Corporate strategy business strategy functional strategy; why so many?

Why are there so many types of strategy, and how do you keep them all connected?

This is a really important question as planning happens all the time and, as this question suggests, at different levels and with different scopes of influence.  Before I answer this, first some definitions:

• A corporate strategy sets the strategic goals for the company as a whole.
• A business strategy sets the strategic goals for the business unit. If a company is small, its corporate and business strategies are one and the same.
• A functional (area) strategy sets strategic goals to deliver on the business or corporate goals AND to continue strengthening, improving, or enhancing the functional area itself.

Ideally, these strategies nest perfectly like a Russian doll.

The corporate strategy is the broadest and most long-ranging, traditionally produced in a Strategic Planning Process. It must be developed first to provide direction for the business and functional area planning efforts, as that is where the activities are planned and managed. So, it is the largest doll that all the others fit into.

The business strategy is next.  The business strategy is informed by the corporate goals, the success or challenges of the current strategy, and the business’s market conditions, including shifts in customer preferences, market innovations, and changes in regulations.

The functional area strategy is last.  Functional areas exist to serve the business, the corporation, and their particular discipline, so they have multiple masters.  Those driving functional strategies must carefully examine the corporate and business strategic plans for direct or indirect objectives and create a strategy to respond to those needs.  Additionally, they need to evaluate their strengths and performance and plan to exceed their performance standard. Finally, they must stay on par, if not ahead of, the innovations or regulatory changes in their field.

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One area of strategy development that is not mentioned but is critical is the brand strategy.  Like the design of a Russian doll set, each doll has a similar look and feel. You can tell they are a set or related to one another.  This is the desire of any leadership team, and the strategy that connects all the others is the brand strategy.  In the order of strategy development, the brand is either incorporated into the corporate strategy or developed after the corporate and before the business strategy.

How do you keep them all connected?  This is both incredibly difficult and practically simple: your planning processes.  Like all great strategic thinking, you start at the end and work backward. 

• If the goal of your strategy is to announce a huge shift at a particular event, your planning process has to work back from this event, building in enough time for each layer of planning. When you have accommodated the shortest possible time frame for each, you can see when to schedule your first corporate strategy session.

• If you don’t have a particular event that drives your planning cycle, use your annual budget as the deadline. Again, work backward, giving each planning layer just as much (often not as much as desired) to respond and build a plan based on input from the outer layer of the direction setting. For most corporations, on a fiscal year ending with the calendar year, corporate planning begins in Q2.  Remember, corporate strategy is the broadest and most long-range planning exercise. If the leadership team has developed a strong corporate strategy, it will not need to be updated annually. However, the best practice is to review it annually to track progress and evaluate emerging issues that have appeared over the last year. This cadence is the same for brand strategy.

Ensuring all strategy components stay aligned and implementation has adequate guidance requires deliberate planning and managing processes driven from the corporate level through the functional areas. All too often, because planning is correlated with budget cycles, the CFO or controller's office takes on the role of aligner at the functional strategy level as they approve budgets.

We recommend augmenting the annual budgeting process with a CEO-sponsored strategic plan update annually for the quarter before budgets are due. This will ensure strategic thinking thrives and plans are given the resources to stay on track. This annual strategic plan renewal discipline has many benefits, not the least of which is to escalate emerging issues up and across the planning system so they can be addressed promptly. 

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