CORPORATE STRATEGY
The corporate strategy question is, How many and what kind of businesses should we be in? For example, PepsiCo doesn t just make Pepsi-Cola. Instead, PepsiCo is comprised of four main businesses: Frito-Lay North America, PepsiCo Beverages North America, PepsiCo International, and Quaker Oats North America.
PepsiCo therefore needs a corporate-level strategy. A company s corporate-level strategy identifies the portfolio of businesses that, in total, comprise the company and how these businesses relate to each other.
* For example, with a concentration (single business) corporate strategy, the company offers one product or product line, usually in one market. WD-40 Company (which makes a spray hardware lubricant) is one example.
* A diversification corporate strategy implies that the firm will expand by adding new product lines. PepsiCo is diversified. Over the years, PepsiCo added chips and Quaker Oats. Such related diversification means diversifying so that a firm s lines of business still possess a logical fit. Conglomerate diversification means diversifying into products or markets not related to the firm s current businesses or to one another.
* A vertical integration strategy means the firm expands by, perhaps, producing its own raw materials, or selling its products direct. Thus, Apple opened its own Apple stores.
* With consolidation strategy, the company reduces its size.
* With geographic expansion, the company grows by entering new territorial markets, for instance, by taking the business abroad, as PepsiCo also did.
COMPETITIVE STRATEGY
On what basis will each of our businesses compete? Each of these businesses (such as Frito-Lay) needs its own business-level/competitive strategy. A competitive strategy identifies how to build and strengthen the business long-term competitive position in the marketplace. It identifies, for instance, how Pizza Hut will compete with Papa John s or how Walmart competes with Target. Managers endeavor to achieve competitive advantages for each of their businesses. We can define competitive advantage as any factors that allow a company to differenti-ate its product or service from those of its competitors to increase market share. Managers use several standard competitive strategies to achieve competitive advantage:
* Cost leadership means becoming the low-cost leader in an industry. Walmart is a classic example. It maintains its competitive advantage through its satellite-based distribution system, careful (usually suburban) site location, and expert control of purchasing and sales costs.
* Differentiation is a second possible competitive strategy. In a differentiation strategy, the firm seeks to be unique in its industry along dimensions that are widely valued by buyers. Thus, Volvo stresses the safety of its cars, Papa John s stresses fresh ingre-dients, and Target stresses somewhat more upscale brands than Walmart. Like Mercedes-Benz, firms can usually charge a premium if they successfully stake a claim to being substantially different from competitors in some coveted way.
* Focusers carve out a market niche (like Ferrari). They compete by providing a product or service that their customers cannot get from their generalist competi-tors (such as Toyota).
FUNCTIONAL STRATEGY
Finally, what do our competitive choices (such as maintaining the lowest costs) mean for each of the departments that actually must do the work? Each individual business (like PepsiCo s Frito-Lay and Quaker Oats units) consists of departments such as manufacturing, sales, and human resource management. Functional strategies identify the broad guidelines that each department will follow in order to help the business accomplish its competitive goals. Each department s functional strategy should make sense in terms of the business/competitive strategy.
For example, the business s competitive strategy should mold the firm s human resource management policies and practices. As an example, the Portland hotel wants to differentiate itself with exceptional service, and so needs to select and train employees who are exceptionally customer oriented. Walmart s low cost competitive strategy translates into human resource management policies that many view as low-pay and antiunion.
STRATEGIC FIT
Strategic planning expert Michael Porter uses the term strategic fit to sum up the idea that each department s functional strategy should fit and support the company s competitive aims.
For example, Southwest Airlines is a low-cost leader. It aims to deliver low-cost, convenient service on its routes. To accomplish this, Southwest builds its departments activities around supporting certain core aims. Southwest s core aims include limited passenger services (such as meals); short-haul, point-to-point service between mostly mid-size cities; high aircraft utilization; and lean highly
productive ground crews. Achieving these aims means that each department's efforts needs to fit these aims. Southwest s ground crew department must get fast 15-minute turnarounds at the gate. That way, Southwest can keep its planes flying longer hours and have more departures with fewer aircraft. Its purchasing and marketing departments shun frills like meals and premium classes of service. To ensure highly productive ground crews, the HR department will provide high compensation, flexible union contracts, and employee stock ownership. Their aim is that:
High Pay--->Highly Productive Ground Crews--->Frequent Departures--->Low Costs
Top Managers Roles in Strategic Planning
Devising a strategic plan is top management s responsibility. Top management must decide what businesses the company will be in and where, and on what basis it will compete. Southwest Airlines top managers could never let lower-level managers make strategic decisions (such as unilaterally deciding that instead of emphasizing low cost, they were going to retrofit the planes with first-class cabins).
Departmental Managers Strategic Planning Roles
However, the company s departmental managers (as for sales, manufacturing, and human resource management) also play roles in strategic planning. Specifically,they help the top managers devise the strategic plan; formulate functional, depart-mental plans that support the overall strategic plan; and then execute the plans. Well look at each.
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