STRATEGY MAKING LEVELS
LEARNING OBJECTIVEs
By the end of the lecture, students should be able to:
• Explain the different strategy levels in different business
organisations.
• Classify given strategies under different strategy levels
• Explain how the different strategy levels complement
each other in strategy making.
• Explain the three grand corporate strategies pursued in
diversified businesses.
Three Levels of Strategy or The Strategy Hierarchy
• The decision making hierarchy of a firm typically
contains three or four levels and these also make up the
strategy levels.
• These levels are:
1. The Corporate level
2. The Business level
3. The functional level
4. The Operational level
• This entails that strategies can be formulated and
implemented at any of the different levels mentioned
above.
The Strategy Hierarchy ctd
• The formulation and implementation of strategies in the above
levels depend on the type of the organisation.
• These types of business organisations are:
1. Single business company and
2. Diversified business.
The Strategy Hierarchy for a single business
company
Business
Strategy
Functional
Strategies
(eg R&D;
Mnfg;Mktng; Finance
etc)
Operating Strategies
(eg regions &districts; plants;
departments within functional
areas)
The Strategy Hierarchy for a diversified
company
Corporate Strategy
Business Strategies
Functional Strategies
Operating Strategies
Business Strategy
• This is the managerial game plan for a single business.
• Concerned with building and strengthening the
company’s long term competitive position.
• It is thus mainly concerned with:
1) Responding to changes in industry, economy and other
relevant areas.
2) Efforts to attain sustainable competitive advantage.
3) Building competitively valuable competencies and
capabilities.
NB: A business strategy is powerful if it produces a
competitive advantage.
Business Strategy
• It thus concerns itself with the following questions:
1. How should the firm position itself to compete in
distinct, identifiable and strategically relevant markets?
2. Which types of products or services should it offer to
which group of customers?
3. How should the firm structure and manage the internal
aspects of the business in support of its chosen
competitive approach?
Business level strategy
Functional Strategy
• Refers to the managerial game plan for a particular
functional activity, business process or key department
within a business eg finance, marketing or human
resources.
• It is carried out to add detail or support the business and
corporate strategies.
• It concerns itself with the following issues:
Functional strategy
1. How can the strategies formulated at the corporate and business
levels be translated into concrete operational terms in such a
way that individual organizational functions and processes
(finance, marketing, personnel etc) can pursue and achieve
them?
2. How should the individual functions and processes of the
business organize themselves in order not only to achieve their
own aims , but also to ensure that they integrate with the rest
of the business to create synergy?
Functional strategy ctd
Operating Strategies
• They add detail to functional strategies.
• They refer to methods used by companies to
reach their objectives – They help companies to
examine and implement effective and efficient
systems for using resources, personnel and the
work processes.
Corporate Strategy
• This refers to the overall managerial game plan for a diversified
company.
• The responsibility of corporate strategies rests on the board of
directors, and chief executive and administrative officers.
• It is concerned with the selection of businesses in which your
company should compete and with the development and co-
ordination of that portfolio of businesses.
The Corporate Strategy
• It involves:
1)Making efforts to establish positions in different businesses and
achieve diversification.
2) Initiating actions to boost the combined performance of
businesses the firm has diversified into.
3) Pursuing ways to capture valuable cross business strategic fits and
turn them into competitive advantage.
The Corporate Strategy
• It concerns itself with the following questions:
1. What is the mission of the organisation?
2. What are its unique attributes?
3. How should the business portfolio be managed?
4. Which existing businesses should be disposed and which new
ones acquired?
5. What priority and role should be given to each of the businesses
in the current portfolio?
Types of Corporate Strategies
There are basically 3 Grand corporate strategies and
these are:
1) Growth Strategies
2) Stability Strategies and
3) Retrenchment strategies
Growth Strategies
• They expand the company’s activities.
• Types of growth strategies include
1) Integration – vertical and horizontal
2) Concentration strategies (market penetration,
market development, product development and
diversification). This can be summarised by
Ansoff Matrix below.
Stability Strategies
• They make no change to a company’s current activities.
• Stability strategies can be summarised as:
1) No Change strategy
2) Profit strategy
3) Pause or Proceed with caution strategy
Stability strategies
• The Stability Strategy is adopted when the organization attempts
to maintain its current position and focuses only on the
incremental improvement by merely changing one or more of its
business operations in the perspective of customer groups,
customer functions and technology alternatives, either individually
or collectively.
Retrenchment strategies
• They reduce the company’s level of activities.
• This strategy is often used in order to cut expenses
with the goal of becoming a more financial stable
business.
• Examples of retrenchment strategies include:
1) Turn around strategies
2) Selling out or divestment
3) Bankruptcy / liquidation strategy
Turnaround strategies
• Turnaround strategy means to convert, change or
transform a loss-making company into a profit-making
company.
• It means to make the company profitable again.
• The main purpose of implementing a turnaround
strategy is to turn the company from a negative point
to a positive one.
• Turnaround is a restructuring strategy - A loss-bearing
company is transformed into a profit-earning
company, by making systematic efforts.
• If a turnaround strategy is not applied to a sick
company, it will close down
• NB: STUDENTS TO LOOK AT DIVESTMENT AND
LIQUIDATION STRATEGIES
Conclusion
• Explain the different strategy levels in different business
organisations.
• With aid of examples explain how the different strategy levels
complement each other in strategy making.
• Explain the three grand corporate strategies pursued in diversified
businesses – give examples for these.
Individual assignment
Question: Evaluate strategies being pursued by an organisation
of your choice at different strategy levels. (25 Marks)
References
• Cole G.A, (2000) Strategic Management, Ashford Colour Press
• Johnson G. and Scholes K. (1997) Exploring Corporate Strategy,
Prentice Hall International.
• Modern T. (1997) Business Strategy and Planning, McGraw Hill
Book Company.
• Norton D.P. and Kaplan S.R (1996) Translate Strategy into Action –
The Balanced Scorecard, Havard Business School Press, Boston
Massachesettes.
• Porter M.E. (1980) Competitive Strategy, The Free Press
• THOMPSON, A., STRICKLAND III AJ, GAMBLE JE 2010. Crafting and
Executing Strategy: The quest for competitive advantage: Concepts
and cases. . Mcgraw-hill/irwin, new York.
• Read articles on strategic management from different journals and
publishing houses [Link],Organisation Studies
Journal -SAGEPUB