Three Levels of Strategy: Key Differences in Corporate, Business, and Functional Strategy

In the realm of strategic management, we often talk about three principal levels of strategy – corporate, business, and functional. These strategic layers distinctly vary, yet they all weave together to formulate an organization’s overall strategic direction.

At the corporate level, strategies are all about making high-level decisions that affect all business units. On the other hand, business unit-level strategies focus on how to compete successfully in specific markets, while functional strategies delve into the nitty-gritty details of running each department efficiently. It’s this intricate interplay of strategies at different levels that ensures a firm’s holistic growth and prosperity.

3 Levels of Strategy

1) Corporate Level Strategy

Corporate-level strategy occupies the highest level of strategic decision making and covers actions dealing with the objective of the firm, acquisition, and allocation of resources, and coordination of strategies of various SBUs for optimal performance.

The top management of the organization makes such decisions. The nature of strategic decisions tends to be value-oriented, conceptual, and less concrete than decisions at the business or functional level. Some of the types of corporate-level strategies are:

• Stability Strategy: This strategy involves maintaining the status quo, focusing on doing what the company does well, and avoiding risky ventures. It is often used in a steady, predictable market where radical changes are unnecessary.
• Expansion/Growth Strategy: As the name suggests, this strategy aims at the growth and expansion of the company. It might involve exploring new markets, introducing new products, or increasing production capacity to propel the business forward.
• Retrenchment Strategy: This involves pulling back and consolidating resources to survive difficult times. It might involve cost-cutting, restructuring, or closing underperforming business units to streamline operations and improve efficiency.
• Combination/Mixed Strategy: This involves using a mix of the above strategies to address different parts of the business. For example, a company might use a growth strategy for one business unit while employing a retrenchment strategy for another.

2) Business-Level Strategy

Business-level strategy is applicable in those organizations, that have different businesses each business is treated as a strategic business unit (SBU). The fundamental concept in SBU is to identify the discrete independent product/market segments served by an organization.

Since each product/market segment has a distinct environment, an SBU is created for each such segment. For example, Reliance Industries Limited operates in textile fabrics, yarns, fibers, and a variety of petrochemical products. For each product group, the nature of the market in terms of customers, competition, and marketing channels differs.

Therefore, it requires different strategies for its different product groups. Thus, where the SBU concept is applied, each SBU sets its strategies to make the best use of its resources (its strategic advantages) given the environment it faces. At such a level, strategy is a comprehensive plan providing objectives for SBUs, allocation of resources among functional areas, and coordination between them for making optimal contributions to the achievement of corporate-level objectives.

Such strategies operate within the overall strategies of the organization. The corporate strategy sets the long-term objectives of the firm and the broad constraints and policies within which an SBU operates. The corporate level will help the SBU define its scope of operations and also limit or enhance the SBU operations by the resources the corporate level assigns to it. There is a difference between corporate-level and business-level strategies.

For example, Andrews says that in an organization of any size or diversity, corporate strategy usually applies to the whole enterprise, while business unit strategy, less comprehensive, defines the choice of product or service and market of individual business within the firm. In other words, business strategy deals with ‘how’ and corporate strategy with ‘what’. Corporate strategy defines the business in which a company will compete preferably in a way that focuses resources to convert distinctive competence into competitive advantage.’

Corporate strategy is not the total of business strategies of the corporation but it deals with different subject matter. While the corporation is concerned with and has an impact on business strategy, the former is concerned with the shape and balancing of growth and renewal rather than in-market execution. Some of the types of business-level strategies are:

• Cost Leadership Strategy/Cost Reduction Strategy: This strategy aims to become the lowest-cost producer in the industry, allowing the company to outperform competitors by offering products or services at more competitive prices.
• Differentiation Strategy: Here, a company seeks to offer unique and superior value compared to its competitors through product innovation, high quality, extraordinary service, or other factors.
• Focus/Niche Strategy: This strategy involves a company targeting a specific, often narrowly defined, market segment (niche) where it can meet the unique needs of consumers better than larger competitors.

Here is a video by Marketing91 on Levels of Strategy.

3) Functional Level Strategy

Functional strategy, as suggested by the title, relates to a single functional operation and the activities involved therein. Decisions at this level within the organization are often described as tactical for example human resource strategy. Such decisions are guided and constrained by some overall strategic considerations.

Functional strategy deals with the relatively restricted plans providing objectives for specific functions, allocation of resources among different operations within that functional area, and coordination between them for optimal contribution to the achievement of the SBU and corporate-level objectives.

Below the functional-level strategy, there may be operations-level strategies as each function may be divided into several sub-functions. For example, marketing strategy, a functional strategy, can be subdivided into promotion, sales, distribution, and pricing strategies with each sub-function strategy contributing to the functional strategy.

Example Apple Inc.

Apple Inc. strategically operates at various levels of strategy to sustain its competitive advantage. They implement a combination of corporate, business unit, and functional level strategies to enhance their production strategy.

• At the corporate level, Apple focuses on innovation and delivering high-quality products.
• In terms of strategic business units, Apple has various segments like Mac, iPhone, iPad, Services, and Wearables.
• Their production strategy revolves around creating cutting-edge technology with a seamless user interface.
• Apple leverages functional level strategies in marketing through distinctive advertising and in supply chain management through efficient logistics.
• All these strategies collectively pave the way for Apple to maintain a sustainable competitive advantage in the market.

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