The holidays are over, 2019 books are closed and yearend financial results will shortly be communicated to investors and the public. The Corporate Strategy has been refreshed and will be further communicated to analysts and investors. In all likelihood, goals and budgets have also been negotiated and are locked in for 2020.
Now is the time that you can settle into running your business. You have a set of sales targets, budget requirements and maybe product launches or geographic expansions that you have planned for and committed to for 2020. But independent of all of this, do you really know what you need to focus on to win in 2020 and set yourself up to win going forward?
One place you might look to is the Corporate Strategy. The Corporate Strategy provides a view to the aspirations of the company, has a perspective on the desired portfolio of the corporation and has a view of what capabilities will be maintained by the company at the Corporate level. It all makes sense to you and may put some limits on what you can do; but it doesn’t tell you specifically what you should do in your part of the business and doesn’t tell you how to win in your business.
Often times we have seen Business Units or leaders within businesses go through the exercise of developing a strategy by trying to conform to the Corporate Strategy of the company. This misunderstands the role of the Corporation relative to the role of the Business Unit in most companies. The Business Unit, often called a “Natural Business Unit” groups a set of activities of the organization within similar markets, with common customers and common competitor sets. The existence of the business unit is precisely to allow for the leadership closer to the customer to compete and win against their competition with a strategy specific to their markets, customers and competitive set and with decision rights and accountability to execute this strategy.
A Corporate Strategy is generally not enough. Many of the companies we work with are Corporations with several different business units or lines of business. It would be unreasonable to believe that that the Corporate Center would dictate the strategy to each of its business units or business lines, since each one is often in completely different markets with different competitive environments and drivers of customer value. Instead the Corporate Strategy typically does the following:
- Defines the Role of the Corporate Center Relative to The Business Units
- Defines the Critical Capabilities that will be Maintained at the Corporate Center
- Determines the Portfolio of Businesses that the Corporation wants to be Invested in, and sets the criteria for investments, and
- Allocates Capital Among the Opportunity Sets
The Business Unit Strategy is very different. The business unit strategy defines how the business unit will drive future growth in profits by defining:
- How the Business Unit is differentiated or can be differentiated versus its competitors
- How the Business Unit will create value for the relevant customer base
- How the Business Unit will grow revenue and profits in the relevant markets (What customer segments? What geographies? What Offerings?)
- What capabilities are required to be maintained, developed or acquired to win and prosper in these markets and/or how will the corporate capabilities be utilized to create advantage in these specific markets
A portion of this may be related to the Corporate Strategy, for example if the Corporation provides differentiation and/or the business unit leverages capabilities provided by the Corporation. But typically, in a multi-division company the Corporate Strategy does not and should not be the same as, or take the place of the Business Unit Strategy. And, not all business units are created equal – some may be multi-billion-dollar businesses in their own right. In this case, more detail around product line or customer segment strategies may be warranted.
At Amphora Consulting we believe deeply that strategy should not be a top down exercise that is handed down to those responsible for the actual businesses. Instead strategy and strategic thinking should be a capability built deep into your organization that creates growth from each of the businesses in your portfolio through empowering those responsible to think strategically, understand how to drive customer value, and take the actions that will allow them to win against the competition within their space – what we call “Grassroots Strategy.”
This requires business leaders who know the principles of strategy, know what a good strategy looks like and know how to develop a good strategy. This requires an organization accustomed to strategic thinking trained in market back strategy principles. And this requires, accountability and decision rights structured to empower businesses leaders to take strategic action.
2020 promises to be a year filled with opportunity. But a corporate strategy alone is not enough to make that opportunity real. We believe you can unlock the potential of your businesses by allowing their leaders to think strategically, act strategically and drive growth for your company.