Corporate strategy is a long-term plan or framework which is designed to help a company achieve a competitive advantage within the market. The business world is incredibly competitive, with multiple organisations all vying for control of the markets they operate in. To stand out and achieve success, a company must have the right corporate strategy. Ideally, this strategy will allow the organisation to deliver on its promises to shareholders and customers while also outperforming the competition.
Corporate strategy is separate from business strategy, which is more focused on the individual business. Corporate strategy looks to combine business strategy across multiple businesses that it controls, taking a portfolio approach to creating the most value. Ideally, corporate strategy should build on the individual business strategy of each business within the organisation.
You can learn more with a corporate strategy course, which will help you understand how to maximise internal resources to improve performance and profitability. Whether you’re working in management or running your own business, it’s important to understand what corporate strategy is and how it works. Implementing the right strategy can offer many benefits, which you’ll find out more about below.
What Are the Components of Corporate Strategy
Any successful corporate strategy involves four major components. Focusing on each area allows business leaders to deliver the optimal strategy and ensure the best results. These components are:
The Allocation of Resources
The most important resources for any business are people and capital. These must be allocated correctly across the organisation for maximum results and to achieve a competitive advantage. The end goal should be to create an organisation where the whole is greater than the individual parts.
Leaders should be moved where they have the best impact, and the right level of talent needs to be distributed throughout the organisation. Capital also needs to be allocated correctly, ensuring that it earns the highest risk-adjusted return.
Organisation design or corporate structure is a key component to focus on when drawing up strategy. It’s important to consider whether to adopt a centralised or decentralised approach and how reporting is done through the different companies. This component also looks at how projects are divided up and assigned.
Ideally, each business within the organisation should complement each other and create a synergy. Correct portfolio management will consider which markets and industries the organisation should operate in and how to manage risk through diversification. It’s also important to manage risk by following market trends and ensuring the portfolio is well-balanced.
Strategic trade-offs include how risk and return are balanced across the organisation. Higher-risk strategies may result in higher returns, but the costs may also be much higher if the strategy isn’t effective. It’s important that innovation is encouraged and that failure isn’t always punished. However, a careful balance must be reached to prevent resource waste.
Why Implement Corporate Strategy
Corporate strategy identifies the direction that an organisation should take. Every strategy and action taken in every other area of that firm is influenced by that choice. The ultimate goal is to create a competitive advantage where the organisation produces better results than other companies within its market.
When a company achieves a competitive advantage, it’s able to better utilise its resources to produce better results compared to the competition. This is extremely important when it comes to gaining a larger market share, increasing revenue and maximising profits. It also helps organisations deliver better results to both consumers and shareholders. This allows it to become greater than the sum of its individual parts and achieve lasting success.