Functional Level Strategy: What It Is Plus 18 Examples
Functional level strategy may sound like a difficult concept, but once you under...
Success in business is not a random occurrence. It’s the result of planning, preparation, and execution. And it all starts with defining your business’s strategy. More specifically, it all starts with defining your business’s corporate level strategy.
Corporate level strategy is part of a multi-tiered process that owners and managers use to:
But where does corporate level strategy fit into the smooth operation of your business? The best way to answer that is to put it in context with the other types of business strategy.
Why is it important to understand all three levels of business strategy if you’re only interested in corporate level strategy? Because all three levels work together to drive your business toward success.
The three levels are so intertwined that you can’t have one without the other. Think of it like a car. Every vehicle on the road today is made up of various systems that contribute to the successful operation of the whole. If one breaks down, you may be able to limp along for a while, but eventually, the car will quit running.
The same concept applies to business strategy. All three levels — corporate, business, and functional — influence each other to the point that if one fails, the others begin to break down as well.
Corporate level strategy is the top of the planning pyramid. It is the main purpose of your business. Think of corporate level strategy as the destination toward which your business is moving. That destination affects all the strategies and decisions in every other part of your business.
So, for example, if your business has reached market saturation and you need to diversify to survive, your corporate level strategy would be to spread to new markets. That becomes the guiding force for everything your business does from now on.
So, you know that your business needs to break into new markets to survive (hence your corporate level strategy). Your business level strategy translates that direction into more actionable goals. Think of it as the how to the corporate level strategy’s what.
Continuing with the diversification-into-new-markets example, the business level strategies that support this goal (this corporate level strategy) would be:
Basically, your business level strategies are the broad strokes for how you’re going to achieve the goal set at the corporate level. Those broad strokes then influence what you do at the next level.
Functional level strategies are the actions and goals assigned to departments and individuals that support your business level strategy. These are the smallest components of the planning pyramid but are the foundation on which the success of your strategy lies.
Functional level strategies will be specific and will apply to a variety of functional areas (departments). For example, building on the diversification example, the functional level strategies that support that business level strategy might be:
Corporate level strategies are aimed at the long-term rather than the short-term. You may formulate them quickly, but their implementation and completion will take much longer.
Corporate levels strategies are, by nature, uncertain. That’s because they are extremely broad and often incorporate a great many moving parts (the success of your departments, the market, your competition, the economy, etc.).
Corporate level strategies should be geared toward the goals of your organization as a whole. Improving the performance of your kitchen staff is not a corporate level strategy. It is, however, a component of a much broader goal (such as improving customer perception) that your business is striving for.
Because corporate level strategies apply to your business as a whole, they are naturally going to be more complex. They are going to incorporate many moving parts and may be made up of a long list of sub-strategies (both business level and functional level).
Corporate level strategies shouldn’t be set in stone. You want your business to adapt and cope with consumer demands and market and industry changes. To achieve that, your corporate level strategy should be as dynamic as possible.
That doesn’t mean you have to incorporate contingency plans for every possible situation — that very well may be an impossible task. Instead, allow your corporate level strategy (and yourself) the flexibility to change along with the demands of your business.
To help you understand the essential nature of a dynamic corporate level strategy, visualize your business as a tree in a storm. The trees that weather the storm the longest are those that can bend and move. Without that ability, they are blown over and crash to the ground.
A dynamic corporate level strategy makes your business more flexible in the face of strong market and industry storms and prevents it from being blown over and crashing to the ground.
Corporate level strategies, by nature, are far reaching and will affect the entire organization for the better — from the owners at the top down to the new employee just starting out. The strategy gives every department, every executive, every manager, and every employee a place to focus their efforts.
This is a valuable thing because business is very much like a tug of war. On one side is your organization. On the other side are your customers, your markets, and the industry as a whole. That’s a good amount of weight on the other side of the rope.
It would not benefit your business to have upper management pulling in one direction, middle management pulling in the other direction, and your employees pulling in a completely different direction. Corporate level strategy gets everyone aligned (toward your goals) and pulling in the same direction.
Corporate level strategies are always created at the highest levels of your business. Owners, board members, and chief officers (e.g., CEO, CFO, COO) should be the ones to formulate the strategies and then put them into practice in the other levels of the business.
