Companies frequently use three tiers or strata of strategy, and a precise definition of “strategy” would be “the most advantageous and streamlined approach to attaining the goals and objectives of the organization.” The organizational, functional, and corporate tiers define the parameters within which managers are required to execute decisions. Given that the underlying structure of an organization is its strategic plans, it is critical that every managerial decision promotes the company’s aims. A strategic plan should explain an organization’s long-term and short-term goals, core purpose, and essential function. We’re going to take a look at the different levels of strategy and discuss related matters in this topic.
Two types of organizations exist: those specializing in a single product or service, and those with autonomous divisions governed by a cohesive entity (“profit centers” or “strategic business units”). Reliance Industries and Ashok Leyland Limited are two such examples. Learn about the latest trends in characteristics of strategic human resource management by reading this informative article.
Different Levels of Strategy
The ancient Greek term “Strategos” signified the concept of maneuvering strategically towards victory in conflict in the sphere of military science. However, in the commercial world, strategies mostly focus around learning about competitors and devising a strategy to match or exceed their capabilities. A definition of “strategy” refers to an organization’s long-term goals and objectives. In a competitive market, it allows a corporation to maintain a competitive advantage while satisfying stakeholder and consumer needs. In a competitive setting, the business can gain a competitive advantage by strategically allocating resources. Before you think about money, investing, business, or managing it, consider the different levels of strategy.
Strategy at the Functional Level
Functional-level strategy, executed within departments like Production, Marketing, HR, and R&D, centers on supporting the business-level strategy. Emphasizing internal business processes, these strategies aim to enhance organizational efficiency. Discussions within departments revolve around specific strategies like “Marketing Strategy” and “Human Resource Strategy,” aligning with the company’s overarching strategy. For instance, if the goal is to boost sales among young adults, the marketing department tailors campaigns to this demographic. These decisions, though tactical, are better described as tactics due to their specific and operational nature.
In today’s competitive market, buyers seek unique yet affordable products, prompting the adoption of integrated strategies by many firms. Porter initially saw it as a failure, but later research proved otherwise. Firms targeting administrative cost reduction and providing greater value for money can succeed with this strategy. Kia’s luxury K900 model is a successful example, offering advanced features while keeping prices reasonable through component recycling. However, the approach carries risks, potentially alienating low-income consumers and lacking the prestige of established luxury brands.
The stability strategy’s goal is stability, which essentially consists of the organization going about its business as normal. The preservation of existing services, industries, and activities must be prioritized. A stability approach may be beneficial in the short run, but it may be harmful if used for an extended length of time. At the top levels of strategy, organizations develop corporate-level strategies that guide the entire company.
The retrenchment strategy has a defensive tone, as opposed to the expansion and stability programs, which are more proactive. A retrenchment plan is a business strategy that aims to diminish the size or variety of an organization.
Combating the Competition
Competitive strategies are the most fundamental form of approach used in strategic management. This strategy takes advantage of advantages in both the internal and external contexts. An organization must also deal with the issue of personal status integration. A competitive strategy seeks to obtain a market position that is superior to competitors. Organizations must design ways to separate themselves from their competitors in order to maintain a competitive edge. A sustained competitive advantage is the cornerstone of any good strategy in a strongly competitive economy. The contrast approach, the low-cost strategy, the focus or market niche strategy, and the combination of the two are all competitive tactics.
Corporate competitive strategy comprises internal actions aimed at establishing and sustaining client connections that meet expectations. The focus is on delivering exceptional value, meeting upcoming needs, and expanding market presence. Thompson and Strickland emphasize directors’ “ingenuity and tactics” in strategy formulation. Actions play a crucial role in competitive strategy development. Customer satisfaction is the primary goal, and the organization aims to pursue strategies opposed to competitors in the same industry. Rivals are integral to discussions of competitive strategy. The strategic plan includes long-term advantage-generating approaches, with management’s action plan at its core. The overarching goal is to gain a market competitive edge and outperform competitors.
