What are the differences between single business & business diversification strategies?

Strategy formation, management and execution can happen at multiple levels of an organization. Even within small to medium sized businesses you can often expect there to be an overall company strategy with departmental strategies that sit underneath it, created and led by that functional lead and executed by the team members in that department. In larger organizations there is a further layer of strategy, namely corporate strategy. In large, diversified companies you can expect there to be a corporate strategy, separate business strategies, and then departmental or functional strategies beneath those.

So, what are the differences between corporate strategy and business strategy?

Corporate strategies are held by the parent company or corporate head office. The subsidiaries or business units will then have their own business strategies. While the business strategy held by each unit is concerned with competitive advantage for the particular product or service offered by that unit, the corporate strategy of the overall company is about which businesses (industries, markets) the organization wants to be active in.

So, the corporate strategy focuses on where the organization competes, and the business level strategies focus on how that particular unit competes.

What Is Corporate Strategy?

At the top level of an organization, corporate strategies should set out a clear mission and vision for the entire company. The overarching ambition of the complete group and the difference they want to make in the world. A corporate strategy is about describing the ultimate ambition of the organization and expressing a clear, overarching objective for the firm.

Based on that corporate vision, the corporate strategy will concern itself with which ‘businesses’ the organization wants to be in – what industries they want to be active in. Corporate strategy is all about achieving the right mix of business units to answer the overall corporate objectives of the whole organization.

Corporate strategy should also address how the group of business units will be managed. For example, corporate strategies need to be concerned with efficiencies and mutual benefits across the whole organization.

So how can the activities of one subsidiary benefit another business unit within the firm? What strategic assets can be shared, leveraged across different areas of the corporation? Corporate strategy should look for synergies across the whole organization that could drive performance. Without a strategy at the corporate level, these efficiencies cannot be achieved, and each business will be implementing their own business strategy in isolation and failing to access and leverage assets and capabilities in other areas of the group. Without a corporate strategy sitting above the various business strategies, the overall organization would fail to become greater than the sum of its parts.

A corporate strategy typically looks longer term than a business strategy. Corporate strategies are focused on how the overall organization can achieve its long-term vision to deliver against shareholder expectations. The primary purpose of having a corporate strategy is to create a clear plan for ensuring the organization is sustainable in the long-term.

A corporate strategy might concern itself with:

• Diversification
• Expansion
• Downsizing
• Mergers and acquisitions
• Divestments

Insofar as the above strategic decisions will enable the corporation to successfully compete in the industries, businesses and markets that have been deemed strategically important.

What Are the Advantages of Having a Corporate Strategy?

One of the most significant advantages of having a central, corporate strategy in a diversified business, is that it enables the organization to spot and exploit synergies across the group that will improve the performance and efficiencies of the business units and ultimately drive growth for the whole company.

What Are the Disadvantages of Having a Corporate Strategy?

Each business unit will not only have to bear a degree of cost in the form of the corporate overhead, but as Michael E. Porter pointed out in the Harvard Business Review back in 1987, they may also be constrained by having to conform to process, policies, governance and guidelines from the parent company

Who Is Responsible for Corporate Strategy?

Ultimately, the overall corporate strategy of a business organization falls to the CEO. The CEO will typically devise the strategy with the other c-suite senior leaders combined with input from the board of directors.

Some CEOs may choose to appoint a senior leader focused only on strategy - be that a Chief Strategy Officer, a VP of Strategy or a Director of Corporate Strategy, for example. You can find out more about the role and responsibilities of a CSO in our article What a Chief Strategy Officer Is and Why You Need One. But the corporate strategy for any organization is always formulated by the very highest level of leadership in the company.

Who Is Responsible for Business Strategy?

The business strategy will then be the responsibility of the business unit leader and their management team. Under them, each functional lead or head of department may well have their own departmental strategy that outlines their specific plan for achieving the objectives and goals that they are responsible for from the business strategy.

What Is Business Strategy?

In large corporate companies, there are typically a number of business units or divisions/departments that will each have their own business level strategy. That strategy is concerned with how that business unit will compete and succeed in the particular market/business that the corporate strategy has decided the organization wants to be in.

Business strategy will focus on how that business will compete in the market, their product offering and their customer satisfaction. It constitutes the plan for how that business will contribute to and achieve the overall corporate objectives.

Where the corporate strategy focuses on the overall profitability and long-term stability of the entire organization, at the business level, the strategy is about competitive advantage and market share for the particular products or services of that business unit.

Business strategies focus on how the business unit will compete and may involve strategies such as:

• Cost Leadership
• Cost Focus
• Differentiation Leadership
• Differentiation Focus

To find out more about these competitive strategies check out our Introduction to Porter’s Generic Strategies.

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