These three strategy levels are the following:
- Corporate strategies as a company.
- Competitive strategies cannot be negotiated.
- Functional strategies.
The three levels are clearly differentiated in diversified companies, that means, companies that act with different products or markets and in which it is possible to distinguish the company’s overall performance, understood as a set of activities, of its specific behavior in each of these activities. In companies that develop a single activity, the first two levels overlap, as they seek the best possible performance in the aforementioned activity.
Below we discuss the basic characteristics of each of these levels.
a) Corporate strategy
Usually, strategic thinking refers to three levels of strategy definition, corresponding to different hierarchical levels in the organization, each of which has different competencies in relation to decision-making.
The corporate strategy defines the basic orientation of the company: mission, business in which it is going to compete and how to develop the aforementioned businesses.
It is a question of setting a global vision within the company. Some of the main questions about corporate strategy are: the definition of the mission and the objectives, the adjustment between the company and its surroundings, the basic relationship with the external agents, the search for opportunities for value creation, the definition of the business you want to participate in or the way you want to grow and develop in the future.
Corporate strategy has a special uniqueness in diversified companies, in which it constitutes the general plan of executive action. In these companies, the corporate strategy refers, in particular, to the decisions to establish positions in different sectors and the actions necessary to direct their diversified businesses, such as the allocation of resources between businesses or the evaluation of the results of the different businesses. In this case, the search for synergies is key by the integration and complementarity of the different activities of the business portfolio, beyond the individual results of each business.
b) Competitive or business strategy
The main question now is how to build a better competitive position, for which you must develop the organizational resources and capabilities that support it. The creation and maintenance of a competitive advantage and the creation, improvement and exploitation of valuable resources and capabilities are the key elements at this level.
In a diversified company, there is a need to define specific units of analysis that are different from the company as a whole and from the traditional functional subsystems. These units are the so-called strategic business units.
An example could be to enter into new businesses, buy a company or bet on internationalization.
The competitive strategy determines how you can better compete in different business, activities or strategic business units.
A strategic business unit is understood as a homogeneous set of activities or businesses, from the strategic point of view, that is, for which it is possible to formulate a common strategy which is suitable for other activities or strategic units.
The reason that justifies the need to define different Strategic Business Units in a diversified company is that the heterogeneity of different businesses makes it impossible to apply a unique strategic treatment. For this reason, in a diversified company there is not a global competitive position of the company, but a competitive position for each business, since each business is developed in an environment
Specific competitiveness, it has different competitors, depends on its own success factors and requires different competencies, so a different competitive strategy is required in each one of them. The diversified company can be understood as a set of several Strategic Business Units, each of them offering opportunities for different profitability and growth or requires a different competitive approach.
The criteria that are commonly used to define them have to do with the characteristics of the company’s products, the markets in which it operates and the production process it uses.
c) Functional strategies
The functional areas for which a specific strategy is usually defined are the following:
- Human resources
At this level, resources and capabilities are generated and developed to achieve the goals defined in the previous level.
Functional strategies, coordinated and mutually supportive, must help achieve the company’s goals and are essential for the strategies of the higher levels to have the maximum possible impact.
The three levels of strategy described form a kind of hierarchy of strategies, the responsibility of which corresponds to different people of the organization: president or CEO, division manager and functional director.
In addition, the different levels do not represent different problems that can be separated to analyze and decide on them. On the contrary, they represent different aspects of the same strategic problem of the company, which explains the need for the different levels to interact closely to achieve the success of the business strategy.