Organizations create strategies to pursue their long and short-term objectives. These strategies may be either corporate or business in nature.
Today, it’s common to use business strategy in place of corporate strategy and vice versa. Although both provide a framework or basis for strategic choices, they are inherently different.
With the risk of oversimplification, think of corporate strategy as the architectural design of a house, which informs important details such as the foundation and structure.
On the other hand, think of business strategy as the design for each room in the house. The interior design of each room depends on what the room is for. For example, you don’t put an oven in a bedroom.
Occasionally, there will be overlaps between corporate and business strategies. In fact, they’re the same for organizations with only one product line or business unit.
In this article, we explore both corporate and business strategies. We examine the differences, deep dive into both, and share tips to create effective, mission-driven strategies.
What are the key differences between corporate strategy and business strategy?
Factor | Corporate strategy | Business strategy |
Focus | Company’s mission | Business unit’s competitive advantage |
Designed by | The top management team, led by the chief executive officer and (or) the chief strategy officer | Often formulated by middle managers before approval by the top management team |
Time focus | Long term | Short to medium-term |
Purpose | Sustainability, stability, survival, and growth | Excelling in markets they choose to play in |
Below, we share the clear distinctions between corporate strategy in detail.
Corporate strategies are more long-term term, while business strategies are short to medium-term
Corporate strategies are devised to provide long-term direction and focus the company’s resources on a few specific overall objectives. They are more driven by the company’s mission, vision, values, and delivering value to shareholders.
On the other hand, business strategies are more medium to short-term in nature.
One of the reasons for this is that business strategies are more prone to changes in response to market dynamics and competition in the niche the business is operating in.
A business’s long-term overall strategy may be stellar but may need to alter strategy in a business unit due to the emergence of a disruptive competitor. Think how Netflix disrupted Blockbuster and how Walmart raised fierce competition in the retail space.
It’s the same way you rarely change the form and structure of a building. Major renovations require planning and considerable investments. But you can alter the interior design of each room at a whim.
Business strategies are often crafted by middle-level management, while corporate strategy is championed by C-suite executives
Corporate strategy flows from the top echelon of the business downwards to other departments, units, and geographies. That said, executives may request and infuse inputs from other leaders from each business unit and leading departments like HR.
Based on the “where to play” (WTP) and “how to win” (HTW) principles, leaders of business units craft strategies to conquer their unique markets.
“WTP” strategies involve thinking about the target audience for their products or services, which locations to prioritize, which new products to develop to serve their market better, and strategies to limit disruptions to supply chain disruptions.
“HTW” strategies provide answers to how to differentiate your products and services to your target audience versus your competitors and how to gain a competitive advantage with a low-cost position.
Middle managers develop the WTP and HTW strategies and present the same to the top executives for approval and access to resources to bring the plans to fruition.
Corporate strategy focuses on the entire organization, vs. business strategy that focuses on a business unit or department
Business strategy focuses on objectives within its domain, particularly HTW and WTP. Corporate strategies take cognizance of all the moving parts in the business to create a coherent plan that ensures the organization survives and thrives in all market conditions.
Another way to describe corporate strategy is aggregation and balancing, aggregation in the sense that it involves considering its product and business units mix.
For example, P&G is a parent company to many distinct businesses (baby care, laundry care, beauty care, oral care, hair care, etc.). Leaders of P&G must provide a comprehensive overall strategy that covers all these units.
Balancing means the company has to devise a weighting system of investments across the business units. What percentage of marketing goes to each business unit? Which business unit requires more research and development?
These are some of the questions that corporate strategy seeks to answer. In essence, corporate strategy is more focused on profitability, risk, and growth, while business strategy is centered on increasing the competitiveness of the business units.
Executives report on corporate strategy to shareholders and board members, while middle managers report on business strategy to C-suite executives
C-suite executives report on corporate strategy to board members, shareholders, or investors, depending on whether the company is public or private.
For public companies, you would typically find the overall corporate strategy in their annual reports and investor presentations.
The corporate strategic objectives are often available in the public domain. However, the business-level strategy is almost always kept private because of competition.
For private companies, quarterly or annual meetings provide an opportunity to share updates with investors.
