8 MIN READ
What Is Strategy?
The Three Levels of Strategy
You've probably heard the term "business strategy" used in the workplace.
But what is strategy, exactly? And are you aware that you need different types of strategy at different levels within your organization?
In this article, we're looking at some common definitions of strategy. We'll focus on three strategic levels – corporate strategy, business unit strategy, and team strategy – and we'll look at some of the core tools and models associated with each area.
Click here to view a transcript of this video.
Strategy has been studied for years by business leaders and by business theorists. Yet, there is no definitive answer about what strategy really is.
One reason for this is that people think about strategy in different ways.
For instance, some people believe that you must analyze the present carefully, anticipate changes in your market or industry, and, from this, plan how you'll succeed in the future. Meanwhile, others think that the future is just too difficult to predict, and they prefer to evolve their strategies organically.
Gerry Johnson and Kevan Scholes, authors of "Exploring Corporate Strategy," say that strategy determines the direction and scope of an organization over the long term, and they say that it should determine how resources should be configured to meet the needs of markets and stakeholders.
Michael Porter, a strategy expert and professor at Harvard Business School, emphasizes the need for strategy to define and communicate an organization's unique position, and says that it should determine how organizational resources, skills, and competencies should be combined to create competitive advantage.
While there will always be some evolved element of strategy, at Mind Tools, we believe that planning for success in the marketplace is important; and that, to take full advantage of the opportunities open to them, organizations need to anticipate and prepare for the future at all levels.
For instance, many successful and productive organizations have a corporate strategy to guide the big picture. Each business unit within the organization then has a business unit strategy, which its leaders use to determine how they will compete in their individual markets.
In turn, each team should have its own strategy to ensure that its day-to-day activities help move the organization in the right direction.
At each level, though, a simple definition of strategy can be: "Determining how we are going to win in the period ahead."
We'll now look more deeply at each level of strategy – corporate, business unit, and team.
In business, corporate strategy refers to the overall strategy of an organization that is made up of multiple business units, operating in multiple markets. It determines how the corporation as a whole supports and enhances the value of the business units within it; and it answers the question, "How do we structure the overall business, so that all of its parts create more value together than they would individually?"
Corporations can do this by building strong internal competences, by sharing technologies and resources between business units, by raising capital cost-effectively, by developing and nurturing a strong corporate brand, and so on.
So, at this level of strategy, we're concerned with thinking about how the business units within the corporation should fit together, and understanding how resources should be deployed to create the greatest possible value. Tools like Porter's Generic Strategies, the Boston Matrix, the ADL Matrix and VRIO Analysis will help with this type of high-level analysis and planning.
The organization's design is another important strategic factor that needs to be considered at this level. How you structure your business, your people, and other resources – all of these affect competitive advantage and can support your strategic goals.
Business Unit Strategy
Strategy at the business unit level is concerned with competing successfully in individual markets, and it addresses the question, "How do we win in this market?" However, this strategy needs to be linked to the objectives identified in the corporate level strategy.
Competitive analysis, including gathering competitive intelligence, is a great starting point for developing a business unit strategy. As part of this, it's important to think about your core competencies, and how you can use these to meet your customers' needs in the best possible way. From there you can use USP Analysis to understand how to strengthen your competitive position.
You will also want to explore your options for creating and exploiting new opportunities. Porter's Five Forces is a must-have tool for this process, while a SWOT Analysis will help you understand and address the opportunities and threats in your market.
For smaller businesses, corporate and business unit strategy may overlap or be the same thing. However, if an organization is competing in different markets, then each business unit needs to think about its own strategic direction.
It's important, though, that each business unit's strategy is aligned with the overall strategy of the corporation, particularly where the corporation's brand is important.
Your business unit strategy will likely be the most visible level of strategy within each business area. People working within each unit should be able to draw direct links between this strategy and the work that they're doing. When people understand how they can help their business unit "win," you have the basis for a highly productive and motivated workforce. As such, it's important to have a clear definition of the business unit's mission, vision and values.
To execute your corporate and business unit strategies successfully, you need teams throughout your organization to work together. Each of these teams has a different contribution to make, meaning that each team needs to have its own team-level strategy, however simple.
This team strategy must lead directly to the achievement of business unit and corporate strategies, meaning that all levels of strategy support and enhance each other to ensure that the organization is successful.
This is where it's useful to define the team's purpose and boundaries using, for example, a team charter; and to manage it using techniques such as Management by Objectives and use of key performance indicators.
You need to be working efficiently to achieve the strategic objectives that have been set at higher levels of the organization; so, an important element of your team strategy is to implement best practices to help your team to meet its objectives. Activities that optimize supplier management, quality, and operational excellence are also important factors in creating and executing an effective team strategy.
Strategy can be difficult to define, but a good definition is: "Determining how we will win in the period ahead."
In business there are different levels of strategy. Each of these has a different focus, and needs different tools and skills.
Corporate strategy focuses on the organization as a whole, while business unit strategy focuses on an individual business unit or market.
Finally, team strategy identifies how a team will help the organization meet its overall goals and objectives.
Our Developing Your Strategy article presents a common-sense step-by-step approach to strategy development, which you can apply to developing a corporate, business unit, or team strategy. You can also find out more about strategy development by taking our Essential Strategy Bite-Sized Training™ session.
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