As an organization, the first step that leaders usually follow is not just a definition of the strategy but also the layers it will have. This arises from the fact that strategy needs to reach all parts of the organization, and in the most relevant manner. Hence strategic management certificate courses talk about the key levels that define any strong and robust strategy – corporate, business and functional. You need to spend time and effort in developing all the three levels, for your organization to be successful.
Three levels of strategy in some more detail:
Corporate Strategy
This is a general and macro-level strategy which is overarching all the other aspects. It focuses on the purpose of the business, its areas of operations, the goals in terms of markets and target consumers, and the approaches that will be taken to meet those goals. This is an important first step because it helps you clarify your own vision and give it a form that can then be detailed out. It also provides a line of sight to the leaders and employees, both potential and existing, and allows you to define values that you will need to apply for your business’s success. Depending on the size of operations, this will be a simple or complicated process.
Also Read: What is the Concept of Strategic Management?
Business Strategy
This is the next level where the corporate strategy is percolated down to the business level. This requires some more detailing such as specific steps that will be undertaken within identified approaches, for goal achievement. It also allows different businesses to identify their alignment and linkage with the corporate strategy, and define their growth goals as per that. The go-to-market strategy comes into the picture at this stage as well. Operational details such as resource planning, workforce optimization and delivery, will also become a part of this phase.
Functional Strategy
This is more of a regular and daily strategy which needs to be defined to ensure that the organization is moving towards its goals. This is the bottom level of the strategy pyramid but it is extremely crucial because it can determine the final success. The idea at this stage is to find and work on function-wise goals that are linked to the business, and corporate strategies. Each function has its role to play with respect to business impact. Some play a direct role while others play a contributory one. Those are kept in mind to work on this level.
These are the typical three levels that most organizations, big and small, follow. Each of them is of equal importance.
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Three levels of strategy are the different levels of strategic management that run across the organization from the highest corporate level to the bottom functional level. The three levels of strategy include the corporate-level strategy, business-level strategy, and functional-level strategy.
The difference between the three levels of strategy is who to implement the strategy. Since they are affecting in the different levels;
- Corporate level strategy involves top-level management.
- Business level strategy involves the ability to compete of each business unit.
- Functional level strategy involves every single function in every business unit.
Corporate Level Strategy
Corporate level strategy is the highest level of all three levels of strategy. The corporate level strategies are used to define and guideline the direction for the company in the big picture. To put it simply, the corporate strategy is the main theme of all strategies within an organization.
There are three main themes of the corporate level strategy includes growth strategy, stability strategy, and retrenchment strategy.
- Growth strategy is a strategy that focused on expanding the business to increase the revenue in various ways: find new customers, selling existing products to the new market, merger, acquisition, and diversification. The growth strategies are simply found in the Ansoff Product-market matrix.
- Stability strategy is a strategy that focused on stable the business (as its name) to improve the current business without investment or divestment.
- Retrenchment strategy is a strategy that focused on stable the company’s financial position by stop unprofitable operations to cut the company’s expenses.
Business Level Strategy
Business level strategy is how the company competes with others in the market with its products or services. For the business level strategy, the company needs to determine what is the competitive advantage for each business unit.
There are 4 types of competitive advantages for the business level strategy following the Porter’s generic model: cost leadership, differentiation, cost focus, and focus differentiation.
- Cost leadership is a strategy that the company produce products in huge amounts or with low-cost labor to compete.
- Diffetentiation is a strategy that seeks advantage from the different by developing brands that stand out from the competitor.
- Cost focus is similar to the cost leadership strategy but focused on the niche market insead of the mass market.
- Focus differentiation is similar to differentiation strategy but focused on the niche market insead of the mass market.
Functional Level Strategy
The functional level strategy is a strategy that is implemented by each function in a business to support the business-level strategy. Functional level strategies typically are developed by functional area executives. A business’s functional are include accounting, finance, production, marketing, procurement, service, research and development (R&D), human resources, and logistics.
To put it simply, the functional level strategy is a strategy that uses in each department of a single business unit.
Additionally, if you ever heard about the Value Chain (by Michael E. Porter), the functional level strategy is strategies that are implemented in each element of the Value Chain.
Every business leader should be familiar with the three levels of strategy. Like any business, strategy comes in various shapes and sizes. The strategy for a multi-national company will contrast with one from a startup.
Yet, the principles remain. To understand how strategies shift, we'll look at the existing strategy levels and how an organization can apply them.
Download our battle-tested strategic planning template that hundreds of organizations have used to jump-start your strategy development.
Ultimately, the biggest takeaway we hope you get from this post is that strategy is for everyone.
You don't have to wait until your business grows to a certain size to “get strategic.” Instead, be conscious of where you are as a business so you can develop your strategy in a way that fits and grows with your organization.
We'll discuss how the 3 strategy levels in an organization differ and provide some context on how to use these different levels of strategy in strategic management.
