Understanding Corporate Strategy, How Important Is It?

Maret 23, 2022

When running a business, a company must have a clear vision. The vision itself describes the long-term goals of a company that needs to be strategically planned to be achieved. To be able to achieve the company’s vision, a corporate strategy is needed so that you can achieve success. Let’s follow this article to find out more about a corporate strategy.

Understanding Corporate Strategy, How Important Is It?

What is Corporate Strategy?

Corporate strategy is a strategy for determining plans to achieve business goals. Corporate strategy is also known as a grand strategy because of the combination of business moves, hidden goals, and patterns of action. Strategy at the corporate level is prepared by all departments that can affect the entire company.  

Broadly speaking, the corporate strategy reflects top-level decision-making as part of strategic management. 

Is Corporate Strategy Important for a Company?

As explained above, the corporate strategy is formulated by the highest level of management and influences future growth and business opportunities. To keep up with the ever-changing demands of the industry, companies must constantly update their corporate strategy and require consistent problem solving and decision-making at every stage and level within a company.

The plans that are determined based on the corporate strategy are used by leaders to define, outline, and achieve certain business goals. In addition, this strategy can also be used by small businesses to increase profits during the next fiscal year, whereas it can be used to oversee the operations of multiple businesses by large businesses to achieve more complex goals, such as selling the company or entering new markets.

Components of Corporate Strategy

1. Allocation of Resources

To maximize the value of a business, leaders must decide or determine the most efficient allocation of resources (mostly people and capital) to different parts of businesses.

2. Strategic Trade-Offs

Balancing the tradeoffs between the degree of risk and the advantage of opportunities across the business is one of the most challenging aspects of corporate strategy. The main factors to consider for strategic trade offs are managing risk, generating returns, and incentives. 

3. Organizational Design

To ensure the business has the necessary corporate structure and related systems to produce the maximum value, leaders must consider the role of the corporate head office and the reporting structure of individuals and business units. 

4. Portfolio Management

Portfolio management determines where the business units meet, their interrelationships, and where the business will run. This component also includes the decision of whether the business will start or not. 

Types of Corporate Strategy

1. Expansion or Growth Strategy

Every business wants to grow and occupy a substantial market share. An expansion or growth strategy is a strategy to find methods for increased revenue from selling products or goods.

This type of strategy is great for companies that are planning to create new products and reach new audiences. In addition, this strategy can also be used if a company wants to increase the level of activity in their business such as accepting new clients and hiring more employees. The expansion strategy can also lead the company to raise salaries and expand employee benefits packages, thus having great earning potential for executives.

The expansion or growth strategy can be applied to companies with operating areas that have a strong economy or if the focus of the company is to improve performance. This type of strategy is divided into two approaches, namely concentration and diversification strategies

Concentration Growth Strategy

A concentration growth strategy is when a company’s vision is to grow in the same operating space. This strategy encompasses two options:

Vertical Integration

A strategy that seeks growth by taking over various components of operations that are normally outsourced. For example, a juice company farms for the fruits it uses, so that they can better control the quality and supply requirements through their control over this part of the supply chain. 

Horizontal Integration

A business that expands the reach of an existing product or service into a new geographic area or new target market. One example of a horizontal growth strategy is niche marketing, i.e. expansion into niches or market segments that have never been followed before. 

Diversification Strategy

Diversification strategy consists of four approaches, such:

Basis diversification

This diversification may add value to a product in the eyes of customers or clients, as this approach is used when a company can differentiate its product capabilities, features, or characteristics from other competitors. 

Cost leadership

The company’s ability to offer a more pleasing price on the same product or service is the definition of cost leadership strategy. This strategy may be done with more cost-efficient operations.

Adjacent growth

This strategy is done when a company considers opportunities of growing in a space-related to its core business, including additional products, adjacent industries, etc. this strategy is often based on the perception that a company has reached the limits of its core business. 

Conglomerate growth

Conglomerate growth is a strategy where a company explores how to expand their businesses that are not linked to its core, which is the opposite of basis diversification. 

