Levels of Strategy: Some key distinctions

Strategic management provides a disciplined way for managers to make sense of the environment in which their organization operates, and then to act. In broad terms two phases are involved:

1. Strategic planning is the name we customarily give to the sense making activity. This includes both the goal setting and the strategy formulation processes.
2. Strategy implementation is the name we customarily give to actions based on that kind of planning. This stage includes administration and strategic control stages.

We can identify examples of each stage at Federal Express:

(1) Global Market leadership in information delivery is an example of what can emerge from goal setting.
(2) The Tiger acquisition and Anchorage facility are the products of strategy formulation that is particular ways to pursue the goals Smith had set.
(3) Merging the two disparate ways of running companies at Tiger and at Federal Express was an administration problem.
(4) The discontinuation of Zap-mail is a case in point of strategic control.

The logical flow of this systematic attempt to create a future out of a past of experiences and a present of resources is depicted. The two return arrows indicate that this process is ongoing as circumstances change.

In discussing strategy, it is useful to distinguish three levels of strategy: corporate level business unit level, and functional level.

Corporate level Strategy:

Corporate level strategy is formulated by top management to oversee the interests and operations of organizations made up of more than one line of business. The major questions at this level are these: What kinds of business should the company be engaged in? What are the goals and expectations for each business? How should resources be allocated to reach these goals?

Top managers at Minnesota Mining and manufacturing Co. (3M) have been remarkably successful in putting together a number of small diverse businesses that share the strengths and vision of the total organization, especially the strong emphasis on innovation. For instance, six different units exist under 3M’s medical products unit, which is one of three life science units. Infusing the activities of so many business units with a company wide sense of direction is what corporate level strategies must do.

Business unit Strategy:

Business unit strategy (also called line of business strategy) is concerned with managing the interest and operations of a particular line of business. It deals with questions such as these: How will the business compete within its market? What products/services should it offer? Which customers does it seek to serve? How will resources be distributed within the business? Business unit strategy attempts to determine what approach tits market the business should take, and how it should conduct itself, given its resources and the conditions of the market.

Many corporations have extensive interests in different businesses, and top managers have difficulty organizing these corporations; complex and varied activities. One approach to dealing with this problem is to create strategic business units (SBUs). In his system of organizations various business activities that produce a particular type of product or service are grouped and treated as a single business unit. The corporate level provides a set of guidelines for the SBUs which develop their own strategies on the business unit level. The corporate level ten reviews the SBU plans and negotiates changes if necessary.

An example of a corporation with multiple SBUs is the advertising agency Chiat/Day. Chiat/Day’s top ranking managers have formed strategic business units that look after big accounts or bundles of small ones. The idea is that the agency’s most creative people will be more likely to stick around if they are allowed to run own agency within the agency. Clients also benefit from having easier access to ad-makers with the power to make decisions from having the same and make their account even if the person is promoted. As this example shows, SBUs can be a valuable means of forging closer business relationships.