Understanding the Difference: Distinguishing Between Business Strategy and Corporate Strategy
As businesses continue to grow, the need for an effective strategy to achieve their goals becomes increasingly important. Two terms that are often used interchangeably but have significant differences are business strategy and corporate strategy. In this blog article, we will delve into the meaning of both terms, their key differences, examples, and how they contribute to the success of any organization.
What is a Business Strategy?
A business strategy refers to the plans, methods, or techniques that a company uses to achieve its goals. It focuses on the specific actions that the organization needs to take to excel in its industry. A typical business strategy should be informed by an understanding of the business’ position in the market, the industry landscape, and customer needs.
A business strategy comprises several components such as target market identification, resource allocation, and competitive positioning. It should have a clear statement of the company’s objectives and ways to achieve them, including key performance indicators (KPIs) that measure progress towards those objectives.
Examples of business strategies include cost leadership, differentiation, and focus. For instance, a cost leadership strategy aims to offer products at lower prices than its competitors, while a differentiation strategy seeks to offer unique and superior products. A focus strategy targets specific market segments and tailors offerings to those segments.
What is a Corporate Strategy?
Corporate strategy is a broader term that describes a company’s overall direction. It involves decisions on how a business should allocate resources, manage stakeholders, and pursue new opportunities. It defines the long-term aspirations of an organization and the type of businesses it operates in.
Unlike business strategy, corporate strategy involves the strategic planning of the entire organization. It considers the organization’s goals and objectives, resource allocation among different business units or divisions, and the allocation of capital. Essentially, corporate strategy is about deciding where to play and how to win in the market.
A company’s corporate strategy directly shapes the business’s decisions on mergers and acquisitions, diversification, and geographic expansion. It also covers organizational structure and departmental alignment to ensure that businesses work together without stepping on each other’s toes.
Key Differences between Business and Corporate Strategy
The following are some of the key differences between business and corporate strategy:
1. Focus: While business strategy focuses on specific actions to achieve goals, corporate strategy focuses on the overall direction of an organization.
2. Scope: Business strategy pertains to individual business units, while corporate strategy looks at the entire organization’s structure.
3. Time Horizon: Corporate strategy takes a long-term view, while business strategy focuses on short-term actions.
4. Resource Allocation: Corporate strategy determines how a company allocates resources among different business units to achieve overall goals, while business strategy focuses on resources needed to achieve specific goals.
Examples and Case Studies
A good example of corporate strategy is Google’s corporate restructuring in 2015 when it rebranded its parent company as Alphabet Inc. and divided its business units into separate entities. The restructuring created a clearer focus on different businesses such as Google (a search engine), Waymo (a self-driving car company), and Verily (a health-related research and development company).
In contrast, a good example of a business strategy is IKEA’s low-cost furniture approach. IKEA’s mission is to offer home furnishing products of good quality at affordable prices. Its business plan focused on lowering operational costs, owning its raw materials, and optimizing its supply chain. This allowed IKEA to offer consumers its products at lower prices, in addition to the high quality and design standards of the furnishings.
Conclusion
In conclusion, the terms business strategy and corporate strategy are essential for any growing business. A successful organization requires a well-defined corporate and business strategy that supports each other and contributes to long-term success. While business strategy involves specific plans and actions taken by an organization to achieve its goals, corporate strategy takes a broader view, focusing on the entire organization’s direction. Organizations must understand these differences and determine the best approach to achieving their goals.
