Most people use the word “strategy” all the time without understanding what it really means. A strategy is simply a plan of action designed to achieve a specific goal. But not all strategies are created equal. In business, there are three primary types of strategies, each with a different purpose and application.
Understanding the different types of strategies is key to effective business management. Here is a breakdown of the three main levels of strategy and how to apply them.
Corporate Strategy: This is the highest level of strategy, encompassing the entire organization. It answers the question, “What business should we be in?” This involves major decisions like mergers and acquisitions, diversification into new industries, or divesting from underperforming business units.
● How to apply it: This strategy is set by the C-suite and board of directors. It’s aboutlong-term vision and allocating resources across different business units to create valuefor the whole company.
Business Strategy: This level focuses on a single business unit or division. The centralquestion here is, “How should we compete in this industry?” This involves defining a competitive advantage, whether through cost leadership, product differentiation, or a focus on a specific market niche.
● How to apply it: Business leaders develop this strategy to guide their division’soperations. They must analyze the market, competitors, and their own strengths to determine the best way to win.
Functional Strategy: This is the most detailed level, and it supports the business and corporate strategies. It asks, “How do we execute the business strategy within our department?” Examples include a marketing strategy to launch a new product, a production strategy to improve efficiency, or a human resources strategy to attract top talent.
● How to apply it: Department heads and managers formulate these plans. They ensurethat day-to-day activities and decisions align with the overarching goals of the businessunit and the entire corporation.
For a strategy to work, these three levels must be aligned. A well-crafted functional strategy will support a strong business strategy, which in turn helps the company achieve its corporate goals. Without this alignment, an organization can feel fragmented, with departments working in different directions.
