Corporate strategy simply explained
Marc Bachofner, January 25, 2022· Communication
Dominant competitors, stagnating and burgeoning markets, redistribution of customer needs – for a company management there can be no coincidences and short-term successes.
If you want to survive on the market, you have to think and act in the long term and in several dimensions. For this, you need a manual, a guide in which the thrusts and strategic goals are clearly defined – the corporate strategy.
Whether you are a startup, like us at Cleverclip, or an international corporation, without a corporate strategy your ship will just drift along in big waves and bad winds. To prevent this from happening to you, we try to explain the topic of corporate strategy in a simple way and visualize it with a few examples.
Summary
What is a corporate strategy?
With a corporate strategy, a company aims to ensure its medium and long-term success by achieving its corporate goals.
The corporate strategy shows the way how the goals can be reached. In doing so, one uses external analyses of the market and competitive situation and internal analyses of one’s own company in order to be able to position one’s company correctly and make appropriate assumptions for the future.
The corporate strategy thus sets your course. Sail directly to your destination island or dock at various ports.
Develop a corporate strategy
When you develop your corporate strategy, you set the course of your company. But you must not forget your crew in the process. Your strategy must therefore be clear and comprehensible to everyone on board your ship.
Corporate strategy example
Let’s look at an example of the application of a corporate strategy:
Example without corporate strategy: Rolf works in the support department of a software company. Let’s assume that he doesn’t really know the corporate strategy or that he has only briefly skimmed the corresponding newsletter. If a customer calls and asks for a certain feature, Rolf looks at the development plan and sees that the feature is not planned. He tells the customer this and the conversation is over.
Example with corporate strategy: Now let’s assume that Rolf was picked up with the corporate strategy. So maybe there was an explainer video, a presentation, a landing page, an e-learning, or a combination of everything. Now if a customer calls, Rolf looks in the development plan and sees that the feature is not planned. But this time, Rolf knows the company strategy and that the company wants to be more customer-centric. He remembers that there are workshops for customers so that new ideas and needs can be picked up from the customer right away. He tells the customer that the feature doesn’t exist, but tells him about the customer workshops and immediately puts him in touch with a relationship manager.
In both cases, Rolf had to explain to the customer that the desired feature is not planned. But in only one of the two cases is more attention paid to the customer and his needs.
Enough dilly-dallying. Let’s take a look at what you need to put into your business strategy.
How to develop a business strategy step-by-step:
Develop market and business analysis
Define vision
Define strategic business areas
Develop market positioning and competitive strategy
Define growth strategies
Define milestones
Market and business analysis
There are three widely used models for market and company analysis: SWOT analysis, STEP analysis and Porter’s industry structure analysis. They all have their strengths and weaknesses, so it is not surprising that they are usually combined in practice. The goal of the company analysis is to find out one’s own strengths and weaknesses and to analyze the market, especially the competition.
SWOT-Analysis
The SWOT analysis is composed of Strengths, Weaknesses, Opportunities and Threats.
Strengths refer to the internal strengths of your company. Perhaps you are superior to the market technologically or on a professional level, or perhaps you have efficient recruiting and can bring the best of the best on board. This is also where your USPs, Unique Selling Points, come into play.
Weaknesses are also about internal weaknesses in your company. There’s no need to sugarcoat things here. If you have low efficiency in production or logistics because of processes and procedures that have not been optimized, then that is a weakness. You need to be honest with yourself and your company.
Opportunities cover a broad spectrum because they can be influenced by countless factors. Perhaps there are economic policy decisions that favor your company. Or you may have implemented new and improved processes that increase customer satisfaction, thereby expanding your customer base. Or maybe a niche market opens up that you can quickly capture because your products and services are flexible enough. Opportunities can look very different, the only important thing is not to lose focus. Here, the focus is the goal. So if your company’s goal is to become the market leader in established markets, then the opportunity of a new niche market is probably not relevant.
Just as broad as the opportunities are the risks. Political decisions can jeopardize the export or import of goods. Supply chains could be disrupted or even rendered useless. New competitors could venture into your market. Perhaps a large company with an existing infrastructure wants to enter your niche market. Rapid technological advances are also a risk because they require you to keep your finger on the pulse. Even with the risks, it’s important not to forget the goal. Your goal of becoming the market leader in established markets is not threatened by emerging niche markets.
STEP-Analysis
STEP analysis takes its name from Sociological, Technological, Economic and Political Change. It deals with the question of how things look in a new market or in a new target country. Its evaluation is mostly used in the opportunities and threats SWOT analysis.
Socio-cultural change refers to people. So how do people live, what is the level of education, what is the income level, what are the demographic influences, what is the population growth and security? Then there are the values and attitudes of the people.
Technological change refers to everything that has to do with new products, processes or research. This aspect is very fast-moving and also explains why a STEP analysis should be carried out continuously and not statically renewed every five years, for example.
The economic factors take a close look at the economy. What does economic growth look like, what about inflation and exchange rates, what about business cycles and unemployment? One could list many more economic terms here, but with the ones mentioned, it already becomes clear that it is about the economic area.