Middle managers report to the management team. They must justify their plans regarding cost and projected profits or benefits before approval from the top. Leaders then track the strategy based on the projected performance.
At each strategy review, middle managers must provide an update and advocate whether to continue or discontinue a strategy. At such meetings, the common question includes: is the strategy right, or is the execution lacking?
Overview of business strategy
Business-level strategies are plans companies formulate to gain a competitive advantage in the industry, geographic markets, the segments they operate, and the audience they're targeting.
The business strategy in America may not work in Europe without modification. That's why business-level strategy is more specific than corporate-level strategy.
Below, we provide a deep dive into business strategy, including who’s in charge, the different components and types, and its benefits and limitations.
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Who is in charge of business strategy in an organization
The person or team in charge of a business strategy depends on the structure and size of the business. That said, it usually comes from the business unit leaders.
P&G is an example of a company with multiple business units. Per its structure, the “Chief Executive Officer” for each segment is responsible for primarily crafting strategy for their division. They’ll likely do so with the input of the “Presidents” of these segments that report to them.
The same applies to other big companies like Unilever. Unilever also has a “Business Group President” for its prominent segments like ice cream, beauty and wellbeing, nutrition, and home care.
However, it’s not every company that has this type of structure. Middle managers may be responsible for business strategy and report directly to the CEO in companies without this structure.
What are the components of a business strategy?
We’ve talked about how business strategy is primarily focused on the competitiveness of a unit or product and that this involves two things: where to play and how to win. Let’s dive deeper into these two business decisions.
Where to play
Where to play is often a function of the opportunities and threats in the market and industry in which the product or business unit competes.
For a perfect example, see the story of Walmart. Walmart planted its stores in rural areas and budding suburbs, where its competitors, Kmart and Sears, didn’t have a significant presence.
Walmart was able to crush local competition and expand in Northwest Arkansas. What remains of Kmart and Sears today is about 12 store locations, while Walmart thrives.
As a business, where to play includes the following:
Geography: In what locations (country, region, continent) do you see opportunities to compete or enough threats to exit?
Product type: What products and services will you offer in those locations?
Consumer segment: Who’s your target audience for each of these products and services you’ll offer in your chosen destinations?
Distribution channels: What current or new channels will you use to reach customers?
Vertical integrations: What part of the value chain do you want to compete in?
The answers to these questions will determine where you choose to compete. You’ll need resources to compete in every location you compete in.
With limited resources, you should only compete in places with opportunities and minimum threats. You can’t serve everyone, everywhere.
How to win
Now you know where to play, but how do you compete to win in those markets? How to win leverages more on your strengths and weaknesses against your competitors.
You may compete in the same location as your competitors, but the latter has the best shelf space in all the stores.
The key components that provide how to win include:
Industry analysis: This analysis helps you map out the distinctly different segments in the industry and which ones present the most opportunities. There are clear leaders, while some are fragmented with no clear market leaders.
Customer value analysis: This step includes analyzing the attributes that make up customer and channel value.
Analysis of relative position: How do your capabilities compare to your competitors? Determine how your costs stack up against the businesses you’re competing with. Can you compete on cost, or do you need another form of differentiation?
Competitor analysis: Preempt your competitors. For every action you take, expect a response and be adequately prepared for the same.
Types of business strategy
According to Michael Porter, the three types of business strategy include cost leadership, differentiation, and focus. Let’s discuss each of them in detail.
Cost leadership
Cost leadership refers to strategies you develop to reduce the costs of delivering your products and services. These strategies include streamlining your supply chain, adopting technology, hiring the best talent, and research and development.
You may decide to pass these savings to your customers, but that’s not the focus of this strategy. It’s about having the lowest cost to deliver your products or services in the industry or market you compete in.
Differentiation
A differentiation strategy is self-explanatory. It’s doing everything you can to stand out from the crowd. Customers must value your choice of difference. Exploit customer needs for your differentiation to translate to sales.
It can be related to product form, additional or proprietary features, brand perception, excellent customer support, and more.
Any differentiation strategy will depend on continuous innovation, research and development, excellent marketing to position the brand as intended, and agile development.
