear Goals and Objectives: Corporate strategies can fail without clear goals and objectives because staff members do not know where they fit into the bigger picture or how their efforts should work towards achieving organizational objectives.
- Lack of Flexibility: Rigid strategies often lack flexibility, leading to problems if unexpected changes occur or circumstances demand quick action and decision-making outside normal parameters.
- Technology Limitations: Technology plays an important role in many corporate strategies, but if a company lacks access to the appropriate technology or faces delays due to technical issues, processes may become inefficient or ineffective.
- Risk Management Issues: Risk management must form part of any corporate strategy, but inadequate measures could create unnecessary financial losses in areas such as investments, capital expenditure, operational costs, etc.
- Market Dynamics Issues: Companies must pay attention to market dynamics as these affect pricing levels, customer loyalty, and trends which could significantly impact profitability targets.
- Political & Regulatory Environment Changes: Political climates can have major consequences for businesses seeking to plan long-term strategies, as policy changes may reduce profitability levels overnight.
- Societal Expectations: Companies must also factor societal expectations into their strategies, as failure to do so could lead to unwanted publicity, which could hurt their bottom lines and reputations irreparably.
10 Advantages of Corporate Strategies
Corporate strategies can provide many benefits to an organization. Here are the top 10 advantages of corporate strategy:
- Establishes clear and unified direction that all employees can follow, promoting efficiency and eliminating confusion.
- It facilitates better decision-making and helps ensure resources are used effectively.
- Creates incentives and guides employee behavior towards the organization’s desired goals.
- It helps define and create competitive advantages, improving a company’s market position against competitors.
- Encourages innovation by providing a framework for new ideas, products, or services to be implemented quickly and effectively.
- Establishes effective communication between management and staff by ensuring everyone is aware of the organization’s objectives and working together towards achieving them.
- Can help identify market trends before they become apparent to competitors, allowing a company to stay ahead of the curve in product development or cost reduction strategies?
- Enables businesses to respond quickly to external changes, such as customer preferences or industry trends, by providing a road map for timely adaptation or disruption to remain competitive in the marketplace.
- It provides accountability since strategy implementation can be efficiently monitored and evaluated against pre-defined objectives, helping organizations develop their capabilities for success over time.
- It offers predictability since it provides foresight into upcoming developments within an organization, making it easier for managers to prepare appropriately for them when they arise.