Business level strategy is defined as an organizational strategy that seeks to determine how an organization should compete in each of its businesses. In contrast, corporate level strategy is an organizational strategy that seeks to determine what business a company should be or wants to be.
At the heart of business level strategy is the role of competitive advantage. This is what sets a company apart from its competitors and gives it a distinct edge. Sustaining competitive advantage will be based on the interplay of the five forces in an industry. According to Porter (1990), these five forces are the threat of new entrants, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers and rivalry among firms. By performing an industrial and internal analysis, a firm can then identify its competitive advantages so that it can pursue the right strategy.
There are a few major business level strategies. The first is cost leadership in which the company becomes the lowest cost producer in the industry. This requires a tight cost structure and incentives systems based on meeting strict quantitative targets. A differentiation strategy is where a firm offers unique products that are prized by customers. This requires good R&D and the recruitment of highly skilled and talented employees. The third business level strategy is the focus strategy. Here, the firm pursues a cost or differentiation advantage in a narrow segment of an industry. Finally, some firms have no strategic advantage. Termed “stuck in the middle” by Porter (1990), they are firms which are unsuccessful at developing competitive advantage as a cost leader or through differentiation. Such firms find it difficult to achieve long term success.
A company has three major corporate level strategies. They are growth, stability and renewal. The growth strategy is employed to increase the company’s business by expanding the number of products that are offered or the markets they serve. This strategy is employed so that the company can increase its sales, market share or the number of employees. Companies grow in a number of ways, for instance through concentration, horizontal integration, vertical integration or diversification.
A stability strategy is a strategy at corporate level that is characterized by an absence of major changes. This means the company may serve the same customers, maintain its market share and return on investment. While this may seem very odd and contrary to a business’s goals, it should be remembered that some companies are stretched to the limit and any further expansion will take its toll on limited resources. Similarly, some industries are in a stage of low or no growth so trying to grow is an exercise in futility.
A renewal strategy is a corporate level strategy that is designed to address organizational weaknesses that are leading to declining performance. Generally, there are two renewal strategies. The first is retrenchment strategies, which are short run renewal strategies used in situations when performance problems are minor. In contrast, a turnaround strategy is used when the company faces serious performance problems and it needs to be completely overhauled.