How Corporate Strategy Works: 3 Effective Corporate Strategies

Corporate strategy is the underlying set of goals and principles that guide a company’s decision-making and business operations. Corporate strategists look at a business on a broad level, focusing on strategic goals and market positioning. Corporate strategic management helps a company decide what markets to enter and its relationship to other market players.

This focus makes corporate strategy slightly different from business strategy, which makes business-level decisions—like budgeting and personnel hiring—that serve the company’s broad organizational mission statement. Meanwhile, the daily operations of a company’s business units are governed by managers tasked with functional strategy. Corporate strategy rarely dips into minutia: It examines organizational structure on a corporate level and leaves day-to-day decision-making to key executives and managers.

Every year, business schools turn out new classes of graduates trained in strategic management. Meanwhile, businesses hire armies of management consultants to guide them in their upper tier strategic planning. This is because a company’s strategy determines whether it will have a competitive advantage over its rivals or whether it will flounder for a lack of value creation.

Every other part of business leadership—budgeting, growth strategies, financial portfolio strategies, asset allocation—can potentially thrive under a wise corporate strategy. These initiatives can also collapse, with executives and managers unable to perform their jobs, if the highest level strategic planning fails to address the realities of the current market. Poor corporate decisions can cost the company market share and opportunities. Investors and shareholders know this, and their valuation of a company tends to reflect their opinion of a company’s strategic decision-making.

Corporate strategy sets the framework for a business’s structure and objectives. The scope of corporate strategy can be broken into four main categories.

1. 1. Strategic vision: The highest level of corporate strategy states a company’s mission statement, its perceived role in the marketplace, its business model, and its key corporate values. This vision, which is set by shareholder representatives and top management from the executive team, affects all stakeholders in the company.
2. 2. Strategic objectives: A corporate strategy must include the specific initiatives the company will take on within its business units. This includes determining how much differentiation will exist among those units. Will the company use vertical integration in the name of cost leadership, where a company outcompetes its rivals by maximizing the value of expenditures? Or will it embrace diversification, operating various businesses that may not directly interact with one another?
3. 3. Corporate finance and resource allocation: With a vision and objectives laid out, corporate strategists must determine how they will allocate company resources. When a company is up and running, corporate leadership may examine growth through mergers and acquisitions or contraction via divestitures. These will reshape the business’s downstream financial decisions.
4. 4. Opportunity costs and risk assessment: Corporate leaders and management consultants must also address the tradeoffs to embracing a particular strategy—accepting that any business venture comes with risk and opportunity costs. Day-to-day risk management will be handled by executives tasked with business strategy or managers tasked with functional strategy.

Corporate leaders typically pursue one of three corporate-level strategies for leading their companies: stability strategies, growth strategies, or retrenchment strategies.

1. 1. Stability strategy: A stability strategy seeks to hold on to marketing share, maintain current company direction, and maximize return on investment and shareholder value. Companies embarking upon a stability strategy rarely engage in mergers or enter new industries. They do seek steady growth, but at slow, sustainable rates. Stability strategies work well for companies that are currently meeting their short-term business goals and are mostly focused on staying power.
2. 2. Growth strategy: A growth strategy will examine aggressive expansion into new markets and new industries. It may roll out new products at a faster cadence. It may examine diversifying the company’s current portfolio via a merger or acquisition of an existing business. In the financial services industry, a growth strategy could also involve pursuing a bolder investment strategy, both for the company and its clients.
3. 3. Retrenchment strategy: When a company feels it needs to shrink, or when it feels weighed down by underperforming sectors, it embarks on a retrenchment strategy. This can involve divestment, layoffs, or store closures. Companies retrench to focus on their core competencies and give themselves a new chance at corporate success. Sometimes conglomerates become decidedly more profitable when they embrace a smaller footprint with fewer individual business units.

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