Corporate Strategy: Managers engage in three types of strategic planning (see below) At the top, company wide level, many firms consist of several businesses. For example, Pepsi Co runs Pepsi, Frito Lay and Pizza Hut. Pepsi Co therefore needs a corporate level strategy. A company’s corporate level strategy identifies the portfolio of businesses that, in total, comprise the company and the ways in which these businesses relate to each other.
Relationships among strategies in Multiple Business Firms:
Corporate strategy >>
Business 1 Competitive strategy > Functional strategies
Business 2 Competitive strategy > Functional strategies
Business 3 Competitive Strategy > Functional strategies
There are several generic possibilities:
1) A diversification corporate strategy implies that the firm will expand by adding new product lines.
2) A vertical integration strategy means the firm expands by, perhaps producing its own raw materials, or selling its products direct.
3) Consolidation – reducing the company’s size and
4) Geographic expansion for instance, taking the business abroad are other corporate strategy possibilities.
Competitive advantage: Any factors that allow an organization to differentiate its product or service from those of its competitors to increase market share.
Competitive Strategy: At the next level down, each of these businesses (such as Pizza Hut) needs a business level/ competitive strategy. A competitive strategy identifies how to build and strengthen the business’s long term competitive position in the marketplace. It identifies, for instance, how Pizza Hut will compete with Papa John’s or Wal-Mart competes with target. Companies try to achieve competitive advantages for each business they are in. We can define competitive advantage as any factor that allow a company to differentiate its product or service from those of its product or service from those of its competitors to increase market share. Companies use several generic competitive strategies to achieve competitive advantage:
1) Cost leadership means the enterprise aims to become the low cost leader in an industry. Dell is a classic example. It maintains its competitive advantage through its Internet based sales processing and distribution system, and by selling direct.
2) Differentiation is a second example of a competitive strategy. In a differentiation strategy, a firm seeks to be unique in its industry along dimensions that are widely valued by buyers. Thus, Volvo stresses the safety of its cars, Papa John’s Pizza stresses fresh ingredients, Targets sells somewhat more upscale brands than Wal-Mart and Mercedes Benz emphasizes reliability and quality. Like Mercedes Benz firms can usually charge a premium price if they successfully stake a claim to being substantially different from competitors in some coveted way.
3) Focusers carve out a market niche (like Ferrari), and compete by providing a product or service customers can get in no other way.
Functional Strategy: Finally, each individual business is composed of departments, such as manufacturing, sales and human resource management. Functional strategies identify the basic courses of action that each department will pursue in order to help the business attain its competitive goals. The firm’s functional strategies should make sense in terms of its business/competitive strategy. Dell’s human resource strategies include putting its HR activities on the Web to support Dell’s low cost competitive strategy. The “When You are on your Own” feature illustrates a system you can to facilitates your planning efforts.
There are several business planning software packages available to assist the department head or small business owner in writing strategic business plans. For example, Business Plan Pro from Palo alto software contains all the information and planning aids you need to create a business plan. It contains 30 sample plans, step by step instructions (with examples) for creating each part of a plan (executive summary, market analysis, and so on), financial planning spreadsheets, easy to use tables (for instance, for making sales, forecasts) and automatic programs for creating color 3-D charts for showing things like monthly sales and yearly profits.