The general distinction is that business strategy addresses how we should compete, while corporate strategy is concerned with in which businesses we should compete. Specifically, business strategy. refers to the ways in which a firm plans to achieve its objectives within a particular business.
What is Corporate Strategy?
Corporate strategy deals with the following questions:
- Why compete?
- What kind of competition are we likely to face?
- Where should we compete?
- In what market should we compete?
Corporate strategy attempts to answer the above questions in order for a firm to achieve the following goals:
The first goal is to establish a suitable corporate strategy. A high degree of coordination between business strategy and corporate strategy is essential. Strategic thinking is needed in order to develop and maintain a successful corporate strategy; otherwise, the overall direction and control of the organization can be unpredictable.
The first question
Corporate strategy: Why compete?
The second question
Corporate strategy: What kind of competition are we likely to face?
Trends in the development of market competition mean that businesses have to pay close attention to new competitors. Competition can come from existing companies or new entrants to the market. The intensity of the competition varies. In some cases, the intensity is great and the competitive environment is very tough. Our competitors are well-financed, aggressive, and lacking in conscience. Competition from new entrants can become fierce due to their resources and opportunities.
The third question
Corporate strategy: Where should we compete?
It’s important for a firm to determine where it should compete. Generally, firms should compete in those markets with largest potential for profits. The emphasis is on choosing an opportunistic entry point in the market, for example, in the fastest growing segment.
The fourth question
Corporate strategy: In what market should we compete?
This refers to the selection of a viable target market. The target market should be chosen based on the following criteria:
The above four questions need to be answered to achieve competitive advantage.
To respond to these questions, an overall plan is needed. The plan should contain an analytical process and a decision-making process.
Analytical processes include analysis of the market, the competition, and technology.
The decision making processes include defining the corporate mission, developing a corporate strategy, and executing an implementation plan.
A corporate mission should be defined in order to gain support from the internal organization. The mission is a clear statement of the goals and values of the organization.
One of the benefits of defining a mission for the organization is the trade-off between the external environment and the internal environment. It allows us to analyze the external environment, while at the same time focus on the development of internal resources.
A corporate strategy is a set of objectives and standards, including long-term and short-term goals, and a specific procedure for the achievement of the goals and strategies. The implementation plan is the way in which corporate strategy is carried out. The follow-up work is essential to the implementation of business strategy. It is impossible to achieve success using only one strategy. At the same time, it’s important to monitor the effectiveness of the corporate strategy and make changes as needed.
Corporate vs Business Strategy
Business strategy focuses on the specifics of business conduct, while corporate strategy focuses on the firm’s overall objectives, including resource allocation and level of competition, and R&D, which are the responsibilities of the corporate level.
For example, if a business level decision-maker is considering whether or not to pursue a particular course of action, or to modify an existing business strategy, then that decision-maker is examining a business strategy as opposed to a corporate strategy that would only be reviewed by someone who has responsibility for the entire firm.
The above differentiation being said, in practice, there is a great deal of overlap between the two concepts, as many of the firm’s corporate level activities do have a direct impact on business strategy.
For example, a corporate-level decision regarding R&D spending will impact the courses of action available to the firm’s business-level decision-makers when searching for new opportunities in the marketplace; a corporate-level decision regarding hiring requirements will impact the firm’s ability to commit to an expansion strategy requiring additional personnel; and a corporate level decision to decentralize or to centralize operations will impact business level strategies to some extent, based on how business strategies are filtered down through the firm’s hierarchy.
Therefore, in any given instance, a distinction between business strategy and corporate strategy is not clear cut. The nature of the distinction between the two, however, will differ depending on the company’s orientation, structure and level in the market as well as on whether the company is more traditional in the sense that its strategy is determined through top-down processes or more contemporary where the larger strategy is determined through a participatory bottom-up process.