Three Levels of Strategy in an Organization and Guidelines for Crafting Successful Business Strategies

Strategy can be formulated on three different levels: Corporate level Business unit level Functional or departmental level.

While strategy may be about competing and surviving as a firm, one can argue that products, not corporations compete, and products are developed by business units. The role of the corporation then is to manage its business units and products so that each is competitive and so that each contributes to corporate purposes. Consider Textron, Inc., a successful conglomerate corporation that pursues profits through a range of businesses in unrelated industries. Textron has four core business segments: Aircraft - 32% of revenues Automotive - 25% of revenues Industrial - 39% of revenues Finance - 4% of revenues.

While the corporation must manage its portfolio of businesses to grow and survive, the success of a diversified firm depends upon its ability to manage each of its product lines. While there is no single competitor to Textron, we can talk about the competitors and strategy of each of its business units. In the finance business segment, for example, the chief rivals are major banks providing commercial financing. Many managers consider the business level to be the proper focus for strategic planning.

Corporate Level Strategy

Corporate level strategy fundamentally is concerned with the selection of businesses in which the company should compete and with the development and coordination of that portfolio of businesses. Corporate level strategy is concerned with: Reach - defining the issues that are corporate responsibilities; these might include identifying the overall goals of the corporation, the types of businesses in which the corporation should be involved, and the way in which businesses will be integrated and managed. Competitive Contact - defining where in the corporation competition is to be localized. Take the case of insurance: In the mid-1990's, Aetna as a corporation was clearly identified with its commercial and property casualty insurance products. The conglomerate Textron was not. For Textron, competition in the insurance markets took place specifically at the business unit level, through its subsidiary, Paul Revere. (Textron divested itself of The Paul Revere Corporation in 1997.) Managing Activities and Business Interrelationships - Corporate strategy seeks to develop synergies by sharing and coordinating staff and other resources across business units, investing financial resources across business units, and using business units to complement other corporate business activities. Igor Ansoff introduced the concept of synergy to corporate strategy. Management Practices - Corporations decide how business units are to be governed: through direct corporate intervention (centralization) or through more or less autonomous government (decentralization) that relies on persuasion and rewards. Corporations are responsible for creating value through their businesses. They do so by managing their portfolio of businesses, ensuring that the businesses are successful over the long-term, developing business units, and sometimes ensuring that each business is compatible with others in the portfolio.

Strategy Levels

In the first case the organisation may be multidivisional in nature to the extent that in principle or even in law, separate parts of the enterprise could operate as viable entities in their own right. These group structures may undertake strategic planning as group exercise where under the corporate level strategy, each separate subsidiary or division has its own strategic planning process and strategic plan. In these cases however, one of the most significant inputs to each divisions strategic planning is the output of the corporate strategic planning. These outputs from corporate level strategy; usually in the form of performance targets for the divisions cannot be ignored by the subsidiary unit. The corporate business strategy may also set down a small number of other factors that the divisions, or strategic business units as they may sometimes be called. These might include guidance on market definition, including geographic scope. For example the subsidiaries of a multinational bank may be defined by the country they operate in. In this case the corporate business strategy would set profit targets for each country bank. The corporate strategy would yield to the country banks as to the strategies they pursue in generating these profits. The country level banks would have their own business unit level strategies.

In the second case corporate level strategy is used to distinguish it from the many other plans and planning processes that get the term strategic in their names. The word strategy has acquired a kind of aura that seems to make many people want to use it, regardless of how
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actually strategic the matter at hand is in relation to the overall performance of an organisation. So we can end up with strategic plans for every level, part and functional process in the organization.

Strategic planning is a systematic, formally documented process for deciding the handful of key decisions that an organisation, viewed as a corporate whole, must get right in order to thrive over the next few years. However, because of this wide spread usage in a variety of contexts we also use the description corporate level strategy or corporate strategy, and refer sometimes to corporate strategic planning to make it clear we are not talking about all these other partial or non corporate forms. Because the successful implementation of corporate level strategy relies on cooperation and alignment across the organization as a whole, it is useful to distinguish the various levels of strategy.

Business Level Strategy Business-level strategies represent plans or methods companies use to conduct various functions in their business operations. Larger companies often use more business strategies since they often have several departments with different business functions. Small businesses may adapt these strategies to their operations and assign them to different employees. Companies often use business-level strategies to provide guidelines for owners, managers and employees to follow when working in the business.

