February 26, 2024

The Strategy Hierarchy – Level of strategy

The Strategy Hierarchy/ Level of strategy

Introduction

  • Strategies exist at several levels in any organization – ranging from the overall business (or group of businesses) through to individuals working in it.
  • In most (large) corporations there are several levels of strategy. Strategic management is the highest in the sense that it is the broadest, applying to all parts of the firm.
  • It gives direction to corporate values, corporate culture, corporate goals, and corporate missions.
  • Under this there are corporate strategy , business unit strategy, functional strategy and operational strategy

Corporate level strategy:

  • is concerned with the overall purpose and scope of the business to meet stakeholder expectations. This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decision-making throughout the business. Corporate strategy is often stated explicitly in a “mission statement”.
  • The companywide game plan for managing a set of businesses. The levels involved are CEO and other Senior Executives.
  • refers to the overarching strategy of the diversified firm. Such corporate strategy answers the questions of “in which businesses should we compete?” and “how does being in one business add to the competitive advantage of another portfolio firm, as well as the competitive advantage of the corporation as a whole

Business Unit level strategy:

  • Business strategy, which refers to the aggregated operational strategies of single business firm or that of an SBU in a diversified corporation, refers to the way in which a firm competes in its chosen arenas.
  • is concerned more with how a business competes successfully in a particular market. It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc.
  • Actions to build competitive capabilities and strengthen market position. Executed by General Mangers, Plant Heads, Division heads of each business with inputs from Corporate and Functional levels.

Strategic Business Unit (SBU)

  • Many companies feel that a functional organizational structure is not an efficient way to organize activities so they have re –engineered according to processes or strategic business units (called SBUs).
  • A Strategic Business Unit is a semi-autonomous unit within an organization. It is usually responsible for its own budgeting, new product decisions, hiring decisions, and price setting.
  • An SBU is treated as an internal profit centre by corporate headquarters. Each SBU is responsible for developing its business strategies, strategies that must be in tune with broader corporate strategies

Functional Strategies

  • Functional strategies include Marketing Strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, supply-chain strategies, and information technology management strategies.
  • The emphasis is on short and medium term plans and is limited to the domain of each department’s functional responsibility and is executed by Functional heads. Each functional department attempts to do its part in meeting overall corporate objectives, and hence to some extent their strategies are derived from broader Corporate & Business strategies.

Operational Strategy

  • The “lowest” level of strategy is operational strategy.
  • At this level, detailing is done to add completeness to Business & Functional Strategies.
  • It is very narrow in focus and deals with day-to-day operational activities such as scheduling criteria.
  • It must operate within a budget but is not at liberty to adjust or create that budget.
  • Operational level strategy was encouraged by Peter Drucker in his theory of Management By Objectives (MBO).
  • Operational level strategies are informed to business level strategies which, in turn, are informed to corporate level strategies.
  • These strategies are executed by ‘Brand Managers’, ‘Operating Managers’, ‘Plant managers’. Important activities like Advertising, Web site operations, distributions are involved at this level.

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