Political change deals not only with the general political stability of a country, but also with legal aspects such as tax guidelines, competition supervision, subsidies and trade barriers.
Industry structure analysis according to Porter
Industry structure analysis based on Porter’s five forces model is part of a company’s environmental analysis and provides insights on external opportunities and threats for SWOT analysis. The five forces are: Rivalry among existing competitors, threat from new entrants, bargaining power of customers, bargaining power of suppliers, and threat from substitute products. With this analysis, you can find out how difficult it is in a market to gain and maintain a competitive advantage. The stronger the forces, the less attractive the market.
Rivalry among existing competitors is not new. The point here is to find out how saturated a market is. There are several factors that increase the intensity of rivalry. For example, a baker who simply bakes bread is at the mercy of a very intense market. Specializing in gluten-free or vegan products allows access to a new market with less intensity. The market’s barriers to entry are also a factor. For example, it is relatively easy to open a bakery, but a car factory requires a lot of space and is accompanied by very high initial costs.
The threat of new entrants also varies from market to market. The giants of the computer industry don’t really have to worry about a new entrant because the few absolutely dominate the market and the economies of scale are far too high for the newcomers. A florist, on the other hand, has a competitive advantage over the new entrant, but not an unassailable one. For new florists, there are deeper barriers to entry into the market and the economies of scale are manageable.
The bargaining power of customers robs suppliers of their power. Thus, customers have the power to drive down prices, raise quality standards, and expand services. For standardized goods like gasoline, customers will go after the lowest price. When choosing a bank for an account, interest rates matter, but mortgage benefits and perhaps reduced cultural offerings are more interesting.
As with customers, the bargaining power of suppliers also plays a role. If the relationship between buying and supplying industries is dominated by suppliers, then the market is less attractive because suppliers have too much power on prices and thereby returns. For example, if a buying industry depends on fewer suppliers, then the supplying industry dominates. If the supplied products are still products with a low threat of substitution, then the dominance is further increased.
The threat of substitute products is somewhat different in each market. For Apple, Samsung is a threat from substitute products in the smartphone market, but the smartphone market in general will not be threatened by substitute products in the next few years. Patents and licenses also play an important role here. In the drug market, for example, generics always appear when patents expire, and they usually completely replace the original product after a short time if the price of the original is adjusted. Substitute products must also be kept in mind when there is little product loyalty in the market. For example, the filter coffee machine has been replaced by the coffee capsule machine because they both produce a cup of coffee as the end result, but the coffee capsule machine involves much less effort. There was no filter loyalty in the filter coffee market that could have prevented the substitution.
Vision
Also a very important point of the corporate strategy is the vision. This includes your company’s purpose, mission statement, mission and values. You need to take these to the public and not simply with an internal memo. Remember that you want to convince potential employees, customers, partners, suppliers and investors.
For the vision, you need to ask yourself where you see your company in three to five years. Do you see yourself as a leader in your market? Or do you want to dominate a niche market? Ask yourself how you want to achieve your vision and wrap that into your mission and values. Only if you clearly formulate the goal will your employees follow you and external parties be convinced by you.
Strategic Business Fields
In order to develop an effective strategy for your company, you need to divide up the overall business of your company. In doing so, it is not your organizational structure that matters, but rather you must orient yourself to the market. In other words, which business areas make sense in the current market situation. Once you have defined the business areas, you have to find out which should be your main fields of activity and thus strategic business areas. You can find this out by asking yourself in which business areas you need not only operational but also strategic measures.
Market positioning and competitive strategy
For every strategic business area, you also need a competitive strategy. In doing so, you need to ask yourself how you want to show yourself in the market and stand out from the competition. There are three basic competitive strategies: Differentiation, Cost Leadership and Niche Strategy.
With differentiation, you want to clearly set yourself apart from your competitors. You can achieve this with a strong brand. This includes brand building, brand image and also brand management, and of course the whole thing with the appropriate customer approach. This can be an emotional campaign, for example, to reveal a new attitude toward sustainability. But differentiation also works with a clear advantage of your products or services. So you can also differentiate yourself from the competition with unique features.
Cost leadership is usually not an issue for complete newcomers. To be able to undercut the competition on price, you need to use particularly efficient processes. If you want to build a franchise system, then this can work for you because you can centralize administrative tasks and focus completely on sales and customer service locally. That doesn’t mean cost leadership isn’t a valid strategy for everyone else. Technological advances and new working models always open up opportunities.
With the niche strategy, you focus on small, specialized markets, but you also want to strive for market leadership there. The niche market doesn’t have to exist yet, maybe you have an innovative business idea that triggers a need among people that didn’t exist before. If you don’t have such an idea, that’s not so bad either. Niche markets abound: Gyms with only barbells, burger restaurant with free assemble or even sourdough hotels.
Growth Strategies
Your business is in the marketplace – winds and storms can come from all directions. The question here is how you plan to grow in this weather. So what is your growth strategy? Fortunately, Harry Igor Ansoff also addressed this question and created the Product Market Matrix, or Ansoff Matrix, to give you a good starting point.
