The Three Levels of Strategy are a tiered system which defines the different strategies within an organisation and their purpose. 




What is strategy?

Strategy sits at the heart of any business and is one of the keys to sustainable success. Strategy helps organisations to maximise their resources and environment and allows them to develop new ways to stay ahead of competitors. Even with great ideas, or great products and services, you are unlikely to be successful in the long-term without an appropriate strategy. 

However, 'strategy' can mean many things in an organisational context. It can refer to the long-term overall course of the organisation, or to the day-to-day systems and how they are designed to maximise success - as well as many other things.


The Three Levels

The Three Levels of Strategy, developed by Gerry Johnson and Kevan Scholes along with other major managerial thinkers, are a way of defining the different layers of strategy which, in tandem, orient the direction of the organisation and define its success. 

The Three Levels are:


  1. Corporate
  2. Business
  3. Functional


When synchronised and coordinated, successful strategies at each of these levels will contribute to successful overall organisational strategy. 


Corporate

This is the top layer of strategic planning, and is often associated with the organisation's mission and values, though it is developed in much more significant depth. Corporate strategy is defined by those at the very top of the organisation - managing directors and executive boards - and is an outline of the overall direction and course of the business. In effect, it defines:


  • General, overall strategy and direction
  • Which markets the organisation will operate in
  • How the markets will be entered and the general activities of the organisation


Strategy is generally defined at key points in an organisation's lifetime. The most important time for this to occur is at the organisation's inception; however, it is often neglected in favour of a reliance on a specific service or product. Corporate strategy is crucial as it will define all other decisions that are made within the organisation along the line. 

Smaller, newer organisations which are targeting a very specific niche market, or operate with a small set of unique products/services, will find it far easier to develop a corporate strategy as there are fewer variables to consider. However, larger and more developed organisations will find the process much simpler, as they may need to diverge from activities and behaviours which define who they are in order to reach out into new markets and to take new opportunities. 


Business

Business strategy generally emerges and evolves from the overarching corporate strategy which has been set by those at the helm. They are usually far more specific than corporate strategy and will likely be unique to different departments or subdivisions within the broader organisation. 

In general, they use corporate strategy as an outline to:


  • Define specific tactics and strategies for each market the organisation is involved in
  • Define how each business unit will deliver the planned tactics


Due to their nature, they are more common in larger firms that engage in multiple activities, than they are in small businesses. However, they can still be engaged in by smaller organisations who wish to define how they go about each different subsection of their operations, by breaking down the overall scope of the corporate strategy.


Functional

This (also known as Market-Level Strategy) refers to the day-to-day operation of the company, which will keep it functioning and moving in the correct direction. Whilst many organisations fail because they do not have an overarching corporate strategy, others fail because they have not developed plans for how to engage in everyday activities. Even with an overall direction you wish to head in, without a plan for how to successfully operate, an organisation will be unable to progress. These will be numerous and will define very specific aspects and operations within smaller departments, teams, groups and activities. 

Overall, they define:


  • Day-to-day actions which are required to deliver corporate and business strategies
  • Relationships needed between units, departments and teams
  • How operational goals will be met, and how they will be monitored


It is at this level, the lowest in strategic development, that leaders should define how different departments and functions will work together to achieve higher goals. There will be managers that will oversee departments (e.g. manufacturing and HR) that do not perform the same functions, but need to be synchronised in order to achieve the goals set out by the corporate and business strategies.

Though corporate strategy will get all of the attention, it is success at the bottom of the hierarchy - through day-to-day functions - which will truly define where the organisation as a whole will succeed. You need to build from the ground up, in small steps, in order to keep moving forward. If operations break down, so does the organisation.


Synchronising strategy

As mentioned previously, it is crucially important that each level of strategy is synchronised, both from top-to-bottom and horizontally across the organisation. Feedback should down from both corporate strategy to functional strategy, and vice-versa, in order for all three levels to ensure that they are operating in line with one another. 

Strategy itself will not define organisational success; however, it is a very good place to start. Once sound strategies are in place, an organisation can move forward and begin to execute said strategies. They may need some adjustment along the way - and you should be prepared to do so, in response to feedback from different levels and from the external environment - but they should be initially developed in such a way that they will keep the organisation in line with its long-term objectives.