Good Corporate Strategy – Everything You Need to Know

What is corporate strategy?

Corporate strategy is a unique plan or framework that is long-term in nature, designed with an
objective to gain a competitive advantage over other market participants while delivering both on
customer/client and stakeholder promises (i.e. shareholder value).

Another, much simpler corporate strategy meaning is to see it as a set of decisions where a
company would place its bets for the future. Given that every organization has a limited amount of
resources, it needs to decide how it will prioritize using these resources.

In this article, we offer a deep dive into corporate strategy.

Types of corporate strategy

Why does good corporate strategy matter?

10 Corporate strategy components

Corporate strategy vs Business strategy vs Functional strategy: How are they different?

Red ocean strategy vs Blue ocean strategy

Examples of highly successful corporate strategies

Different types of corporate strategy

Though no two strategies are ever the same, corporate strategy can be classified into four different
groups:

Growth strategy

Stability strategy

Retrenchment strategy

Re-invention strategy

Each type of corporate strategy has several sub-types, as illustrated in the picture below.

Here is a brief overview of each strategy type with examples:

Growth strategy:

Growth strategies aim to achieve considerable business growth in the areas of revenue, market
share, penetration, etc. This can be achieved either through concentration where the company is still
focusing on its core business and builds it out or through diversification where a company decides to
diversify based on the number of approaches that are described in detail below.

1A. Concentration

If a company aspires to growth while remaining in the same space it is currently operating, this is a
concentration growth strategy. Here it is important to distinguish between a few options:

• Vertical Integration (participating in more value-added activities)

• Horizontal Integration (same activities, different geography or different

Vertical Integration

Vertical Integration (i.e. executing on more value chain steps than in the past e.g. by being involved
in distribution activities, supplier activities, etc.)

An example of a vertical integration would be a travel agent who gets licensed in order to not only
sell travel packages but also receive commission from travel insurance sales (a product that is often
sold in tandem with travel packages)

Horizontal Integration

Horizontal integration assumes expansion into other geographies and/or the offering other
products/services into the same market where the company already operates. An example of
horizontal integration would be the expansion of Tim Hortons into the United States or expansion
into lunch meals within its existing Canadian market.

1B. Diversification

Diversification is a very wide-spread type of strategy that may include the aspiration of the company
to grow based on changes in product/service offering, introducing new products services, or even
moving into entirely new spaces.

Basis diversification

Basis diversification means that a company preserves its current offering, but is able to differentiate
its product/service from other competitors by unique capabilities/features/ characteristics. In this
case, a product/service value-added in the eyes of a customer/client is higher. As a rule, it justifies a
higher price.

Cost leadership

Cost leadership is a special type of concentration strategy where a company is able to offer the
same product/service at a more attractive price (e.g. via superior, more cost-efficient Operations).

For example, this strategy can be seen with Mazda offering its more affordable vehicles that are
competitive with other players in a higher price bracket in terms of quality and functionality, but at a
lower price point.

Adjacent growth

Adjacent growth is an exciting strategy space for any organization. This strategy is often reliant on
an organization feels that it has reached its limits in its core business. In this case, a company
explores opportunities to grow in a space related to its core business – it can be an additional
product/service, adjacent industries, additional set of customers, etc. For adjacent strategies, it is
important to identify the most promising adjacent niches and “attack” them instead of boiling the
ocean of potential opportunities. If an online platform has been comparing banking products and
then decided to move into the comparison of insurance products, that would be an adjacent growth
strategy.

Conglomerate growth

Conglomerate growth is the opposite of basis diversification. It means that an organization looks to
expand into businesses which are not (or are but very loosely) linked to its core. There are fewer
synergies across such businesses but nevertheless, this strategy has shown to be feasible for many
companies. In some cases, it is a strong brand that allows a company to propel the conglomerate
business e.g. in the case of Virgin Group.

Stability strategy

Stability strategies do not have growth and new business development in their focus but rather are
geared towards getting “more” out of the existing business (i.e. profitability-driven-strategy) or “stay-
as-it-is” (i.e. Status-quo strategy) because the current situation already works well for the
organization.

