What Are The Corporate Strategies – Corporate strategy takes a portfolio approach to strategic decision making by looking at all of the company’s businesses to determine how to create the most value. To develop a corporate strategy, companies must analyze how their various businesses fit together, how they affect each other, and how the parent company is structured to optimize human capital, processes, and governance. Corporate strategy is built upon the business strategy, which is responsible for making strategic decisions for an individual business.
There are several important elements of corporate strategy that guide corporate leaders. The main functions of corporate strategy are:
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A company’s resource allocation focuses mostly on two resources: people and capital. In an effort to maximize the value of the enterprise as a whole, leaders must decide how to allocate these resources to various businesses or business units so that the whole is greater than the sum of its parts.
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Organizational planning involves ensuring that the company has the necessary organizational structure and relevant systems in place to create maximum value. Factors leaders should consider are the role of corporate headquarters (centralized vs. decentralized approach) and the reporting structure of individuals and business units: vertical hierarchy, matrix reporting, etc.
Portfolio management examines how business units complement each other, their interrelationships, and determines where the company is “played” (ie, which businesses it will enter).
One of the most difficult aspects of corporate strategy is balancing the trade-offs between risk and return across the enterprise. It is important to have a holistic view of all businesses and ensure that risk management and return generation reach desired levels.
Corporate strategy differs from business strategy because it focuses on how to manage a company’s resources, risks, and profitability rather than analyzing competitive advantages.
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Strategic decision makers must consider many factors, including resource allocation, organizational design, portfolio management, and strategic trade-offs.
By optimizing all of the above factors, a leader can create a business portfolio that is worth more than the sum of its parts.
Thank you for reading CFI’s Introductory Guide to Corporate Strategy. As you continue to learn and advance your career as a financial analyst, these additional CFI resources and guides will be of great help:
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Structured Query Language (SQL) What is Structured Query Language (SQL)? Structured Query Language (commonly called SQL) is a programming language used to interact with a database…. A corporate strategy is a single plan or framework of a long-term nature designed to gain a competitive advantage over other markets. While participants deliver on their promises to clients/customers and stakeholders (i.e. shareholder value).
The other meaning of corporate strategy is simpler than seeing a company as a set of decisions that bets on the future. Since every organization has a limited amount of resources, it must decide how to prioritize the use of these resources.
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Growth strategies aim at achieving significant business growth in terms of revenue, market share, penetration, etc. This can be achieved through the concentration that the company focuses on and builds on its core business in the fields and through the diversification that the company decides to do. Diversify by the number of approaches described in detail below.
If a company wants to grow while staying in the same space it currently operates in, this is a concentration growth strategy. Here are some options that are important to distinguish:
Vertical integration (i.e. implementing more steps in the value chain than in the past, e.g. distribution activities, supplier activities etc.)
An example of vertical integration would be a travel agent that obtains a license not only to sell package tours, but also to receive a commission on the sale of travel insurance (a product often sold with package tours).
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Horizontal integration involves expanding into other geographic areas and/or offering other products/services within the same markets in which the company already operates. An example of horizontal integration would be Tim Hortons expanding into the United States or expanding into lunches in the Canadian market.
Diversification is a very broad type of strategy that can include a company’s desire to grow based on changes in product/service offerings, introducing new products and services, or moving into entirely new spaces.
Fundamental diversification means that a company maintains its current offering but differentiates its product/service from other competitors due to unique capabilities/features/characteristics. In this case, the added value of the product/service increases in the eyes of a client/customer. In general, it justifies the high price.
Cost leadership is a special concentration strategy that enables a firm to offer the same product/service at a more attractive price (eg through larger and more efficient operations).
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For example, this strategy could see Mazda’s low-cost vehicles being competitively priced with other players in terms of quality and performance, but at a lower price.
Lateral growth is an exciting strategy for any organization. This strategy is often based on a sense that an organization has reached the limits of its core business. At this stage, a company explores opportunities to grow in a space related to its core business: be it a complementary product/service, adjacent industries, additional customer groups, etc. For adjacent strategies, it is important to identify the most promising ones. Adjacent niches and instead of “hitting” the ocean of potential opportunities is boiling. If an online platform decided to compare banking products and then insurance products, that would be the next growth strategy.
Group growth is the opposite of basic diversification. This means that an organization wants to expand into businesses that are not (or only loosely) related to its core. Such ventures have less synergy, but the strategy has nevertheless proven viable for many companies. In some cases, it is a strong brand that allows a company to drive business in conglomerates. Regarding Virgin Group.
In sustainability strategies there is no new business growth and development, but the aim is to get “more” (i.e. profitability-based strategy) or “survive” (i.e. status quo) from the existing business. strategy) because the current situation is already working well for the organization.
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Status strategies often focus on maintaining a business’s existing performance and may include acquiring potential companies that threaten the existing business, working with regulators to develop barriers to business entry, and many other elements. Reasons for choosing the situation. For example, the -quo strategy may vary. Already very successful, no opportunity to grow, regulations regulations etc.
A profitability-driven strategy is often associated with a desire to value companies (eg before selling the business, before an initial public offering) and with business value at the heart of the strategy. Levers used in this type of strategy include portfolio optimization, cost reduction, price adjustment, etc.
This set of strategies is the opposite of status or growth strategies. It is a defensive strategy whose main goal is to change the negative trajectory and improve the company’s position through aggressive changes or “cutting off” pieces.
A turnaround strategy is based on a major change from the previous course of action (eg, due to a bad decision, poor company management, loss of market share, industry downsizing, etc.). It includes measures like crisis management, financial restructuring of the company. , company product and service innovation, aggressive cost saving initiatives, e.g. Through robotic process automation, employee retention, etc. In most cases, implementing a turnaround strategy is an organizational exercise that touches every part of the company.
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A divestiture strategy involves “redeeming” parts of a business for various reasons, such as deciding to focus on core businesses (eg when a line of business does not fit into the overall business scope), poor performance in some lines of business. , attractive sales opportunities etc. Diversification strategies generally result in less complexity in the remaining parts of the business and free up a portion of resources that can be reinvested in the business lines that a company chooses to maintain.
Reinvention strategies often involve taking industries/businesses that have not changed for decades and reinventing them, often with the help of new technologies. Here evolutionary strategies and revolutionary strategies can be distinguished.