In our previous article, we got acquainted with the term “Strategy” and the main characteristics of a successful Strategy. Here, we are going to make a distinction between Corporate and Business Strategy, as there is a subtle difference.
Corporate Strategy deals with questions related to markets and industries in which the Company competes. It answers the question “Where do we want to compete”.
Business Strategy, on the other hand, is about “How we want to compete”.
In most situations, a company’s top management team (CEO and Board of Directors) would be the one that decides “where” the firm will compete; in other words, they are responsible for its Corporate Strategy. Top managers decide on major issues like vertical integration, diversification, mergers and acquisitions, capital intensive investments and allocation of resources between the different units of a company. They approve new product and service lines, which could be added to the company’s existing product offering. These are the big-time decisions shaping the future, and are part of a firm’s Corporate Strategy.
On the other hand, Business Strategy is about how a company competes within the chosen markets and industries. Gaining a competitive advantage over other firms is what makes a business successful. That is why this type of Strategy is also called a Competitive Strategy. Depending on a company’s organizational structure, Business Strategy will be implemented down by business unit managers or division heads.
Let’s use a practical example to illustrate these concepts. A quick glance at Amazon would allow us to do that.
In terms of Corporate Strategy, Amazon is the world’s largest retailer operating online. Amazon started as an online bookstore, but the company diversified its business substantially and today it sells almost anything that can be sold online. And in terms of geographical presence, Amazon is continuously expanding the scale of its operations and it’s a high-class worldwide competitor.
What about its Business Strategy? How does Amazon compete? The world’s largest online retailer follows a cost leadership strategy with a relentless focus on cost reduction and limited product differentiation. In addition to this, Amazon has a strong focus on technology that benefits from economies of scale and leveraging efficiencies.
The company uses Big Data Analytics to map consumer behaviour. This facilitates predictive modelling and indicates what kind of products would be of interest to the company’s customers. Once the list of products of interest for a specific customer has been identified, Amazon makes a list of recommendations tailored to your individual preferences. Pretty clever, right?
Ok. Having said all that, let’s summarize a few key takeaways.
Corporate Strategy addresses the entire scope of a company and answers the following questions:
- Which industry or industries should the company compete in?
- What would be the geographical scope of our operations – national, international, global?
- Should we diversify our business, and if yes, at what level?
- How should our company be organized in terms of product development, marketing, production, sales, customer service, and distribution? Which of these have to be in-house and which are going to be outsourced?
- Should the company enter into alliances or make acquisitions?
While Business Strategy is concerned with a single area of the business and answers the following questions:
- What type of resources and capabilities should our company develop in order to gain a competitive advantage over competitors?
- What is an efficient way to manage different business units in order to achieve strategic synergies?
- How the company should monitor the industry environment so that its strategies conform to the market needs?