What is a Business-level Strategy?
A business-level strategy relates to the choices that a business ‘unit’ makes to compete in a given market. It is different from a corporate strategy in that the business-level strategy relates to the strategy of a particular product or business unit while a corporate strategy deals with a company with multiple products or business units.
Because these units each operate in different markets and face a completely different set of conditions and threats, each must have its own business-level strategy but operate under the guidance of the corporation.
In this article we explain the core ideas behind a business-level strategy:
- Breaking Down Business-level Strategy
- Corporate-level Strategy Versus Business-level Strategy
- Business-level Strategy and Disruption
If what you need is learning about creating the actual strategy for a business, then you may want to visit our business strategy article.
Breaking Down Business-level Strategy
Most of the concepts that are typically associated with
While each unit must have its own strategy set at the business level, taking into account the particularities of the market and its incumbents, a Corporate Strategy must still be set at the “mothership” level to guide the general behavior of the corporation as a whole and of each of its business units.
Take Florida-based NextEra Energy (NYSE: NEE), an American power company that serves markets in the US and Canada.
The company has several subsidiaries, among them: NextEra Energy Resources (NEER), a power generation business; Florida Power and Light (FPL), a power utility company; NextEra Energy Partners (NYSE: NEP), a publicly traded company that owns and operates wind and solar projects in the US; NextEra Energy Transmission (NEET), a company that builds and operates power transmission assets in the US; and NextEra Energy Services (NEES), an electricity retailer serving residential and commercial customers across the US. All are under the control of NextEra Energy Capital Holdings (NECH) with the exception of FPL.
Each of these subsidiaries is treated by NextEra Energy as an individual business unit, and because they operate in different markets each must set its own strategy, under the guidance of the general corporate strategy set at the top.
In a multi-business corporation such as NextEra, its executives will seek to maximize its value as a whole, even if that means sacrificing some of its business units to favor others that are more promising.
For example, at a given point in time, they may decide that it is better to reinvest profits from a strong business, that happens to be in a dying industry, onto a weak unit that’s getting traction in a fast growing market, rather than trying to protect the market position of the dying business.
Because the goal is the maximization of the organization’s value as a whole, its executives must sometimes pursue this type of cross-business optimization, even if that means achieving suboptimal results in a particular business unit.
Corporate-level Strategy Versus Business-level Strategy
Too many times we hear that such company got disrupted, or that this other company got out of business that we start using the words company, business and corporation almost indistinctively.
The difference may seem evident and trivial but keeping clear distinctions is good to have a better understanding of the scope of a company’s strategy.
When we talk about strategy in a company that operates multiple business units, we are usually referring to the strategy of a particular unit and not the company as a whole, because the unit is usually the level of a company that operates within the boundaries of a particular market, and the part which engages in competition.
Amazon.com, for example, competes with Walmart on retail and eCommerce, but its Amazon Web Services (AWS) division competes with Google’s Cloud and Microsoft’s Azure services for the cloud computing market, while its Whole Foods Market business competes with local chains for a piece of the organic food market.
Because these units each operate in different markets and face a completely different set of conditions and threats, each must have its own business-level strategy but operate under the guidance of Amazon.com, the corporation.
In a corporation that owns multiple business units, each unit must have its own {business strategy}, which is set in according to the nature of that particular business and industry where it operates. However, the company must also have its own master strategy set at the “corporate level” to guide the behavior of the organization as a whole.
That strategy set at the top is what’s called a “Corporate Strategy”: The master plan at the top level that lays above all business units and that must coexist with the individual strategy of each “business.”
Business-level Strategy and Disruption
From the definitions above, it is clear therefore that what gets disrupted or obsolete are “products,” not companies. But because many companies depend only on particular products or services, when those products get disrupted the “business” usually goes with them.
Kodak, for example, depended (as a company) mostly on revenues from film photography (a product), so when the film photography “product” got disrupted by digital cameras in the mid-2000’s it took the company with it.
Had Kodak be supported by other successful, sizable business units, only the “unit” that managed film photography would have been disrupted, but the company could have survived.
Contrast that with this other case. Fast forward a few years to 2011, and digital cameras were now being similarly disrupted by smartphones and other mobile devices which included similar (and sometimes superior) capabilities to capture photo and video.
At that time Cisco System, maker of the widely popular “Flip” digital video camcorder exited the market pressed by the brutal forces of disruption. The exit was a tough decision for Cisco, which had just acquired Pure Digital, the maker of the Flip camera two years before for almost $600 million.
The difference in this case, however, is that Cisco’s failure in the consumer electronics market didn’t drag the company down and instead they refocused their business around their network products.
In both cases, the “products” got similarly disrupted, but in one case (Kodak) the company succumbed along with the product, while in the other (Cisco) they just plugged the cord on it and moved on.
There’s probably a hidden warning call for large corporations there: they must think about building more than one core business while they can, to avoid the fate of many companies that got so attached to their “core competencies” that they went down with them.
References:
Wu, Sun. Strategy for Executives, this book can now be downloaded for free here