The Three Levels of Planning
There are three levels of strategic planning: Corporate, business, and functional. Strategy may be planned at each level, but the plans for every level of an organization should align to insure maximum unity of effort. Without alignment, departments and functions will be working at cross-purposes, and the overall corporate strategy will be less effective. Here is how strategist view each of the three levels of strategic planning:
Corporate level: Planning at this level should provide overall strategic direction for an organization, sometimes referred to as the “grand strategy.” This is a concise statement of the general direction which senior leadership intends to undertake to accomplish their stated mission or vision. Corporate level strategy is usually decided by the CEO and the Board of Directors although other senior leaders will often contribute to the strategy formulation. Strategic options at the corporate level will likely require a commitment of a significant portion of the firm’s resources over an extended period, and the results will have a significant impact on the future health of the organization. Strategic planning at this level will usually include a robust analysis and identification of several strategic options based on the assumed future operating environment. In a multi-business firm, careful consideration will be given to the overall core competencies of the firm and where the boundaries lie between corporate and business level responsibilities.
Business level: Each business within an organization will develop a strategy to support the overall business within its specific industry. Business level strategy is reflects the current position of the firm within its industry, and identifies how the available resources can be applied to improve the position of the firm in relation to its competitors. There are a variety of ways that businesses will compete, but more often than not it is based on the USP (unique selling proposition) of the firm which distinguishes the company and its products from other competitors. If there are no differences between one firm’s products or services from other competitors, then the product or service becomes a commodity. Competition among firms that offer commodities is usually rooted in price competition, and the low-cost providers usually take over. On the other hand, businesses that distinguish themselves can compete on their unique selling proposition. If they can successfully demonstrate why they are different and how that difference can provide a better level of service or quality product, then the business can command a higher margin for the premium service or product. This is the “value” added by the firm, and the business strategy should focus on how the firm adds value.
Functional level: Functional level describes support functions of a business: Finance, Marketing, Manufacturing, and Human Resources are a few examples of the functional level. Strategies at this level should be defined to support the overall business and corporate level strategies. If the functional level leaders can describe their activities and goals in relation to the business or corporate levels, then everyone in the organization will be aligned and as such contribute to the overall goals and objectives for the organization. So for example, functional leaders for IT or HR must ask if the strategies for their functions match and support the overall strategic direction of the businesses they support or of the overall firm itself.
The best strategic planners understand how important it is for a firm to have alignment among the corporate, business, and functional levels of strategy. The overall corporate level strategies will not be effective if the supporting business and functional level strategies are inconsistent with the overall strategic intent of the senior leaders. Thus, it is not only important to pick the right strategy for the corporate level, but also equally important to make sure that the business and functional level strategies support the overall grand strategy for the organization.