The underlying article EXPLAINS What is Corporate Level Strategy i.e. the strategy which clarifies what businesses should we (an entity) be in?
Table of Contents
What is Corporate Level Strategy?
‘Corporate Strategy’ is concerned with DECIDING which business or businesses an entity should be in and setting targets for the achievement of the entity’s overall objectives.
1. Elements of Corporate Strategy
The elements of corporate strategy are as follows:
- Deciding the PURPOSE of the entity. Why is the entity in existence? What is its mission and what is it trying to achieve? Different people have different ideas about what the purpose of an entity should be. For example a company has shareholders, its legal owners, who consider that the purpose of their company is to make profits and pay dividends. However, a company has other stakeholders, such as employees and customers, whose opinion about what the purpose of the company should be might be very different.
- Deciding the SCOPE of the activities of the entity. Corporate strategy also involves deciding what businesses the entity should be in, including the range of businesses. For example, the purpose of a transport company is to provide transport services. Its corporate strategy must include a decision about which transport services it will provide (for example, bus travel, train services, air travel, space travel and so on) as well as the geographical areas where it will operate.
- Matching the chosen BUSINESS ACTIVITIES to the external environment of the entity and also to its available resources. The choice of business activities by an entity should be consistent with conditions in its environment. For example, a company should choose to sell products or services that customers want to buy and for which the technology exists. Its choice of business activities might also be affected by laws or regulations. The choice of business activities should also be consistent with the resources that the entity expects to have available or expects that it will be able to obtain.
- Matching the purpose and activities of the organisation to the expectations of its OWNERS. The chosen corporate strategy, when put into action, should be capable of meeting the expectations of the owners of the entity. For example, a company’s objectives for profits over the long term should be consistent with shareholders’ long-term profit expectations.
- Matching the purpose and activities of the organisation to the expectations of OTHER STAKEHOLDERS in the organisation.
2. Corporate Strategy and the Expectations of Owners and Other Stakeholders
The corporate strategy of an organisation will be INFLUENCED by the expectations of its owners and other stakeholders.
|In a Commercial Company, the owners are the shareholders. These might expect the company to provide them over time with investment income or with growth in their wealth. Corporate strategy might therefore aim towards maximization of the shareholders’ wealth. Objectives for corporate strategy might therefore be stated in terms of raising the share price by x% over the next five or ten years. |
With a State-Owned Organisation, the owner is the government. The expectations of a government as owner of an entity are different from those of the shareholders in a company.
Corporate strategy of a state-owned enterprise will therefore differ from the corporate strategy of a company.
|The term ‘stakeholder’ means any individual or group of individuals who have a strong interest (a ‘stake’) in the organisation and what it does. The chosen corporate strategy should also recognize the rights and expectations of other stakeholders, such as employees, customers, government, suppliers, lenders, local communities and the general public.|
Chartered Accountant (Institute of Chartered Accountants of Pakistan)
Bachelor of Accounting Honours (Asia e University, Malaysia)