The 3 Levels of Strategy are:
The three levels of strategy are corporate level strategy, business level strategy, and functional level strategy. We explain the differences and how to apply them in your organization. We also have separate articles on all 3 levels if you're only interested in learning about a certain level.- Corporate Level Strategy
- Business Level Strategy
- Functional Level Strategy
No matter the level of strategy, "organizations that promote a transparency and collective culture when it comes to strategy, generate a stronger commitment and sense of accountability from their employees." This statement by Guillermo Hermosillo Cue, Global Innovation Director at Burger King in our state of strategy report echoes the importance of strategic communication regardless of the strategy level.
Corporate Level Strategy
Corporate strategies are the top-level of strategy in an organization.
The corporate strategy defines the organization’s overall direction and the high-level ideas of how to move towards it. These plans are usually created by a select strategy group such as the CEO and the top management.
Generally, this is the group involved because they have a deep understanding of the company and the strategic business knowledge needed to steer the organization in the right direction.
A corporate strategy is generally broader than the other strategy levels. Strategies at this level are more conceptual and futuristic than business and functional level strategies. They usually span a 3-5 year period.
A corporate strategic plan generally encompasses:
Why Create a Corporate Strategy?
In the corporate strategic plan, you’ll decide the markets you’ll compete in as an organization.
Then, it will direct the creation of business-unit-level and functional-level strategies.
These strategies, in turn, will guide the downstream decisions made by employees of all levels. Therefore, every decision made in the organization should directly or indirectly contribute to the strategy's corporate objectives. If it’s not clear yet:
Every organization needs a corporate strategy.
There is no such thing as a too-small organization nor a too-large one to define what they want to achieve and how they will do it.
We've used our own strategic planning and execution software to create our corporate strategic plan here at Cascade.
Business Strategy Level
The business-level strategy is the second tier in the strategy hierarchy.
Sitting under the corporate strategy, the business strategy is a means to achieve the goals of a specific business unit in the organization.
One thing to note, implementing this strategy level is only useful for organizations with multiple business units. An organization with multiple business units may sell products and services or may sell multiple products/services in different industries.
A business level strategy example
A large Bank is a prime example of an organization selling multiple services in different industries.
To name a few, it has business units in corporate banking, wealth management, risk management, and capital raising. Each of these business units would have distinct goals and a distinct business strategy to achieve these goals.
Why middle managers should create the business level strategy
Strategies at the business level should be constructed by the heads of business units and other middle managers within each unit.
It’s important to include a range of managers from each unit to participate in the strategy process because:
- It increases buy-in:
Managers who've had a chance to contribute to the strategies creation feel included in the decision making. Therefore, they’re more likely to accept the strategy and jump on board with its execution. - It improves ownership:
Employees who are given the opportunity to contribute to the formation of the strategy are more likely to take ownership over its completion.
If your organization only has one business unit, you don't need to worry about this strategy level - and can skip to the functional strategy level.
Here at Cascade, we only have one business unit, our strategic planning and execution software, so currently, we don't have a strategy at the business level.
Now let's say Cascade also developed a second type of software, for example, software for processing payments. We would then need to develop a business-level strategy to allow the two business types to grow alongside each other.
Functional Level Strategy
This is the level at the operating end of an organization.
At the functional level of strategy, decisions made by employees are often described as tactical decisions. They are concerned with how the various functions of an organization contribute to the other strategy levels.
These functions can include marketing, finance, manufacturing, human resources, and more.
Functional strategy deals with a fairly restrictive plan. It gives the objectives for each specific function.
In simple terms, this is the strategy that will inform the day-to-day work of employees and will ultimately keep your organization moving in the right direction. The functional strategy level is probably the most important level of strategy.
This is because, without functional strategies, your organization can quickly lose traction and “get stuck” while competition moves forward.
Suppose you are a larger organization at this bottom strategy level. In that case, you start to think about how the various departments will contribute to your growth and how they will work together, keeping in mind your corporate strategy.
Your marketing strategy, finance, IT, operations, and other departments all have goals and responsibilities to deliver. Having a visible functional level of strategy that aligns back to the overall corporate strategy will increase the chances of success.
Functional level business strategy for a smaller organization
For a smaller organization, having a functional level is crucial.
If you're one or two people, you may end up wearing more than one “functional hat.” Or, you may not have the various functions clearly defined - but they are still present.
So, you might not have a 'marketing team', but there are still marketing activities that need to be done. You may not have a 'finance team', but your organization still has bills that need to be paid and checks to be collected.
In Cascade, we can create multiple plans within our software. We've created a strategic plan for each function in the organization, which links back to our main corporate plan to ensure everything is moving in the right direction.
"A journey of a thousand miles begins with one step,” as the saying goes.
Developing a functional-level strategy will ensure that your organization's steps are the right ones. As we mentioned earlier, the key takeaway here is that strategy is for everyone, no matter the stage of your business idea or organization.
The three levels of strategy are the first step
Of course, having a good (or great) strategy isn’t guaranteed success.
But it's definitely the place to start in order to succeed. Understanding the levels of strategy is a big part of getting the creation right. However, with increased levels, there can be increased confusion.
Our dedicated strategy software, Cascade, will allow you to build your corporate plan, then create plans at the business and functional levels with ease. Cascade makes it super easy to align projects and collaborate across plans and departments.
Try it for FREE and see how you can go from simply writing your plan somewhere static to a more dynamic space that you can share with everyone in your organization - it makes all the difference!