Corporate vs Business vs Functional Strategy: Understanding the Differences
When it comes to strategic planning, a common confusion arises between the terms ‘corporate’, ‘business’, and ‘functional’ strategies. Although they might seem similar on the surface, there are key differences that can significantly impact the success of a company’s strategic decision. In this article, we will explore the main characteristics of each strategy and how they contribute to a company’s overall success.
Corporate Strategy
Corporate strategy refers to the overall plan a company follows to sustain and grow its business. It involves the highest level of decision-making and focuses on how the company creates value across its portfolio of businesses. Corporate strategy often involves making investment decisions for mergers or acquisitions, diversification or consolidation efforts, and divestitures to optimize the allocation of resources within a company.
A good example of successful corporate strategy is the Walt Disney Company. Over the years, they have expanded their business from animation to theme parks, movie production, and television stations. The acquisition of Pixar, Marvel, and Lucasfilm allowed them to create deep integrations and dominate different entertainment markets, developing new revenue streams while increasing the brand value.
Business Strategy
Business strategy refers to the plan of action a company follows to achieve its specific business objectives. It focuses on the company’s core competencies and how those competencies differentiate the company from its competitors. Business strategy decisions impact every aspect of a company’s operations, such as sales and marketing, product development, and supply chain management.
Southwest Airlines is a well-known example of a successful business strategy. Their key metric is to keep the plane flying as much as possible, leading to faster turnaround times, and using only one type of airplane, which allows them to lower maintenance costs. As a result, they were able to offer low-cost fares that their competitors couldn’t match, building customer loyalty and dominating the short-haul market.
Functional Strategy
Functional strategy refers to the plan of action a company follows to implement its business strategy effectively. It focuses on the specific actions each department needs to take to fulfill the business strategy, such as marketing, finance, or operations. Functional strategies often align with the company’s overall goals and core values, ensuring a cohesive approach to decision-making across the company.
Apple Inc. is an example of a successful functional strategy. Their focus on excellent design, user experience, and premium pricing is reflected across all their departments. The design team ensures that products are aesthetically pleasing and user-friendly, while the marketing team creates innovative campaigns that highlight the Apple brand’s premium nature. This alignment drives sales and brand loyalty, with customers willing to pay a premium for Apple products.
Conclusion
In summary, understanding the differences between corporate, business, and functional strategies is critical for companies to develop effective strategies that lead to long-term success. Corporate strategies focus on the overall allocation of resources, business strategies focus on differentiation and competitive advantage, and functional strategies focus on implementing the business strategy effectively. By creating synergy between these strategies, companies can build sustainable and profitable businesses that can thrive in any industry.
