Types of business strategy

We’re going to look at the difference between corporate and business strategy. The two terms are often used interchangeably, but they do have some significant differences – understanding those differences is important as it determines where and how you’re going to compete.

Business Strategy

A business strategy is about defining the decisions that a company needs to make in order to gain or maintain competitive advantage. A business strategy asks questions like:

  • What products do we need to deliver in order to gain competitive advantage?
  • How are we going to keep competitive advantage?
  • Who do we need to hire to compete in the market?
  • How do we derive synergy from our multiple business units?

Let’s think about an example and pretend that I own a small coffee shop. I’ve analysed the market and have concluded that I can’t compete on price – the larger players like Starbucks have far better economies of scale and competing on price would cause my company more harm than good. So, I choose a product differentiation strategy in order to build competitive advantage against the Starbucks store in the same town as I operate. The answers to the first question might look a little like this:

  • What products do we need to deliver in order to gain competitive advantage?
    We’re going to differentiate our product offering by giving customers the opportunity to select and grind their own coffee beans – making the coffee shop visit a differentiated experience to that of Starbucks.

Here, we’ve answered the question ‘how are we going to compete?’. Which is the core purpose of the business strategy.

Corporate Strategy

A corporate strategy defines where a business is going to compete. Where doesn’t just define the geographic markets that the business aims to enter, but it also defines the industry (or industries), the price point (premium or budget) and more. A corporate strategy asks questions like:

  • Where are we going to position ourselves in the market?
  • What industry or industries should the company compete in?
  • Where are we going to compete geographically?
  • Are we going to do things in-house or are we going to outsource?
  • Are we going to acquire a business in order to enter the market?
  • Should we diversify & how?

Let’s think about our small coffee shop again. We’re in year 2, the business is going really well & we’re looking to expand. So we might answer some of the corporate strategy questions like below:

  • Where are we going to position ourselves in the market?
    We are going to position ourselves as the premium coffee brand
  • Where are we going to compete geographically?
    We are going to open 5 more branches, across London
  • Are we going to do things in-house or are we going to outsource?
    Marketing will be handled by an external agency, to enable us to focus on our core business
  • Should we diversify & how?
    We are going to diversify & offer customers the opportunity to make their own coffee mug from clay as part of their experience.

With each of these answers, we’ve built a picture of where we are going to compete.