Types of Corporate Strategy

2. Stability Strategy

If a company believes that it should continue with its existing business and the business is doing reasonably well, but there is no room for significant growth, then the company should implement a stability strategy to ensure additional progress that can still generate revenue, including practices such as research and development. product development and innovation. This strategy also requires management to focus on customer retention.

Stability strategies are often used during adverse economic periods. Status quo and profitability-driven strategy are two approaches to stability strategy.

Status-quo strategy

When a business focuses on maintaining its existing performance or does not have opportunities for growth during a period, this is when the business considers using the status-quo strategy. Status quo strategy includes the acquisition of potential companies that threaten existing business, developing business entry barriers by working with regulators, etc.

Profitability-driven strategy

A leader’s desire to boost company evaluation is often used to describe a profitability-driven strategy. Cost-cutting, portfolio optimization, adjustment of pricing, etc are examples of forces that can be done using this strategy.

3. Retrenchment Strategy

A company’s performance may be improved by redefining the business and reducing the pace of the company’s activities. 

A retrenchment strategy requires a company to consider whether it should change its business model, which may involve discontinuing products or reducing its functionality. 

This strategy is only used when the company wants to take protective measures in maintaining the solvency of the business, or during periods of downturn and crisis when the business is deemed unable to bring profitability to the company. There are two approaches of retrenchment strategy, such:

Turnaround Strategy

When there is a dramatic change from the previous course of action, a turnaround strategy implementation is needed to maintain the business’ integrity. This strategy includes crisis management, the company’s financial restructuring, the company’s product, servicing revamping, initiation of cost-saving, etc. 

Divestiture Strategy

Divestiture strategy is a strategy of removing some parts of a business as a decision that may lead to the business’ lower complexity, and reinvesting of resources that have been released from the removed business line into the business lines a company decides to keep doing. 

4. Reinvention Strategy

The reinvention strategy is a strategy that is unique when compared to other types of strategies. This type of strategy involves reinventing an existing business that hasn’t changed for decades, often with the backing of new technology. 

The strategy used can be either evolutionary or revolutionary. An evolutionary strategy creates a business model that doesn’t change much but rather changes the way a product or service is delivered. Revolutionary strategies change the entire business model and often lead to changing market dynamics. 

5. Combination Strategies

Companies usually need to adopt different strategies to suit different situations.

A combination strategy is a mix of expansion, stability, or retrenchment strategies that are applied either at the same time in different businesses or at different times in the same business. 

For example, a company that has followed a stability strategy over time should consider possible expansions. In addition, a company that has been expanding for a long time must pause to maintain its business continuity. 

The main objective of the combination strategy is to improve the company’s performance and find out which areas of the company can grow and be pulled back based on market conditions. This strategy approach makes it easier for companies to make adjustments to the strategy because they can be more flexible with time and how much should be allocated to each function of the strategy used. 

Also read: Knowing About Competitive Advantage for Your Business

Developing a Good Corporate Strategy with Appsensi

Developing a Good Corporate Strategy with Appsensi

Internal consistency is one of the criteria that must be met to determine whether a good corporate strategy is for our company. 

The existence of the COVID-19 pandemic has caused many changes in various aspects of life, one of which is the operational system of a company. Changes themselves can cause the strategies that have been prepared to be inconsistent.

To reduce the rate of spread of the COVID-19 virus, the government enforces the PPKM (Enforcement of Community Activity Restrictions) rules, which require employees to work online from home (Work From Home). With this WFH policy, there has been a change in the attendance system which initially used a fingerprint to be changed to an Online Attendance System. There are still many Online Attendance Systems whose credibility is doubtful.

The attendance feature online provided by the Appsensi application does not need to be doubted for its credibility, because in addition to being able to record employee attendance and activities in real-time attendance online through Appsensi is also accompanied by facial recognition features and location markers (GPS). With these features, employee attendance can be recorded accurately, efficiently, and safely. Click this link to know more about Appensi.

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Ricky Caesar Sam

Head of Sales and Marketing Appsensi

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