Types of Business Strategy - Explained
What are the Types of Business Strategy?
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What are the Types of Business Strategy?
There are generally 3 (sometimes broken into 4) Types of Business Strategies:
- Organizational (Corporate) Strategy
- Business (Competitive) Strategy
- Functional Strategy
- Operating Strategy
Back to: STRATEGY & PLANNING
What is a Corporate Strategy?
A corporate-level strategy, often referred to an an organizational-level strategy, focuses on vision, mission, values, or purpose of the organization.
It often relates to the company’s core value proposition and objectives that it hopes to achieve in doing so.
It may also regard what the company stands for and how it will be perceived by stakeholders and third parties.
Organizational Strategies are generally broken down into:
- Growth-Based Strategies,
- Stability Strategies,
- Retrenchment Strategies, or
- Mix of these Strategies
What is a Competitive Strategy?
A competitive strategy, often referred to as a business-level strategy, focuses on how a business unit will compete against competitors within the market.
Implementing a business unit’s competitive strategy should further the organization-level strategy.
The primary understanding of competitive strategies comes from Michael Porter’s Generic Strategies, which include:
- Cost-Based Strategy,
- Differentiation Strategy, and
- Focus (Niche) Strategy.
The objective of competitive strategy is to create a sustainable competitive advantage.
Another influential source on competitive advantage is the Resource-Base View (RBV) of the firm, which focuses on the effective use of firm resources to create competitive advantage.
Porter’s Value Chain, and the concept of a value chain in general, which quantifies activities along the value delivery process. This provides and understanding or where competitive strategies can be effectuated.
What is Functional Strategy?
A functional strategy concerns how a functional division of a company will achieve its objectives. Carrying out a functional strategy is in support of a business unit’s competitive strategy through maximizing resource productivity. It focuses on developing competence in pursuit of a competitive advantage. Major functional areas include marketing, accounting, finance, operations), Research and Development, and Human Resources.
Three factors characterize the formulation of functional-level strategies:
- Short-term nature of the objectives,
- How specific are the objectives, and
- Extent of involvement of managers.
The functional strategy will revolve around key individuals in the functional area and focus on key operational aspects in the value chain, such as productivity, pricing, logistics, cost-effectiveness, efficiency, product design, product branding and image, product-life cycle, etc.
What is an Operating strategy?
While often included within a functional strategy, an operating strategy is concerned with how the component parts (operating divisions) of an organization deliver effectively the corporate, business and functional -level strategies in terms of resources, processes and people. They are at departmental level and set periodic short-term targets for accomplishment.
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