2A. Status-quo

Status-quo strategies often focus on maintaining the existing performance of a business and can
include such elements as acquisition of potential companies that pose a threat to the existing
business, work with regulators to develop business entry barriers, etc. The reasons to choose a
status-quo strategy can be varied e.g. already being very successful, not having opportunities for
growth, regulatory regulations, etc.

2B. Profitability-driven

A profitability-driven strategy is often linked to a desire to boost company evaluation (e.g. prior to
selling the business, before an initial public offering) and has enterprise value in the focus of the
strategy. The variety of levers used for this strategy type spans across portfolio optimization, cost-
cutting, adjustment of pricing, etc.

Retrenchment strategy

This set of strategies is almost the opposite of status-quo or growth strategies. It is a defensive
strategy where the main objective is to change the negative trajectory and improve the company’s
position either through aggressive changes or “cutting off” the parts that pull it down.

3A. Turnaround

A turnaround strategy is based on a dramatic change from the previous course of action (e.g. due to
a bad decision, company mismanagement, loss of market share, shrinking industry, etc.) It includes
such measures as crisis management, financial restructuring of the company, revamping the
company’s product and servicing, aggressive cost-saving initiatives e.g. via robotic process
automation, employee retention, etc. In most cases, implementing a turnaround strategy is a heavy
exercise for the entire organization that touches every single part of a company.
3B. Divestiture

Divestiture strategy involves ‘getting rid’ of parts of a business for a number of reasons such as a
decision to focus on the core businesses (e.g. when a business line does not fit into the overall
business landscape), the poor performance of certain business lines, attractive sale opportunities,
etc. Divestiture strategies typically lead to lower complexity of the rest of the business and releasing
a part of resources that can be reinvested into the business lines a company decides to keep.

Re-invention strategies

Re-invention strategies often include taking the existing industries/businesses which have not
changed for decades and re-inventing them, often with the support of new technologies. Here one
can distinguish between evolutionary strategies and revolutionary strategies.

4A. Evolutionary

Evolutionary strategies typically do not change the business model but strongly evolve the way
service is delivered; they can significantly change a company’s product/service because they unlock
a new dimension of value for customers. An example of such a business would be Netflix where the
movies are delivered not as physical rentals (i.e. Blockbuster) but through a digital subscription.

4B. Revolutionary

Revolutionary strategies often change the entire business model unlocking value for existing and
new stakeholders. That often leads to significant shifts in market dynamics. Some technologies such
as blockchain and artificial intelligence are seen as enablers that will fuel many reinventions and
must be seen as a fundamental component of any technology strategy plan. Uber can serve as an
example of such a business where it fully re-invented the way people provide and use rental car
services impacting both drivers (i.e. new drivers, existing taxi drivers) and passengers.

Why does good corporate strategy matter?

To succeed, a good strategy needs both a solid foundation and the ability to evolve and change in
real-time. Business is not static, corporate strategy shouldn’t be either.

Organizations face several challenges when designing and putting into practice corporate strategies.
So, what exactly is the foundation of a solid corporate strategy?

A good corporate strategy consists of six elements that together promote a corporate advantage.
These elements can be represented in a Corporate Strategy Triangle, where the sides of the
triangles are the foundations of a solid strategy: Resources, Businesses, Organization.
The importance of corporate strategy is in focusing on an organization with all its resources and
capabilities on accomplishing clearly defined mid- and long-term objectives.

Professor Richard Rumelt of UCLA argues that where companies go wrong is when they make their
strategy too complicated. It is also by our natural tendency to try and satisfy all possible
constituencies (the CEO, the Board, key investors, etc.), it is here that strategies often become
convoluted and lose focus.

To achieve a competitive advantage, each arm of the triangle has to be strong enough to support the
triangle uniformly, yet flexible enough to evolve with the business. The business must be in a
position to leverage this triangle of strengths to bring about a competitive advantage. The point is
when these three arms of the triangle do not match up, any advantage that a business has
eventually fallen away.

