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The Three Levels of Business Strategy
Strategies can be formulated on three different levels:
· Corporate level,
· Business unit level, and
· Functional or departmental level
Strategy may be about competing and surviving as a firm, products are
developed by business units. The role of the corporation is to mange
its business units and products so that each is competitive and so
that each contributes to corporate purposes.
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 the corporation competition is
to be localized.
· 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.
Business Unit Level Strategy
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.
Functional Level Strategy
The functional level of the organisation 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 research and development involve the development and
coordination of resources through which business unit level strategies
can be executed efficiently and effectively.
Functional units of an organisation are involved in higher level
strategies by providing in put 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 higher-level strategy is developed, the functional units
translate it into discrete action-plans that each department or
division must accomplish for the strategy to succeed.
By using examples, show how an organisation’s strategic planning
affects the other plans of an organisation?
Strategic planning is a management tool, period. As with any
management tool, it is used for one purpose only: to help an
organisation do a better job – to focus its energy, to ensure that
members of the organisation are working toward the same goals, to
assess and adjust the organisation’s direction in response to a
changing environment. In short, strategic planning is a disciplined
effort to produce fundamental decisions and actions that shape and
guide what an organisation is, what it does, and why it does it, with
a focus on the future. (Adapted from Bryson’s Strategic Planning in
Public and Nonprofit Organisations)
The process is about planning because it involves intentionally
setting goals (i.e., choosing a desired future) and developing an
approach to achieving those goals.
Advantages of strategic planning are:
· It helps management identify risks
· It helps to control
· Strategic planning gives direction to all people within the
organisation
· It helps management in decision making, and
· It discloses information about future plans to stakeholders.
Disadvantages of strategic planning are:
· Strategic planning is based on forecasts.
· Strategic plans are subject to environmental changes
· Top management is not aware of the conflicts within the
organisation, at operational level. Thus this will affect the
strategic plans, and
· Leakage of information may put the company at a competitive
disadvantage.
The top management top down approach plan the directions for the whole
organisation. A match – strategic fit between the organisation and its
environment (e.g.: if a competitor opens, thus you have to redesign
your advertising campaign etc.)
Strategic planning is a continuous approach because it is carried out
step by step. Strategic planning relies on a clear mission, goals and
objectives.
Where as contingency plans are their as an emergency so when trying to
reach an objective and something goes wrong the contingency plan may
come into action.
Strategic planning affects other plans of the organisation through
examples in the following diagrams.
The main operation of a company is the core business. The corporate
strategy is a direction for the whole organisation, which wishes to
maintain the same profits of the market. This is a diversification
which takes time and can last between 5 to 10 years. Business strategy
refers to the individual strategy of SBU’s
Outline the importance of a situational analysis in strategic
planning?
The situational analysis is part of one of the starting points of the
strategic planning. These are:
1. Situational Analysis – Where are we now?
2. Objectives – Where do we want to go?
3. Strategies – How to arrive there?
The advantages of a situational analysis are:
· It provides information about:
o Its current position – internal analysis of the company itself.
o Its industry, present/forecasts – industry analysis (NSO)
o Its competition, present/forecasts – competitive analysis (porters 5
competitive forces)
The disadvantage of a situational analysis is that:
· You have an uncertainty and no accurate information.
In a situational analysis, it is important to:
· Recognise the importance of performing a situational analysis.
· Identify the information needed to evaluate the overall market and
industry, as part of the situational analysis.
· Identify elements of an effective competitive analysis.
· Identify the stages of the product life cycle as they pertain to the
situational analysis
It is important to conduct a comprehensive situational analysis. In
conducting such an analysis, the economic and institutional conditions
and their effect on the alternatives available must be considered.
Among the conditions that should be taken into consideration are the
state of the economy including, current monetary and fiscal policy;
the state and structure of the financial system; the legal framework;
the state of the regulatory and supervisory systems; and accounting
and disclosure regimes. Although it is understood that in many cases
conditions are not perfect, it is important to have a process to
evaluate the system available and how these alternatives are affected
by the economic and institutional structure of the country. Through a
situational analysis, gaps between existing conditions and
more-desirable situations can be identified.
What are and list the functions of objectives?
· Objectives help you to develop different courses of action.
· Objectives help you to plan.
· Objectives help you to allocate resources.
· Objectives help in controlling, and
· Objectives help out in the setting of targets for individuals, and
teams.
Bibliography
Lecture Notes
Internet:
· www.mba.com
· www.fdic.com
· www.content1.com
· www.bds-ethiopia.net