Focus
This strategy stresses the need to choose a “narrow competitive scope within an industry.” it’s like going “all win” on a particular segment or target audience. The idea is to dominate the market and build a base of loyal customers.
After choosing a “focus,” the business must still decide between a cost or differentiation focus.
Benefits of a business strategy
The benefits of crafting strategies tailored for specific business units include:
Provides clarity and direction
Identifying the WTP and HTW for all business units provides much clarity for execution. A business strategy backed by a plan aligns everyone in the business unit to a common vision and direction.
There’s clarity for the marketing team. The product design manager knows which feature to prioritize. The business unit leader knows which areas to prioritize during budgeting.
Provides a basis to compete well
Per this article by the Institute for Manufacturing, a "firm's relative position within its industry determines whether a firm's profitability is above or below the industry average."
The author further stresses that businesses that perform above average have a sustainable competitive advantage. Competing with a strategy is difficult, but doing so without one is business suicide.
A business strategy helps you identify opportunities to pursue and potential threats to your profitability and stability.
Helpful for executives to create a comprehensive corporate strategy
Business-level strategies are vital for corporate-level strategies. For example, an organization may be developing a company-wide strategy for acquisitions.
Without knowing how each business unit plans to win within their respective industries, such plans won’t be adequate.
While the overarching mission and vision of the entire company underpins corporate strategy, a well-thought-out business strategy helps businesses allocate resources more efficiently.
Increased customer satisfaction
Businesses can create products and services tailored to the customers’ needs by identifying areas that add value to them. Successful companies enjoy product-market fit because of this.
Better prediction of future needs
All the components of the business strategy we discussed earlier equip you with information to preempt moves in the market. Both from your competitors and how consumers may also react to your actions.
Limitations of business strategy
Below, we share some of the limitations of business-level strategies.
Time-consuming
Business strategy requires a lot of market research. While some companies pay top dollar to access paid market reports and proprietary data, it still takes time to dive into the data or reports to extract insights relevant to the business.
Expensive
We already mentioned one example of paid expenses in the form of market reports and proprietary data. Companies pay for focus groups, conduct surveys, build a reliable and accurate data pipeline, and more.
Product differentiation requires serious, continuous investments in innovation and research.
Requires continuous vigilance
We’ve discussed how you must be adequately prepared for competitors to react to every strategy you implement. Beyond that, you must remain vigilant by tracking what your competitors are doing and how that may affect your position in the market.
Prone to tunnel vision
A consequence of being vigilant is that you must react when necessary. Many companies get stuck on a particular strategy for longer than necessary.
Some double-down thinking it’s the execution that’s lacking, whereas, the strategy was erroneous from the onset.
That’s why it’s imperative to institute a strategy management system for tracking and appropriately monitoring strategies.
Many unknowns
There’s a measure of uncertainty with business-level strategies. The competitive environment is highly dynamic, and as such, the relevant strategies of today may quickly become irrelevant tomorrow.
For example, the government can institute a new policy that decimates a segment of your business, or a new entrant into the market may disrupt the status quo.
That’s why businesses should remain agile and not get stuck on obsolete strategies.
Overview of corporate strategy
The core mandates of corporate strategies include resource management and allocation, process improvements, risk management, corporate governance, and maximizing returns across all the company’s business units or subsidiaries.
Who’s in charge, and what are the components of corporate strategy? We answer these questions below.
Who is in charge of corporate strategy in an organization?
The Chief Executive Officer is primarily responsible for formulating strategy in most organizations. They may, however, assign responsibilities to other top management team members for specific domains or functions. Ultimately, the CEO provides the business direction for an organization.
In recent years, many big companies like IBM, Intel, and Microsoft have created specialized Chief Strategy Officer (CSO) roles in their organization.
CSOs do not necessarily develop strategies but are responsible for engineering the strategic planning process and helping shape strategy in general.
They work hand-in-hand with other leaders of other specialized functions like finance, marketing, operations, and information to interpret the current and projected market shifts into a coherent strategy for the organization.
What are the components of a corporate strategy?
There are four components or layers of corporate strategy. Most strategies usually fall into one of the following categories:
Allocation of resources
Earlier, we talked about how a corporate-level strategy is a form of balancing. It’s more evident when it comes to allocating resources.