A strategic business unit may be a division, product line, or other profit center that can be planned independently from the other business units of the firm. At the business unit level, the strategic issues are less about the coordination of operating units and more about developing and sustaining a competitive advantage for the goods and services that are produced. At the business level, the strategy formulation phase deals with: Positioning the business against rivals Anticipating changes in demand and technologies and adjusting the strategy to accommodate them Influencing the nature of competition through strategic actions such as vertical integration and through political actions such as lobbying. Michael Porter identified three generic strategies (cost leadership, differentiation, and focus) that can be implemented at the business unit level to create a competitive advantage and defend against the adverse effects of the five forces.

Five Types of Business-Level Strategies

Coordinate Unit Activities A common business-level strategy is the coordination of all individual unit activities found in a business. Unit activities may be broken down by department, sections of the department and individual job positions. The coordination of these groups or individuals usually falls on a manager or supervisor. The manager is responsible for getting employees on the same page and focusing these individuals on accomplishing goals or objectives. Managers or supervisors may also be responsible for allocating resources among several different activities.

Utilize Human Resources Companies must be able to utilize the available human resources in their company and the overall economy. Almost all companies need some form of human labor to accomplish business goals and objectives. Companies develop a business-level strategy to ensure the organization has enough employees to produce a specific output of goods or services. This business-level strategy is also responsible for ensuring the right type of human labor is acquired for business operations. This often includes an analysis to determine if skilled or unskilled labor is needed to complete business functions.

Develop Distinctive Advantages Developing distinctive core competencies or competitive advantages is essential for creating a successful company. Core competencies and competitive advantages represent singular activities or abilities one company uses to produce products better than another company. Examples of this business-level strategy may include acquiring economic sources at lower costs than other companies, highly efficient and effective production resources, unique goods or services that are not duplicated by other companies and a cost-effective supply chain for getting products into consumers' hands quickly.

Identify Market Niches Identifying a market niche usually involves conducting an economic analysis and discovering a specific consumer demand is unmet or not enough supply is available to fill current customer demand. While these are common market niches found in a business-level strategy,
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other niches may include modifying an existing product, targeting a specific demographic group or other similar strategies. Filling a specific market niche may allow companies to charge higher consumer prices since substitute goods may not exist in the economic marketplace.

Monitor Product Strategies Businesses must find ways to review the business-level strategies implemented in their operation. This process often results in its own strategy. Companies may review the acquisition process for economic resources; equipment used to produce goods or services, business facilities and other administrative costs to ensure that all capital spent on business operations is earning a strong rate of return. Reviewing business-level strategies may also give companies an opportunity to remain flexible in business and make changes for meeting new consumer demand.

Functional Level Strategy The functional level of the organization is the level of the operating divisions and departments. The strategic issues at the functional level are related to business processes and the value chain. Functional level strategies in marketing, finance, operations, human resources, and R&D involve the development and coordination of resources through which business unit level strategies can be executed efficiently and effectively.

Functional units of an organization are involved in higher level strategies by providing input into the business unit level and corporate level strategy, such as providing information on resources and capabilities on which the higher level strategies can be based. Once the higherlevel strategy is developed, the functional units translate it into discrete action-plans that each department or division must accomplish for the strategy to succeed.

Guidelines for Crafting Successful Business Strategies 13 commandments for crafting successful business strategies: Always put top priority on crafting and executing strategic moves the enhance the firms competitive position for the long-term and that serve to establish it as an industry leader. Understand that a clear, consistent strategy when well-crafted and well executed build reputation and recognizable industry position whereas a strategy aims solely at capturing momentary market opportunities yields brief benefits. Endeavour not to get stuck back in the pack with no coherent long-term strategy or distinctive competitive position and little prospects of climbing into the ranks of industry leaders. Invest in creating a sustainable competitive advantage for it is a more dependable contributor to above average profitability. Play aggressive offend to build competitive advantage and aggressive defend to protect it. Avoid strategies capable of succeeding only in the best of circumstance. Avoid rigidly prescribed or inflexible strategies- changing market conditions may render it quickly obsolete. Dont underestimate the reactions and the commitment of the rival firms. Beware of attacking strong, resourceful rivals without having solid competitive advantage and ample financial strength. Consider that attacking competitive weakness is usually more profitable than attacking competitive strength. Be judicious in cutting prices without an establish cost advantage. Beware that aggressive strategic moves to wrest crucial markets share away from rivals often provoke aggressive retaliation in the form of marketing arms race and/or price wars. Employ bold strategic moves in pursuing differentiation strategies so as to open up very meaningful gaps in quality or service or advertising or other product attributes.

References: http://www.quickmba.com/strategy/levels/ http://www.albany.edu/faculty/ja0754/bmgt481/lecture4.html http://smallbusiness.chron.com/five-types-business-level-strategies-781.html http://myllurmanagement.blogspot.in/2012/08/strategic-management-3-levels-of.html

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