But that doesn’t mean you should create your corporate level strategy in a vacuum, with only input from other members of the upper management. The best way to know what’s really going on in your business is to talk to middle management as well as your employees in the trenches. Only then will you be able to create the best corporate level strategy.
Once you’ve settled on the corporate level strategy that works best for your business, the next step is to translate those goals into business level strategy. After you’ve established your business level strategy, the final step is to put those strategies to use by implementing a functional level strategy.
Corporate level strategy can be subdivided into three types based on what you want to do with your business:
Think of these three types of corporate level strategy as the general direction you want your business to “travel.” Within those broad goals, you have a number of options for specific corporate level strategy.
In a concentration growth strategy, you would focus resources in order to increase the vertical or horizontal participation in your respective market.
When there’s little or no opportunity for growth in your original market, it’s time to diversify (or spread into new markets). You might choose to spread into a related market (concentric diversification) or into a market that is unrelated to your current niche (conglomerate diversification).
Another way to grow through a focused corporate level strategy is to harness the power of forward or backward integration.
In forward integration, you take steps to assume the role previously provided by one of your distributors (forward in the supply chain). That may mean building a warehouse and creating the infrastructure to sell to retailers or direct to end users.
In backward integration, you take steps to assume the role previously provided by one of your suppliers (backward in the supply chain). That may mean expanding existing production lines or implementing completely new ones to produce the parts you need to build your primary product.
If you’re happy with your business’s current position in the market, you may adopt a “no change” strategy. Continue doing what you’re doing, but plan for a time when you want to grow or retrench.
Think of this strategy as stable profitability. Rather than growing to new markets, you would attempt to increase profits by:
You would use a stable investigation strategy as an intermediary between the other extremes of corporate level strategy (growth and retrenchment). Think of it as testing the waters before committing to a specific strategy.
Turnaround strategy emphasizes efficiency in an attempt to eliminate the weaknesses that are holding your company back (e.g., causing a product line to perform poorly).
As a whole, management will put retrenchment corporate level strategies in place when the company is performing poorly. The goal of retrenchment, then, is to eliminate problems and improve how the business performs.
Divestment strategy (a.k.a. divestiture) involves selling off poorly performing assets (or even high-performing periphery assets) to raise capital for the core product or service. With a properly planned divestment strategy, you can get your business back on track and in the black once again.
Liquidation is a last-resort corporate level strategy. When everything else has failed to make the business profitable, you may choose to cease production, sell all your assets, and close the business completely.
Implementing a corporate level strategy may seem like a complicated process — especially if you’ve never had one. But the benefits of a comprehensive corporate strategy far outweigh the time and effort required to put the strategy into effect.
Here are five ways that a corporate strategy will benefit your business:
There are few things worse for your business than being behind the curve. When you are, you have to react to everything that comes your way. But with a strong corporate level strategy, your business can be proactive instead of reactive.
Your business will be able to anticipate future events and prepare accordingly. Staying ahead of the curve (being proactive) in this way helps your business keep up with the market and stay ahead of the competition.
An efficient business is a profitable business. And a comprehensive corporate level strategy can set your business on the path to increased efficiency in all areas.
The corporate strategy gives your business a goal to shoot for and provides a road map of sorts for how to get there. It shows you where to make changes to reach said goals and how to make each component of your business function more effectively.
With a dedicated corporate level strategy, your organization will get valuable insight into the myriad factors that affect the way you do business, such as:
The knowledge and power you gain when you have control over these factors can help you increase your market share like never before.
Profitability is a direct result of increases in efficiency and market share. So when you implement a corporate level strategy, you set your business on the road to increased profitability.
It may take some time to reach the profitability you’re looking for (because you have to deal with efficiency and market share first), but when you do, you’ll see just how valuable (and powerful) the corporate level strategy is to your business.
Industries and markets are constantly changing. You want your business to be durable enough to weather any changes that come your way.
A strong corporate level strategy provides a foundation on which the rest of your business can rely. It gives you the focus and foresight necessary to keep your business running smooth and strong through the ups and downs of your industry.
When you set a corporate level strategy, you give your business real direction. That can make it much easier to define the specific actions that your business needs to succeed.
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