As the Corporate Finance Institute puts it, “Leaders must determine how to allocate these resources to the various businesses or business units to make the whole greater than the sum of the parts.”
Priorities will always exist but should never be at the expense of another critical element or unit. Allocation of resources comes in two forms: people and capital.
Fitting skilled square pegs in square holes is very important for business. Recognizing the time and situation where people can add the most value is more important.
Businesses need driven leaders and an efficient talent pipeline for effective people allocation.
Lastly, corporate strategy must balance capital allocations between internal processes or projects and external opportunities like mergers and acquisitions.
Organizational design
Without a proper organizational structure and systems, businesses will struggle to create value for all stakeholders.
Leaders must choose the best approach for the business, especially as it concerns how much autonomy business units have. How are decisions made, and what kind of choices do business units need approval for?
There’s also a need for a clear reporting structure and the kind of authority sub-leaders wield.
Lastly, and perhaps the most important in organizational design, is developing and setting up an effective corporate governance operating model for active oversight.
Portfolio management
Corporate strategy determines which industries to play in and how each business unit complements each other.
Portfolio management also assesses the risk-reward on new opportunities and diversification. Businesses must ensure units are not too dependent on each other such that their results are correlated.
Again, balance is crucial in portfolio management. Businesses must decide if their current portfolio can extract the maximum value from the current and future trends in the market.
As such, corporate strategy involves knowing which business units to continue investing in and which ones to cut off or retool.
Strategic tradeoffs
Strategic tradeoffs fall into three categories, including managing risks, generating returns, and incentives.
We’ve stressed how organizations have limited resources and, as such, cannot pursue every strategic plan. Choose which strategies to adopt.
Picking the right strategies requires assessing how each strategy increases your firm-wide risk. While taking on a higher risk may potentially yield higher returns, there’s also the risk of failure.
So, corporate strategy helps companies find a balance between the risks they embrace and the returns necessary to create value for stakeholders and keep the business running.
Lastly, corporate strategy must factor in incentives and their role in managing risks and generating returns. What’s the motivating factor for a manager pursuing a strategy?
Types of corporate strategy
There are many types of corporate strategy. Businesses can create an aggregate or corporate strategy on any function. However, the four core strategies every business must have include:
Growth strategies
Growth strategies help businesses increase market share with existing products or services, expand into new territories, and reach new target audiences with new products or by product differentiation with a bid to become a market leader.
Per the Ansoff Matrix, the four layers of growth strategy are diversification, market development, market penetration, and product development.
For more information on these layers, you may read our article on the 4 Types of Corporate Strategy for Business Growth.
Stability strategies
Companies devise a stability strategy, also known as a status-quo strategy, to maintain their position in the market. Some of the factors that encourage businesses to pursue this strategy include:
Prolonged investments
Pausing after a period of rapid growth
Uncertainty in the market, maybe the government mulling a counterproductive regulation
Focus on more internal improvements like cutting costs and better organizational design
To generate cash for major plans down the line
Such a strategy does not pursue growth, but it may still happen due to mistakes from the competition or regulations. As such, the stability strategy offers minimum room for growth.
Retrenchment strategies
This type of strategy is popular with underperforming businesses, although successful companies regularly audit their organization for parts that add little to no shareholder value.
Typical examples include divesting from unprofitable or resource-hugging units, pivoting the entire business, merging business units because of effort and resource duplication, leadership change, and personnel cuts or layoffs.
Combination strategies
Companies may combine any of the three above strategies at a time. Big companies have a mix of all three strategies in motion all the time.
A company's overall position in the market, objectives, and financial status determines which one(s) takes more priority.
Benefits of corporate strategy
Corporate strategy is essential for any size and type of business because it offers many potential benefits, chief of which include:
Provides a clear roadmap for the company
A clear list of strategic priorities provides a roadmap for everyone to follow. This strategic roadmap makes decision-making easier and creates a sense of purpose across the whole organization.
Makes resource allocation easier
It’s more straightforward to allocate resources or make changes since priorities are clear.
Creates a competitive advantage
The right strategy, married with steadfast execution and tireless tracking, can set you apart from others in your industry. Many companies struggle to meet expectations when it comes to strategy, but you can!
