Summary: Let’s talk about corporate strategy. What is it, and what do you need to know most?

The biggest thing to remember is that corporate strategy and business strategy are not the same thing. Business strategy focuses on strategic decision making that affects a particular business. For example, if you are a small business owner focusing on growing your business, all of your choices would be considered business strategy simply because you are focusing on your one business. However, if you are the head of a major corporation that owns, for example, a soda company, and a chocolate company, on top of a sports drink business, then the decisions you make that impact all of those businesses are corporate strategy.

You can have corporate and business strategy happening at the same time. Remember, it’s about the level at which the decisions are being made that makes the difference.

Why is corporate strategy important?

If you think of a corporation as an empire, and a business as a country within that empire, it becomes a bit easier to digest. The empire needs to make choices that are in the best interest of the entire empire, but those choices may have a more positive effect on some countries, and less of an impact on others. The empire never wants to make a decision that will be outright harmful for one of its countries, because that is harmful for the empire as a whole.

Some areas of the empire might need more attention than others at times. Perhaps one country isn’t making enough money to support itself, or it has lost its leader, or a world event has greatly impacted it. When this happens, the empire needs to find the best way to increase its revenues, find a new leader, or lesson the political impact – without harming its other countries. Strategizing allows the empire to analyze all the possible solutions and choose the best one.

For this example, we will say the empire sold its problematic country to a different empire. Their management problem is gone, they took the revenues and used them to promote one of their other countries, and they no longer have to worry about political impacts from world events on that business. This is corporate strategy.

Another popular comparison is to see the corporation as the parent, and the businesses as the children.

Corporate Strategy Components

There is organization to the way corporate strategy works. Leaders of these business empires focus on the allocation of their resources, the organization design of the corporation, their portfolio management and strategic tradeoffs. These are the cornerstones of corporate strategy.

Allocation of Resources

Resources primarily refer to your people and your money. You strategize to make sure you have the right people in the right jobs in order to ensure efficacy and efficiency. You want competent people running your businesses. Choosing where to spend money and where to reserve it is key. Devoting capital to the wrong thing can be devastating, so it’s important to make good choices based on professional counsel and advice. Should you buy that new business? Should you merge with that competitor? What will that mean for your existing businesses?

Organizational Design

How are the businesses within your corporation communicating with you? What type of reporting are you using? Is it the best one for your corporation? Here you would also consider whether a centralized or decentralized head office is best. Are you making all the big decisions, or are the businesses responsible for some of that?

Portfolio Management

How do your businesses work with or impact each other? Are they complementary? Are there some that you shouldn’t be a part of any longer? Will any be obsolete in the next 10 years?

Strategic Trade offs

What sort of risk are you willing to take to earn a reward? Are some of your businesses taking on more risk than the potential revenue is worth?