What Are Four Corporate Strategy Alternatives?
A corporate strategy is a plan that leaders create to define and structure how the company will grow. Corporate strategies differ. What works for one company might not work for another. Depending on whom you ask, you will get many opinions of strategies that leaders swear work for them. Michael Porter, a Harvard professor, developed three options, including Cost Leadership, Differentiation and Focus. Jack Welch, former CEO of General Electric, created the concept of Boundaryless, a strategy that corporate leaders have modeled with success.
Cost leadership narrows the scope of strategy down to containing operational costs better than the competitors' efforts. If a company can lower its operating costs, it increases the profit margin by default because it spends less money to make money. Prices of products sold stay generally competitive with the market. In other words, the company doesn't bank on one brand name super-product to rake in millions of dollars. The company stays steady. In some cases, a company using cost leadership chooses to lower prices and rake in more revenue through more sales; however, they can only do this if they feel confident that they've lowered operational costs enough to still make a profit. Costco and Walmart practice a low cost strategy with great success. Companies that succeed using this strategy usually have the following attributes:
- Access to capital to invest in technology to lower costs of goods sold.
- A highly efficient logistics department.
- A low-cost base to begin with, such as low materials cost to make products.
Differentiation focuses on the company offering different or distinctive products that customers cannot find when shopping the competitors. When using this strategy, a company needs to stay fluid, meaning it needs to stay ready to adapt to changes it might need to make to stay distinctive. For example, your company somehow creates a soda that never loses carbonation, no matter how long the can stays open. Sales soar. Then, your competitor introduces the same type of product that customers say tastes better, too. You have to adjust quickly and offer a new product to stay different. Apple, for example, uses a differentiation strategy. Companies that find success with this strategy have the following attributes:
- Good innovation.
- Ability to produce high-quality products.
- An excellent marketing team.
A focus strategy begins by selecting a market niche to serve. This niche is only a portion of a wider market, but your company hopes that by focusing on a smaller segment, you can concentrate marketing efforts more effectively. Plus, you can better understand your market because your company is focusing on the needs of a smaller group. Once you've decided on your niche, then you revert to either the Cost Leadership or Differentiation strategy, hence, Cost Focus or Differentiation Focus. For the Focus strategy to be effective, you have to create something special in your strategy to serve that market. You can't simply focus on the smaller market--you have to capitalize on the need of the group. For example, if you have a widget to sell that cleans all types of houses, you can decide to target a particular household, either two-parent or single parent, dual-income or one-income. In the Forbes article Why Niche Marketing Matters, author Lois Geller states the important of niche marketing when expanding your business. She mentions reaching out to groups to help list your business in their resources and in turn, build your niche.
Boundaryless is a term that designates the concept of working in a business with no walls and no boundaries; a place where all employees can come up with ideas and work together with people in other departments, as if the company were one big department. Collaboration is highly emphasized. A boundaryless organization creates a culture of teamwork. This strategy, unlike the previous three, focuses on the people in the organization more than the systems of the organization. Employees are grouped according to competency and help each other achieve success. Virtual meetings are common through telecommunication so the company can reach a wider employee audience. Companies that succeed in a boundaryless organization have the following attributes:
- Employees who are team players.
- A strong and effective communications structure.
The strategy you select should help you achieve competitive advantage. Leaders often recommend doing a SWOT analysis before selecting your strategy. A SWOT analysis helps you identify your strengths, weaknesses, opportunities and threats. Once you do this, you'll know what position you're in to capitalize on a strategy. For example, if your biggest strength is your ability to make distinctive products, then the Differentiation strategy might be right for you.
While there are strengths to all strategies, it is advisable to pick one strategy and stick with it.