Creates alignment
Firstly, corporate strategy helps align your vision and overall objectives, which makes it easy to translate them into a coherent plan.
Secondly, corporate strategy aligns all business units to your strategic goals despite operating in different markets.
Greater profitability
Growth strategies, when pursued aggressively and with common sense, offer a very high risk-to-reward ratio. This can lead to more profitability for the business.
Minimizes risks
Corporate strategy makes companies more resilient to shocks. A good corporate strategy considers present and future market trends, which can help businesses react faster to expected and unexpected market changes.
You may also like: 9 Reasons Why Corporate Strategy Matters (w/Practical Tips)
Limitations of corporate strategy
The limitations of corporate strategy include:
Corporate strategy is more useful for the long term than on current challenges
Corporate strategy takes loads of time, money, and resources. Smaller companies often see this as a hindrance.
Multiple factors within and beyond the company can render corporate strategy irrelevant.
Corporate strategy is not exact, but smart companies are flexible and agile to adapt quickly.
Effective tips for creating successful corporate and business Strategies
Create strategies that yield regular results with the following strategies:
Create a rigorous strategy framework
Establishing a strategy framework makes the strategic planning process more feasible and predictable. An established strategy framework limits the possibility of the process being hijacked by ulterior motives or political reasons.
Like the strategies it seeks to create, the framework must also be simple and understandable to everyone across all the functions.
Keep strategy simple
Don’t complicate things. Use simple and clear language to communicate your goals. Make strategy non-abstract, such that every person at every layer of the organization can understand and run with it.
It should be easy for top management to share with middle management and for middle management to communicate with those below them.
Overly obtuse and faulty strategies leave people confused and unable to devise the right execution plans. Companies lose about 5.2% of a strategy’s potential value to poor communication alone.
Create a strategy with high-quality financial forecasts
Strategy becomes more realistic with high-quality financial projections. Top management and business unit leaders often bicker over financial projections based on personal and selfish motives.
The latter aims for a lower forecast to get a performance bonus, and the former wants to please investors and shareholders.
However, companies wishing to create strategies that lead to strong performance must base forecasts or projections on sound data and market research.
Ensure all projections are based on logical assumptions and unbiased data or research.
The ways to do that include “ensuring the assumptions underlying long-term plans reflect both the real economics of the market and the performance experience of the company relative to competitors.”
Institute accountability and incentives from the onset
This is very important, both for the execution of the strategy and the culture of your organization. Lack of accountability can make underperformance take root, with managers and leaders more bothered about covering their tracks than committing to executing the strategy.
Over time, personnel in the organization expect all your strategies to fail, leading to a cycle of poor implementation and performance.
Kippy is a powerful strategy management tool that encourages and helps you implement accountability. You can pick KPIs to track strategic objectives and assign each KPI to a team or an individual, which makes them responsible for the key metrics.
With intuitive visualizations and reports, it’s easy to track the performance of such KPIs.
Identify priorities early
When priorities are explicit and stated early, many business units can formulate strategies that align with the overall corporate strategy. Business unit leaders will know where to focus their energy, which makes for a smoother strategy development process.
Use employee feedback
Create systems to get employee feedback about business processes, organizational structure, new ideas, and more. These are the people who execute the strategy, so it’s worth listening to them.
Takeaway: Take charge of your business’s future with both corporate and business strategy
Distinguishing between business strategy and corporate strategy does not imply favoring one over the other. As we’ve shown above, businesses must create the two for long-term prosperity and profitability.
Corporate strategy covers all levels of the organization and focuses on the growth and survival of the company. Business strategies help companies win in segments and geographies they’ve chosen to compete in.
To create strategies that yield results, create a rigorous framework everyone understands and can follow. Keep the strategy language simple and non-abstract for easy communication.
Additionally, identify and communicate priorities early and institute proper incentives and accountability structure from the onset.
These steps will help you develop strategies that match your unique needs, business units, and operating model.
Tools like Kippy can make it easy to cascade and communicate strategies and objectives from top management to the lowest echelon of your organization.
Get a live demo today to see how Kippy can help you track and monitor strategy implementation.