For Ansoff, the market and your products have two choices: You can deal with the existing one or venture into something new. From these constraints, Ansoff identifies four situations, each with its own risks and opportunities.
Market penetration refers to the case where you want to grow with existing products in an existing market. In doing so, you try to poach more customers from your competitors, perhaps even to achieve market leadership. The risk here is quite low, because you only use existing resources and know-how from your company. One problem that is relevant here is market saturation. At some point, the market is saturated and you can only acquire new customers at immense cost. As soon as saturation occurs, it makes sense to change your growth strategy.
With market development, you want to enter new markets with your existing products and acquire new customers. With new market segments and new geographic regions, you make the pool of your potential customers larger. This strategy is recommended if you live out your vision and brand in a product rather than a market. With a new market, the risks increase compared to the market penetration, but so do the opportunities.
With product development, your goal is to provide your existing market with new products. If your company specializes in a particular market, then product development might be the right strategy for you. Again, it carries more risks than market penetration, but for already specialized companies, the opportunities are all the higher.
The final strategy is product diversification. This is where you use new products to make an impact in new markets. Without much explanation, it makes sense that the risks are highest with this strategy. But not all diversification is the same. You can base your new products on your existing range. And in exactly the same way, you can also target the new markets – perhaps a market with similar demographics to your existing market. The more you deviate from your existing products and markets, the greater the risk.
Milestones
Even the most sophisticated corporate strategy needs a compass and a map to avoid getting lost in the vastness of an ocean. That is why it is advisable to work with milestones, i.e. intermediate ports. This way you can follow the journey of your corporate strategy and adjust the course if necessary.
Just as detailed as your corporate strategy is, your milestones need to be just as detailed. Here, many companies resort to SMART, an acronym for Specific Measurable Achievable Reasonable Time-bound.
Specific means defining a milestone as precisely and clearly as possible. You don’t just want a direction, you want the exact coordinates of your interim port of call.
Measurable means that your milestones must be measurable. You don’t want to simply increase your sales, you want to achieve 10% more sales. So you can check the status of your milestones at any time.
Achievable means that your milestone must be desirable to a person. This point revolves around the fact that each milestone should be assigned to a responsible person.
Reasonable means that your milestones must be achievable. Maybe you want to become the market leader as soon as possible, but then that’s not a milestone, it’s a goal. A milestone could be analyzing new markets or increasing sales in the existing market.
And finally, time-bound. Each milestone must have a precise end date or key date. Often with a strategy, you set quarterly goals and there the deadline would be the last day of the quarter. Exactly how you keep it with your business strategy is up to you. Maybe you have milestones that you want to get done as quickly as possible, then you just have milestones with different durations. That’s not a problem, and when it comes to achieving goals, that’s often the normal case.
Implementation of a corporate strategy
You depend on all employees to effectively implement your corporate strategy. You cannot navigate your ship through the seas alone. There are storms, pirates and sea monsters – it won’t work without a dedicated crew.
Your most powerful tool in implementing your corporate strategy is your strategy communication. We wrote a separate blog article on this topic, so we’ll keep it short here.
The goal of strategy communication is to get your employees on board. Show them what’s in store for the company and how they can all help seize this opportunity. You want to clearly communicate to your employees that they are an essential part of the strategy, that they are not just stakeholders, but participants.
Presentation of the corporate strategy
For us at Cleverclip, presentation or design is an essential part of communication. So no matter what you want to communicate, presentation helps immensely.
When it comes to business strategy, there is no all-around worry-free package. You can’t successfully communicate your business strategy with one video or presentation, so a single video or presentation doesn’t make sense either. Rather, you need a plan with different audiences and phases that makes use of different media. In the beginning, a presentation might make sense to pick people up. After that, you need to pick up the different stakeholders individually. Maybe sales would like a face-to-face workshop to make new arguments to potential customers. An e-learning might be useful for internal departments that spend most of their time on the computer.
There is also the question of whether you have used management tools such as a balanced scorecard or strategy map when developing your strategy. These are very helpful for a representation of the corporate strategy, as you can see from the corresponding articles.
Example of corporate strategy: Bad Zurzach
We see an example of the possible presentation of a corporate vision at Bad Zurzach. In this case, we created a landing page to give all employees an overview of the vision. The level of detail is intentionally kept low. Keywords give readers just enough information to get a picture. The details were brought to the people through workshops, presentations and other media.
Example of corporate strategy: Generali
Another example concerns Generali. In this case, an interactive infographic was just the right medium to pick up employees. The hidden object picture features everyday situations from a wide variety of departments and professions. And to make exploring the illustration even more exciting, we included outliers such as a unicorn and E.T.
These two examples show general approaches on how to reach as many employees of your company as possible. As already indicated, the level of detail is rather low, but exactly at the level that readers/visitors can see in which direction their employer is heading and how they themselves are involved in it.
Summary
We have now seen how a corporate strategy is structured. We have looked at individual aspects and clearly shown their importance. To summarize: With your corporate strategy, you set the course for the future of your company. Leave as little as possible to chance and figure out where you want the winds to take you. And don’t forget to get your crew on board.
So cast off and set sail!