Business strategy is the battle plan for a better future.1
- Patrick Dixon
When it comes to business, an organizational strategy means much more than a plan for a better future. If implemented correctly, an organizational strategy perfectly represents the organization's resources, capabilities, vision and mission, and direction for its manageable future. Today, let's have an in-depth look into the concept of organizational strategy and its diverse types at workplaces.
Organizational Strategy Definition
Organizations consider diverse organizational strategies to meet their goals and initiate strategic plans to choose the most suitable one for their business.
An organizational strategy is a long-term plan demonstrating how a company utilizes its resources and capabilities to support business activities and attain business goals.2
Often, the three most potent resources incorporated into an organizational strategy are capital, labor, and inventory. Besides, business activities include marketing, sales, production, finance, and infrastructure.
Organizational Strategy Importance
Why do organizations need appropriate organizational strategies? The reasons are vast.
Firstly, an organizational strategy can help organizations clearly define their business direction and set their priorities.
How can an organizational strategy set business directions and priorities?
For example, an organizational strategy focusing on expanding a company's market can keep the business focused on market expansion while setting market-related activities such as marketing and sales as the top business priorities.
Secondly, an organization's strategy motivates all employees toward a common business goal. In other words, an organizational strategy can unite a company's workforce and align them with business targets.
How can an organizational strategy inform your employees?
An organizational strategy emphasizing a boost in revenue can make profits the top goal in the minds of every employee across an organization. Thus, a salesperson knows they should be more active in converting sales deals, while a product designer knows their responsibility in researching and developing competitive products.
Further, an organizational strategy can simplify the business's complex decision-making process as companies can prioritize their actions based on pre-determined strategic goals and plans. Besides, as the entire company knows what to strive and aim for, the chances are that they work more productively and are less likely to leave their projects.
Fig. 1 - Organizational strategy guides business directions
Levels of Organizational Strategy
For conventional organizations with a clear hierarchy, three levels of strategy are necessary to enable clear division of labor and accountability.3
- Chengwei Liu
Essentially, there are three levels of organizational strategy, which are corporate-level strategy, business-level strategy, and functional strategy.
A corporate-level strategy represents the strategic plan for the highest corporate level, which can determine general business goals and specific goals for lower levels in the organizational hierarchy.
A corporate-level strategy is the approach or game plan of the top management to administer and direct the entire business.3
At one level lower than corporate level strategy, a business level strategy informs how a business plans to gain advantages in a specific market. For instance, a business-level strategy demonstrates a company's plan for competing, positioning, and mastering the market.
A business-level strategy is a company's strategic plan to implement activities and utilize resources to guide the direction of individual business units.3
At an even smaller micro-level, departments such as the sales, marketing, or finance department within a company need their functional level strategy to steer their goals and directions.
A functional-level strategy consists of goals and actions specified for each department to support the business and corporate-level strategies.3
Organizational Strategy Types
Nowadays, there are three organizational strategy components companies utilize to develop their strategy frameworks: innovation, cost minimization, and imitation. Accordingly, there are three popular organizational strategy types corresponding to the three components: innovation strategy, cost-minimization strategy, and imitation strategy.
Organizational Strategy: Innovation Strategy
Which strategy will your company use when it needs significant product and service innovation? Consider an innovation strategy that sets business goals in researching and developing superior new products and services.
An innovation strategy emphasizes the launch of new products and services.4
Commonly, business innovations are based on technological advances. Yet, there are still successful cases of innovating business processes. Generally, there are four main types of business innovation: routine innovation, disruptive innovation, radical innovation, and architectural innovation.5
Also, sometimes, big and breakthrough ideas do not simply happen in business. Instead, creativity and innovativeness often arise out of specific environments and procedures designed by companies.
How can companies implement an innovation strategy?
To implement an effective innovation strategy, companies may need to offer competitive salary packages to attract innovative UX and UI designers, create innovative hubs for research and development (R&D), or establish clear communication channels and long-term policies to attain employees.
Organizational Strategy: Cost-minimization Strategy
If your company is undergoing a severe financial crisis or a phase of increasing its asset turnover, a cost-minimization strategy turns out to be beneficial. A cost-minimization approach involves minimizing spending, tightly controlling business costs, avoiding unnecessary expenses, and reducing selling prices.
A cost-minimization strategy focuses on tightening cost controls and avoiding unnecessary operational costs within a company. Thus, the core concept behind it is price cutting.4
On the one hand, a cost-minimization strategy can give companies various financial advantages such as lower unit costs, higher profit margins, higher total revenues, and better cash flows. On the other hand, a cost-minimization strategy may make the business unable to deal with unexpectedly increasing demands or a weak competitive advantage in R&D.
How can companies minimize costs in real life?
In business, companies can cut costs by limiting their R&D activities, minimizing their invested capital in economies of scale, or outsourcing non-core activities such as payroll or transaction processing.
