Why Is Corporate Strategy Important?

by Billie Nordmeyer; Updated September 26, 2017

A corporate strategy both names the outcomes a company intends to achieve and devises the means for it to do so. More directly, a corporate strategy determines the scope of a company’s activities and the manner in which a company’s business processes support company goals. In doing so, strategic management limits a company’s authorized initiatives, which leaders select based on the company’s resources and the external environment in which it competes.

The importance of a corporate strategy hinges on its being an effective means to allocate a company’s resources, establish business expectations and improve a company’s competitive position, as well as increase shareholder value to something beyond the sum of its physical assets.

Allocates Company Resources

A corporate strategy is a tool a company uses to limit the allocation of its resources to the best available business investment opportunities.

During strategic planning and budgeting processes, a company assesses the performance of each business unit. Based on its findings, the company acquires and divests assets and revises resource allocations. Leaders allocate company resources according to the desirability of each business unit’s market opportunities, which determines its planning priorities.

Establishes Expectations

A company conveys its corporate strategy to individual business units to drive performance and establishes the expectations of internal and external stakeholders, or those with an interest in the success of a company. Corporate objectives focus on key areas, such as market standing, productivity and profitability, for which measurable objectives are set, such as achieving a particular market share or financial return on investments. It’s through expectations that stakeholders align their activities with strategic goals and assume particular roles to ensure a corporate strategy is carried out successfully.

Improves Competitive Position

The corporate strategy is concerned with a company’s growth and profit performance. Consequently, the strategy decides the businesses in which a company competes and how the business units structure and manage their activities to improve a company’s competitive position.

Adds Shareholder Value

Relying on a company strategy, business units can increase investor value to something beyond the sum of its physical and intellectual assets. By making rational strategic choices about the business a company plans to pursue, the allocation of its resources, the use of organizational capabilities and business unit competitive advantages, the probability increases that business unit activities succeed in increasing a company’s value.

About the Author

Billie Nordmeyer works as a consultant advising small businesses and Fortune 500 companies on performance improvement initiatives, as well as SAP software selection and implementation. During her career, she has published business and technology-based articles and texts. Nordmeyer holds a Bachelor of Science in accounting, a Master of Arts in international management and a Master of Business Administration in finance.