faculty.mu.edu.sa

The strategy hierarchy

In most (large) corporations there are several levels of
strategy. Strategic management is the highest in the sense that it is the
broadest, applying to all parts of the firm. It gives direction to corporate
values, corporate culture, corporate goals, and corporate missions. Under this
broad corporate strategy there are often functional or business unit
strategies.

 Functional strategies include marketing strategies, new
product development strategies, human resource strategies, financial
strategies, legal strategies, supply-chain strategies, and information
technology management strategies. The emphasis is on short and medium term
plans and is limited to the domain of each department’s functional
responsibility. Each functional department attempts to do its part in meeting
overall corporate objectives, and hence to some extent their strategies are
derived from broader corporate strategies.

Many companies feel that a functional organizational
structure is not an efficient way to organize activities so they have
reengineered according to processes or strategic business units (called SBUs).
A strategic business unit is a semi-autonomous unit within an organization. It
is usually responsible for its own budgeting, new product decisions, hiring
decisions, and price setting. An SBU is treated as an internal profit centre by
corporate headquarters. Each SBU is responsible for developing its business
strategies, strategies that must be in tune with broader corporate strategies.

 The “lowest” level of strategy is operational strategy. It
is very narrow in focus and deals with day-to-day operational activities such
as scheduling criteria. It must operate within a budget but is not at liberty
to adjust or create that budget. Operational level strategy was encouraged by
Peter Drucker in his theory of management by objectives (MBO). Operational
level strategies are informed by business level strategies which, in turn, are
informed by corporate level strategies. Business strategy, which refers to the
aggregated operational strategies of single business firm or that of an SBU in
a diversified corporation refers to the way in which a firm competes in its
chosen arenas.

 Corporate strategy, then, refers to the overarching strategy
of the diversified firm. Such corporate strategy answers the questions of
"in which businesses should we compete?" and "how does being in
one business add to the competitive advantage of another portfolio firm, as
well as the competitive advantage of the corporation as a whole?"

 Since the turn of the millennium, there has been a tendency
in some firms to revert to a simpler strategic structure. This is being driven
by information technology. It is felt that knowledge management systems should
be used to share information and create common goals. Strategic divisions are
thought to hamper this process. Most recently, this notion of strategy has been
captured under the rubric of dynamic strategy, popularized by the strategic
management textbook authored by Carpenter and Sanders [1]. This work builds on
that of Brown and Eisenhart as well as Christensen and portrays firm strategy,
both business and corporate, as necessarily embracing ongoing strategic change,
and the seamless integration of strategy formulation and implementation. Such
change and implementation are usually built into the strategy through the
staging and pacing facets.