What is Corporate Strategy
Corporate strategy is a strategy that are define and guideline the direction of the organization in the big picture and will be the direction of all lower-level strategies. Normally, the development of corporate strategy is following the company’s vision and mission.
First, the company needs to define the specific moves needed to bring that vision to life. The Boston Consulting Group suggest the company need to answer questions in four key areas before creating a corporate strategy:
- Vision, misson, and ambition: Who are we? Where is our industry headed? And where do we want to be five or ten years from now?
- Corporate portfolio strategy: What is the overall logic of our business portfolio? And what are the strategic priorities for each business unit?
- Corporate growth strategy: What are our growth engines? Do we need to pursue new growth vectors? What are the key platforms that will realize our growth ambition?
- Financial strategy: Do we have the right processes and policies to link strategy to value creation? Do we efficiently allocate capital?
Put it simply, the corporate strategy is the main theme of all strategies within an organization since it is the highest level among the three levels of strategy.
The corporate strategy can be categorized into three main themes, including growth strategy, stability strategy, and retrenchment strategy.
- Growth strategy is focused on expanding the business to increase the revenue in various ways: find new customers, selling existing products to the new market, merger, acquisition, and diversification. The growth strategies are simply found in the Ansoff Product-market matrix.
- Stability strategy is focused on stable the business (as its name) to improve the current business without investment or divestment.
- Retrenchment strategy is focused on stable the company’s financial position by stop unprofitable operations to cut the company’s expenses.
Growth Strategy
Growth strategies are the corporate strategy that focused on expanding and increasing revenue in various ways. Which include the following categories:
- Intensive growth is the strategy for growth that is related to the products and markets.
- Diversification growth is a growth strategy that focused on expansion into a new business (may or may not be related to the existing business).
- Integrative growth is a strategy for growth by expansion into the related business, the integrative growth strategy can be separated into horizontal integration and vertical integration.
Intensive Growth
Intensive growth is the strategy for growth that is related to the products and markets.
- Market penetration focused on selling more existing products to existing markets.
- Market development focused on selling existing products to new markets.
- Product development focused on developing new products and selling to existing markets.
Diversification Growth
Diversification growth is a growth strategy that focused on expansion into a new business (may or may not be related to the existing business).
- Concentric diversification focused on expansion into a new business (selling new products to new markets) that are related to the original businesses, products, markets, or activities.
- Conglomerate diversification is a contrast of the concentric, the conglomerate diversification is focused on expansion into unrelated businesses, products, markets, or activities.
Integrative Growth
Integrative growth is a strategy for growth by expansion into the related business, the integrative growth strategy can be separated into horizontal integration and vertical integration.
- Horizontal integration strategy is a strategy that the company expansion by acquiring or take-over a similar business in the industry.
- Vertical integration strategy is a strategy to expand the business into supply chains (the backward integration) or to distributors (the forward integration) by acquisition or development of new businesses.
Stability Strategy
Stability strategy is the corporate strategy that focused on stable the business (as its name) without investment or divestment. The company adopts the stability strategy is when they want to wait before the next expansion (for some reason) and when that business unit is in maturity (no need to invest anymore.)
No change strategy is a strategy the business unit needs to do nothing new but focus on maintaining the existing operation and wait until the next opportunity to do so. The mature business unit that enjoys a high market share and profit but need no investment to maintain their profit and market share (also known as a cash cow) can go with the no-change strategy.
Pause or Process with caution strategy is a strategy that wait or process with caution to wait for the next expansion opportunity.
Profit strategy is a strategy that focused on maintaining profit during a difficult situation by increasing prices, cut-costs, reduce or stop investment.
For the business unit that enjoys a high market share and profit (also known as a cash cow) they need little investment to maintain the profit and market share. But for a low profitability business unit, the company may cut costs, increase the price, or reduce investment to sustain the profit.
Retrenchment Strategy
The retrenchment strategy is the corporate strategy that focused on stable the company’s financial position by desertion unprofitable operations to cut the company’s expenses. There are three types of retrenchment strategies: Turnaround strategy, Divestment strategy, and Liquidation strategy.
Turnaround strategy is a retrenchment strategy that is adopted when the company realized they going in the wrong direction and needs to be undone before it affects the company’s performance and when the company wants to restructure. Put it simply, a turnaround strategy is about undoing a bad idea before it is too late.
Divestment strategy is about downsizing the operation or completely divesting a business unit that is unprofitable to allocate resources to other profitable operations.
Liquidation strategy is focused on selling assets to provide liquidity to the company or completely stop a whole failed business unit. The difference between divestment and liquidation strategy is the liquidation strategy adapted when a business unit is failed and extensive loss.
References: Corporate Strategy by BCG