Organizational Strategy: Imitation Strategy
As its name suggests, a company with an imitation strategy develops new products or enters new markets once other innovators have proven the products' or markets' viability. For example, a technology firm may consider entering the Asian market after witnessing the successful entry of other giant companies in the industry.
An imitation strategy seeks to move into new products and markets that have already proven their viability.4
Compared to an innovation strategy, an imitation strategy saves companies more time and money invested in the R&D process. Further, an imitation strategy is less risky for businesses, given that market or product viability has been validated.
What if a company with an imitation strategy desires to benchmark the market?
In this case, the company can apply innovation in the re-engineering process to add differentiating factors to the imitative products before launching.
Fig. 2 - Organizational strategy initiates organizational changes
Organizational Strategy Examples
What are some examples of real-life organizations leading the above-mentioned three organizational strategies? Read the following section to see how companies apply such strategies in real-life contexts.
Organizational Strategy: Cost-minimization Strategy and IKEA
Have you ever wondered why IKEA can keep its products at consistently low prices? The company's effective cost-minimization strategy focuses on reducing manufacturing costs and limiting R&D overhead expenses.
Organizational Strategy: Limiting R&D overhead expenses
IKEA takes pride in its reverse design process. Accordingly, the company first defines the prices of the expected products before determining the corresponding R&D budget and starting the design process.6 Traditionally, a design process takes place in the opposite order, in which companies develop designs and prototypes before setting up prices and calculating costs.
Have you heard about this interesting material invention from IKEA's R&D process?
In an attempt to search for materials that could meet the defined R&D budget, the IKEA team once discovered the placement of layers of wood on a honeycomb base in constructing their furniture. The honeycomb constituted a wooden base, saving production and manufacturing costs without compromising the furniture's quality.6
Organizational Strategy: Reducing Manufacturing Costs
At IKEA, the flat-packaging process has been implemented since 1956.6 In flat packaging, IKEA only sells furniture in parts instead of as a whole. Thus, products can be packed in flat pieces, which are easier to package, saving transportation costs and maximizing customers' customization.
Further, IKEA mainly performs bulk production of its furniture.6 For each design, IKEA produces a bulk quantity of it. By doing this, IKEA can negotiate discount rates for bulk purchases of raw materials while paying for a one-time production cost instead of fragmented costs incurred by multiple production times.
Organizational Strategy: Innovative Strategy and Google
Being a globally recognized corporation, Google is renowned for its continuous influx of innovation led by its innovative strategy.
As we've grown to over 26,000 employees in more than 60 offices, we've worked hard to maintain the unique spirit that characterized Google way back when I joined as employee #16.7
- Think with Google
How does Google manage to introduce hundreds of major new products and services every year? The recipe lies in the long-standing eight pillars of innovation at Google, which has allowed the business to ease into the world of unlimited innovation. The eight pillars are as follows:7
Have a mission that matters
Think big but start small
Strive for continual innovation, not instant perfection
Look for ideas everywhere
Share everything
Spark with imagination, fuel with data
Be a platform
Never fail to fail
Google and the 20% approach
At Google, every employee can utilize 20% of their work time to pursue any passion projects that can lie beyond their roles and responsibilities. More interestingly, they can pitch their projects to Google and get them funded if Google likes them.
Thus, when implemented appropriately, an organizational strategy can create enormous advantages for organizations in improving operational excellence, guiding future directions, and benchmarking markets. While there is no best strategy for every business, the successful recipe lies in the wise alignment of the business' resources and capabilities with an appropriate strategy and the ability to execute such strategy eventually.
Organizational Strategy - Key takeaways
- An organizational strategy is a long-term plan demonstrating how a company utilizes its resources and capabilities to support business activities and attain business goals.
- There are three levels of organizational strategy: corporate-level strategy, business-level strategy, and functional strategy.
- There are three popular organizational strategy types: innovation, cost-minimization, and imitation.
- An innovation strategy emphasizes the launch of new products and services.
- A cost-minimization strategy focuses on tightening cost controls and avoiding unnecessary operational costs within a company. Thus, the core concept behind it is price cutting.
- An imitation strategy seeks to move into new products and markets after having already proven their viability.
References
- Patrick Dixon. Building a Better Business: The Key to Future Marketing, Management and Motivation. 2005.
- Indeed. What Is an Organizational Strategy and Why Does My Business Need One?. 2019.
- Shannon Cook. Three Levels Of Strategy: Key Differences Explained. 2022.
- Stephen Robbins and Timothy Judge. Organizational Behavior. Pearson. 2014.
- Alex Elkins. What is Innovation Strategy?. 2021.
- Diksha Sinha. How IKEA Manages to Keep Its Prices Low? | IKEA Low-Cost Strategy. 2022.
- Susan Wojcicki. The Eight Pillars of Innovation. 2011.
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