Importance of corporate strategy

O-Founders

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1 Aug 2022
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Corporate Strategy: Importance And Its Types 

Organizations make decisions concerning their future growth. The corporate strategy defines company goals and ways of attaining them with strategic management by motivating the employees to achieve them. Corporate strategy is a consistent process and should be able to respond to the changing marketing situations. 

How does a corporate strategy differ from a business strategy?

Few notable differences exist between corporate strategy and business strategy. The corporate strategy vision is extensive, comprising various units and products, their relationship, and the brand’s overall reputation. 

Conversely, a business strategy takes care of a single business unit and is limited to a specific product or market. The business strategy meets the standards of the corporate strategy. 

Importance of corporate strategy

Corporate strategy defines the final goal a business should accomplish. It finds applicability in the environment wherein a company works in multiple business areas. In such a case, different business units require a defined strategy. 

The managers must ensure that these strategies align with the overall corporate strategy. Thus, MNCs(Multinational corporations) have corporate strategy departments, which is not so commonly found in start-ups or medium-sized organizations. 

Key reasons 

  • The strategy focuses on the entire company instead of considering each business unit.
  • It helps identify the existing and potential problems that hinder growth.
  • It helps prevent plans that will not be healthy for the company’s growth
  • Serves as a base to develop individual business unit strategies
  • It helps establish contingency plans to execute when the need arises. 

Types of corporate strategy 

1. Stability strategy for growth and profits

The primary aim of any business is to grow and earn profits. While making profits, their goal is to stabilize their earnings. So, stability strategy studies maintaining the growth, profits, and the current market position.

A straightforward instance of a stability strategy is when an organization chooses to render the same product to the customers instead of introducing a new one. This usually follows when an organization is satisfied with its current position and share in the market. Under those conditions, organizations need not spend any additional resources or expertise.

2. Expansion strategy for stabilized earnings

Businesses use different procedures to stabilize their earnings. Turning more prosperous with their business expansion is also their goal. An organization follows an expansion strategy when it aspires to grow relative to its current standards. Businesses work to improve their operations to target more customers. 

Businesses that are highly ambitious and aspiring follow this strategy. As part of this, they are willing to take risks and grow. Enhanced market share, attaining higher profit and reputation could be some of them. The reason behind executing an expansion strategy could vary from one business to another. 

3. Retrenchment strategy for financial stability

Businesses create policies to determine what fits their interests. During crises, businesses cut down a few redundant activities to ensure organizations’ financial stability and profits.

A retrenchment strategy is a means of cutting down all the products and services that are not profitable for your business to attain financial stability. This could often lead to asset sales or minimize employees’ strength. 

4. Combination strategy for enhanced business efficiency

A combination strategy is the simultaneous use of stability, expansion, and reduction. An organization can use it for different businesses at one time or in the same business at other instances to enhance business efficiency. 

How to choose the right corporate strategy?

While selecting the right strategy for your organization, study various industries and assess their functioning by performing the SWOT (Strengths, weaknesses, opportunities, and threats) analysis.

  • Identify areas in your organization that are currently excelling, such as your brand reputation, and maximize their advantage
  • Here are the areas where businesses have to enhance their performance. For instance, low brand reputation, insufficient capital, supply chain, or debt hurdles could be a few. 
  • Many opportunities await to grab on the growth path. Suppose a new skill in the market has an excellent potential to make success. You can make it a part of your organization by training the employees with the skills and experience growth. 
  • Threats can harm an organization. For instance, an increase in the raw material cost may minimize the profits or cause the organization to increase the MRP. 

Conclusion :

As the organization needs to grow, it becomes essential to adopt strategic planning reflecting its complexity. A corporate strategy helps manage risks and resources. You will run a profit-oriented business by leveraging the four different kinds of corporate strategies. 

Organizations make decisions concerning their future growth. The corporate strategy defines company goals and ways of attaining them with strategic management by motivating the employees to achieve them. Corporate strategy is a consistent process and should be able to respond to the changing marketing situations. 

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