In the business world, questions like “How do we compete?” and “How do we gain a sustainable competitive advantage?” form the basis of a company’s strategy. A thorough understanding of the organization and its external environment is crucial before addressing these questions. External analysis frameworks like PESTEL Analysis and Porter’s Five Forces, as well as internal ones like Value Chain Analysis and the VRIO Model, are used in this phase. Following a market study, executives move to strategy development, employing frameworks like Porter’s Generic Strategies, Value Disciplines, and Blue Ocean Strategy. The strategy aims to give the company a competitive edge by offering a unique and difficult-to-replicate offering.
In contrast, corporate level strategy necessitates thorough analysis not just of how to get a competitive advantage in various business sectors, but also of which companies the corporation should operate in. In addition, tactics for gaining a competitive advantage in each industry in which the company works must be considered. Portfolio management comprises identifying and integrating the most profitable group of businesses into a company’s overall operations. Furthermore, mergers and acquisitions, or M&A for short, are an essential component of any successful corporate strategy. Corporations with multiple divisions need a corporate-level strategy to integrate unique business plans. This strategy is crucial for internal consistency in major organizations, not commonly seen in SMEs or MNEs.
A growth strategy seeks to improve an organization’s financial performance by increasing sales, assets, or earnings. This allows firms to benefit from the lowering unit cost of their goods as their volume of sales increases, so improving their financial performance. Larger firms often have a better chance of survival than smaller ones due to better access to money, internal processes, and external networks. Levels of strategy include operational strategies, which deal with day-to-day tasks and processes within an organization.
To qualify as products and services that contribute to a differentiation strategy, they must have distinguishing characteristics and provide significant value to the target market. To fetch a premium price, consumers must view a product’s attributes to be significantly superior to those given by competitors.
Differentiation could be based on a variety of variables, including but not limited to the overall quantity of features offered, the level of customer service provided, or another statistic. Leading firms in the global economy, such as Apple and Sony, take a unique approach to the entire market. They manufacture a wide range of high-quality items for a sizable consumer base in the IT industry. Diverse types of luxury-goods shops use differentiation to set themselves out from the competitors. The success of companies like Prada, BMW, and Rolex is dependent on the loyalty of customers who respect the uniqueness and higher quality of their products and are willing to pay a premium for them.
Leading with Low Prices
A company that uses a low-price approach aims to become the preferred option for budget-conscious consumers in its industry. This strategy seeks to create (or purchase) equivalent goods or services at a lower cost than competitors. Regardless of the quality of the products given, the majority of buyers will be tempted by the lower price, resulting in a profit for the company. This technique is only viable if a small number of enterprises can maintain a dominant market position. Leading firms such as Walmart and Costco have built a solid reputation by consistently offering low pricing. IKEA has market domination in the low-price segment and targets a certain demographic by emphasizing exceptional value for money.
Methodology for Operation
The operating entities of a corporation are responsible for developing the operating strategy. Organizations can create operational plans for specific duties within a single division, smaller subsets of personnel, or even an entire facility or region. Operational or field managers typically develop an operating plan with the immediate goal of achieving short-term objectives in mind. When developing operational plans, large firms’ operating managers may consult with their mid-level managers. Administrators must formulate operating strategies for departmental or divisional annual objectives. Also, the concept of levels of strategy refers to the different tiers of planning within an organization.
Which Stratagem Layer do you Consider most Crucial, and Why?
The corporate level is the most complete since it represents the apex of an organization’s strategy. The major goal of the organization should be defined in the business strategy. It should serve as the foundation for all future decisions.
What Criteria should be Used to Identify Strategic Choices?
Two main factors determine a decision’s strategic nature: its influence on commitment levels and its potential for business development. A strategic decision is one that performs well on both of these parameters. It is feasible to distinguish between strategic, neo-strategic, tactical, and operational decisions.
To what End is the Strategic Level so Crucial?
Strategic management is a leadership approach involving setting overarching goals, applying governing principles, and allocating resources to ensure their realization. The primary goal of strategic management is to strengthen an organization’s position in its industry’s competitive environment.
Businesses are currently competing in a wide range of industries and consumer marketplaces. As a result, the organization is designing not just industry-specific business plans, but also a holistic strategy to determine the composition of its target market. The company establishes this strategy in alignment with its overall goals. These layers provide organizations with a wide range of tactical and strategic options. We hope this guide, in which we discussed different levels of strategy, was informative and beneficial for you.