Corporate Strategies, Management Functions, and Value Chain
Corporate Strategy
Corporate strategy determines what businesses a company is in, or wants to be in, and what it wants to do with those businesses (growth, maintenance, renewal). It’s based on the organization’s mission and goals, and the roles that each business unit will play.
Strategic Business Unit (SBU)
When an organization operates in several different businesses, those independent businesses with their own competitive strategies are referred to as Strategic Business Units (SBUs).
Types of Corporate Strategies
- Growth Strategy: Used when an organization wants to expand the number of markets served or products offered, either through its current business or new businesses.
- Concentration: Focuses on the primary line of business and increases the number of products offered or markets served in that primary business.
- Vertical Integration:
- Backward Vertical Integration: The organization becomes its own supplier.
- Forward Vertical Integration: The organization becomes its own distributor.
- Horizontal Integration: A company grows by combining its value chain with that of its competitors.
- Diversification:
- Related Diversification: When a company combines with other companies in different, but related, industries.
- Unrelated Diversification: When a company combines with firms in different and unrelated industries.
- Stability Strategy: the organization doesn’t grow but doesn’t fall either.
- Renewal Strategy: designed to stop the declining performance of an organization.
- Retrenchment strategy: a short-run renewal strategy used for minor performance problems.
- Turnaround strategy: when an organization’s problems are more serious, more drastic actions are needed, like cutting costs.
The Four Management Functions
The four management functions are:
- Planning: Defining goals, establishing strategies to achieve those goals, and developing plans to integrate and coordinate activities.
- Organizing: Arranging and structuring work that employees do to accomplish organizational goals.
- Leading: Working with and through people to accomplish organizational goals.
- Controlling: Monitoring and evaluating performance, comparing it with the set goals, and correcting work in order to achieve the set goals.
All these functions lead to achieving the organization’s stated purposes.
Competitive Strategies
- Cost Leadership Strategy: When an organization competes based on having the lowest costs.
- Differentiation Strategy: A company competes by offering unique products.
- Focus Strategy: Involves a cost advantage or differentiation advantage in a narrow segment or niche.
- Stuck in the Middle: When costs are too high to compete with the low-cost leader, or when products and services aren’t differentiated enough to compete with the differentiator.
- Functional Strategy: The strategies used by an organization’s various functional departments to support the competitive strategy.
Marketing Strategies
- Market Penetration Strategy: Actions focused on increasing the consumption of current customers, attracting potential customers (advertising, promotion), and attracting customers from competitors. Offers greater security and smaller risk.
- Market/Customer Development Strategy: Actions focused on the development of new markets with current products: identifying new geographic markets, identifying new market segments, identifying new distribution channels (regional, national, international expansion, online channel sales, or new agreements with distributors).
- Product Development Strategy: The company develops new products for the markets: launching new products, modifying or updating products, satisfying the new needs generated by market changes.
- Diversification Strategy: Carefully studying opportunities to develop new products for new markets. It offers less security since the further away from its knowledge about the products it sells and the markets where it operates an enterprise is, the greater the risk of failure.
Additional Concepts
Substitutes and Loyalty: Even if product A has higher quality, if consumers are loyal to product B, they may continue to invest in company B, even if the price difference is slight.
Cost Ratio of Production: If 63% of profits go to production costs, it may not be profitable to produce more than a certain amount.
Unit Gross Profit: The percentage of profits a company has after assuming the basic costs of production.
Marketing Mix (4Ps): Product, Price, Place, and Promotion. A study that collects all marketing activities.
- Product: We don’t modify the product; we can change the packaging.
- Price: We don’t lower the price; talk to suppliers.
- Place: Analyze the environment where the audience is located (supermarkets). A population survey should be done.
- Promotion: Christmas sampling, advertising, personalized training.
Value Chain and Its Importance
Value: The performance characteristics, features, attributes, and any other aspects of goods and services for which customers are willing to pay.
Value Chain: The entire series of organizational work activities that add value at each step, from raw materials to finished products.
Value Chain Management: The process of managing the sequence of activities and transformation along the entire value chain. It includes both incoming materials and outgoing products and services. A solid value chain strategy is recommended to meet and exceed customer needs and desires.
Key Elements of a Value Chain Strategy
- Coordination and Collaboration: Collaborative relationships among all chain participants must exist, and they must achieve high performance. Collaboration must be built around fluid relationships among partners, with collaborative behavior arising from sharing information.
- Organizational Processes: The way that organizational work is done. All organizational processes must be analyzed end-to-end to know where value is being added. Non-value-adding activities should be removed.
- Leadership: To succeed in managing a value chain, strong and committed leadership is needed.
- Employees: Without employees, no products are produced, and no services are delivered.
- Organizational Culture: A supportive organizational culture is crucial.