As with many other human endeavors, strategy is an important element for success in business. Although the word "strategy" is related to the term "stratagem," which has connotations of deception or guile, the word is also used for any systematic decision-making process intended to produce a specified result. In the world of business, of course, the goal is to produce profit. However, there are many decisions to be made on the road to prosperity and various tiers of strategic thinking attend to them.
Tiers of Strategic Decisions
Operatives of the company from the CEO to the night-shift stock person all employ strategy. Although the stock person might make a strategic decision as to how many items to carry up the ladder to place on the shelf in one trip, the highest-ranking executives make decisions involving the opening or closing of plants, factories or distribution centers. Obviously, the scale of these decisions is quite disparate. When classifying the types of strategy employed, it is often useful to describe them as occupying different tiers. The CEO are involved in corporate-level strategy. Regional directors or managers are involved in business level strategy. Individual store managers are involved in functional or department level strategy.
Corporate-level strategy occupies the highest tier in this hierarchy. The most general questions are addressed at this level. What products or services should the firm provide? How should the firm be organized, i.e. a partnership, a privately held firm, a publicly traded company? Should the operation of individual divisions or properties be largely autonomous, or should a strict hierarchy with extensive involvement of centralized managers be used? Addressing these questions is essential to the success of the firm. Even with motivated workers, efficient clerical staff and fair, organized managers, a firm that tries to provide a service that is no longer wanted or a product that has become obsolete is doomed to failure. Conversely, even merely adequate implementation in a lucrative market or an exceptional product can produce impressive revenues. Similar potential for success or failure exists in selection of markets, organizational structure and nurture of corporate culture.
Lower Strategic Tiers
Lower tiers of strategic decision-making can be just as vital, however. At the business-unit level, strategic decisions are made regarding how to deal with specific competitors, adjust to changes in demand or implement newer technologies. An example of a business-unit level decision is making the choice between three generic strategies. A differentiation strategy seeks to provide product or service that is clearly superior to its competitors. On the other hand, a price-leader strategy seeks to provide a product that is comparable but offers substantial savings to potential customers. A third strategy, focus, concentrates on providing a price or differentiation advantage aimed at a narrow segment of the consumer market.
Vertical integration is an example of a strategy that highlights a sometimes confusing aspect of corporate-level strategy. In vertical integration, a firm acquires either its customers, its suppliers or sometimes both. The firm that owns steel mills would be utilizing vertical integration if it purchases iron or coal mines or if it opened facilities for producing prefabricated metal goods. But is this activity an example of a corporate-level strategic decision or a business-level decision? Different sources will answer in different ways, but it's clear that there is no obvious line of demarcation between the two.
Jake LeBrun began writing professionally in 2010, with his work appearing on various websites and in his college newspaper. He holds licenses in Louisiana in life and health insurance and specializes in writing about financial topics. LeBrun holds a Bachelor of Science in finance from McNeese State University.