10 Components of corporate strategy

A good corporate strategy is more than a description of the company’s vision or mission. It is not a
long list of tasks that need to be accomplished. We believe that a good corporate strategy has
several essential components:

1. A set of clearly defined objectives which are quantified, anchored in financials (e.g.
enterprise value, profitability, growth) and linked to a timeline
2. A clearly defined product or/and service offering that clarifies four dimensions:
a. What products/services do we offer (including clearly defined value-added)?
b. Who is our customer/client?
c. What markets do we serve (e.g. geography)?
d. At what price do we offer our product/service?
3. A clear understanding of the market/industry and competitive landscape
4. Core capabilities that the organization has AND does not have (e.g. innovation, cost
advantage, etc.)
5. Execution approach defining how objectives will be achieved (e.g. through organic growth,
acquisitions, etc.)
6. Key elements of performance management to track the execution journey (e.g. KPIs)
7. Agreed risk management approach (i.e. identified risks and mitigation strategies)
8. Clear change management and leadership approach to drive changes necessary to
succeed.
9. A clearly defined strategic roadmap laying out the path forward (i.e. milestones, activities,
responsibilities, associated resources, etc.)
10. A well-defined strategy considers different scenarios that represent potential strategic
developments and feasible versions of future developments to ensure that the company is
prepared for unexpected.

For example, if a company plans for essential growth that includes both organic and acquisition-
based growth, it should have in its back pocket a scenario of a “pure organic growth” in the event
that there are no companies in the market to acquire. Another possible scenario is changes in
regulation that are often hard to predict.

Corporate strategy vs Business strategy vs Functional strategy: How are they different?

Very often people talk about different types of strategies referring to strategies that relate only to a
particular part of an organization. Often, there is a confusion when talking about corporate strategy
vs business strategy vs functional strategy. Let us clarify the differences.

Typically, there are three different levels of strategies to distinguish between:

Corporate strategy

Business strategy (also called business level strategy), and

Functional Strategy

Here is a summary of differences across these three types and key questions that each strategy
should address.
Red ocean strategy vs Blue ocean strategy

Two other terms that are often used in the strategy context are RED OCEAN STRATEGY and BLUE
OCEAN STRATEGY. These two again, represent a bit of a different view on the corporate strategy
types mentioned above.
Examples of highly successful corporate strategies

Below are two well-known examples of successful strategic initiatives.

Porsche’s corporate strategy example

While one of the most renowned auto manufacturers in the world, in the early 1990s Porsche found
itself on the brink of bankruptcy due to inefficient production methods that focused on engineering
and design above consumer needs. The German auto manufacturer’s newly appointed CEO
Wendelin Wiedeking remade the company by employing a strategy focused on Japanese
manufacturing concepts to improve efficiency and launching new products to increase market
appeal.

Vehicles like the 911 (midsize premium sport vehicle), Boxster (compact, premium sport vehicle),
and Cayman (premium sport coupe) targeted a very specific upscale market, allowing the company
to focus its brand and value proposition on this segment of consumers. Additionally, the company
introduced new products like the Cayenne (one of the first luxury sport SUVs) targeting wealthy
consumers in the market for a luxurious four-door sport vehicle.
This carefully designed and brilliantly executed strategy resulted in highest profit margins across the
industry (~15%), comparatively other players found themselves far behind in terms of profitability
(2016 numbers) e.g. Mercedes (~7%) or Hyundai (~4%)

It is interesting to know that Porsche’s profitability is by far higher than that of its parent company,
Volkswagen.

Toyota’s corporate strategy example

Toyota is another iconic name in the automotive world, but its story of success is different than
Porsche’s. Toyota did not focus sales on one particular customer segment, instead, it embraced cost
leadership and paired it with high quality.

In order to deliver on both core objectives, Toyota focused on operations excellence introducing
manufacturing and lean concepts that were widely embraced later by other manufacturers in the
automotive space and beyond. Such terms as TPS (Toronto Production System), JIT (Just-in-time)
manufacturing and LEAN are known to originate in Toyota’s manufacturing.

This has enabled the company to offer high-quality products (though in clearly defined
configurations) at very competitive prices quickly capturing a significant share of the automotive
market. Toyota’s profits per vehicle are not comparable with those of Porsche but they are able to
capture a much larger market compensating for lower margins.