DIFFERENTIATING CORPORATE, BUSINESS AND FUNCTIONAL STRATEGIES,

USING MCDONALD'S AS AN EXAMPLE.

SUBMITTED BY

AJETUNMOBI AYOKUNLE. M

MATRIC NO: P19DLBA80565

DEPARTMENT: BUSINESS ADMINISTRATION

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 TABLE OF CONTENTS

Pag

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INTRODUCTION...............................................................................................................3

LITERATURE REVIEW: ..................................................................................................4

2.1 MEANING OF STRATEGY.............................................................................................4

2.2 LEVELS OF STRATEGY...............................................................................................4

2.2.1 CORPORATE STRATEGY......................................................................................4-5

2.2.2 BUSINESS STRATEGY...........................................................................................5-6

2.2.3 FUNCTIONAL STRATEGY.......................................................................................6

2.3 DIFFERENCES IN THE LEVELS OF STRATEGY........................................................6-7

2.4 CORPORATE STRATEGY OF McDONALD.........................................................7-8

2.5 BUSINESS STRATEGY OF McDONALD............................................................9-10

2.6 FUNCTIONAL STRATEGY OF McDONALD.........................................................10

CONCLUSION..................................................................................................................11

REFERENCES..................................................................................................................12

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1. INTRODUCTION

Corporate strategic planning is essential if an organization is to survive, to increase market share

and to cause detriment of its competitors. Successful strategic planning based upon future likely

conditions lead to decisions to diversify into other markets.

Strategy should be systematically and formally planned following a set of relatively rigid steps

and procedures. Johnson and Scholes refer to the notion of strategy development as a “design”

view of strategy.

To put a strategy into place, an organization needs to have tightly defined goals, and the

discipline to rule out other courses of action. When managers, workers and affiliates have

identified and agreed on these goals, organizational focus will increase exponentially as they

work together to move toward their goals.

Corporate strategy includes the commitments, decisions and actions required for a firm to

achieve strategic competitiveness and earn above average returns. The goals of corporate

strategy are challenging not only for large firms like Microsoft but also for small local computer

retail outlets or even dry cleaners.

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2. LITERATURE REVIEW

2.1 MEANING OF STRATEGY

Strategy is the direction and scope of an organization over the long term, which achieves

advantage in a changing environment through its configuration of resources and competences

with the aim of fulfilling stakeholder expectation. There are three different levels of strategy:

corporate strategy, business strategy and operational strategy. Chandler(1962) Strategy is what

the determines the basic long-term goals of an enterprise, and the adoption of courses of action

and the allocation of resources necessary for carrying out these goals; Mintzberg (1979) Strategy

is a mediating force between the organization and its environment: consistent patterns in streams

of organizational decisions to deal with the environment. Prahlad (1993) Strategy is more than

just fit and allocation of resources. It is stretch and leveraging of resources

Porter (1996) Strategy is about being different. It means deliberately choosing a different set of

activities to deliver a unique mix of value

2.2 LEVELS OF STRATEGY

A typical business firm should consider three types of strategies, which form a hierarchy.

2.2.1 CORPORATE STRATEGY

Corporate-level strategy is concerned with the overall purpose and scope of an organization and

how value will be added to the different parts of the organization. This could include issues of

geographical coverage, diversity of products/services or business units, and how resources are to

be allocated between the different parts of the organization.

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Corporate level strategy is a strategy which is aimed at the long term position of a business. A

company for instance, may consider where it will be in 10 years’ time and should decide in what

ways it should reach the aim by pursuing certain strategies and directions. A corporate or

business can use variety of methods to develop a corporate level strategy but, there are four main

strategies that almost all businesses use which are:

● Concentrate on a single business, which means that the business stays on the same industry

or activity in order to create a strong competitive position within the industry.

● Diversification; which is to move to a new business to provide a new good or service. There

are two kinds of diversification, related diversification which is to compete in similar

area/industry of activities to build a synergy and unrelated diversification which is to enter a

new industry to compete and build a portfolio strategy.

● International Expansion. This is to compete in more than one market to serve the needs of the

other markets/countries.

● Vertical Integration. This is a way to cut costs by providing your own ways of inputs,

backward vertical integration and your own channels of distribution and selling outputs by

forward integration.

2.2.2 BUSINESS STRATEGY

Usually occurs at business unit or product level emphasizing the improvement of competitive

position of a firm’s products or services in an industry or market segment served by that business

unit. Business strategy falls in the in the realm of corporate strategy.

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Business-level strategy is about how to compete successfully in particular markets. This typically

concerns such as pricing strategy, innovation or differentiation, by better quality or a distinctive

distribution channel. So, while corporate-level strategy involves decisions about the whole

organization, business level strategy relate to particular strategic business units (SBUs) within

the overall organization.

Yahoo!’s strategic business units include businesses such as Yahoo! Photos and Yahoo! Music

2.2.3 FUNCTIONAL STRATEGY

These are concerned with how the component parts of an organization deliver effectively the

corporate, business and functional -level strategies in terms of resources, processes and people.

They are at departmental level and set periodic short-term targets for accomplishment.

Functional level strategies relate to the different functional areas which a strategic business unit

has, such as marketing, production and operations, finance, and human resources. These

strategies are formulated by the functional heads along with their teams and are aligned with the

business level strategies. The strategies at the functional level involve setting up short-term

functional objectives, the attainment of which will lead to the realization of the business level

strategy.

2.3 Differences between Corporate, Business and Functional Strategies

A corporate strategy sets the strategy for the company as a whole. It is the broadest and most

long-ranging and must be developed first to set direction for the business and functional area

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planning efforts where the activities are planned and managed. It is the largest and the others fit

into it.

While business strategy sets the strategic goals for the business unit. If the company is still small,

the corporate and business strategies are one and the same. It is informed by the corporate goals,

the success or challenges of the current strategy, the business market conditions including shifts

in customer preferences, market innovations and regulatory shifts.

On the other hand, functional area strategy set the strategic goals to deliver on the business or

corporate goals and to continue to strengthen, improve or enhance the functional area itself.

Functional areas exist to serve the business and the corporation as well as their particular

discipline. They have multiple masters. They carefully examine the business and corporation

strategic plans for direct or indirect objectives and create strategies for response. They also need

to update their performance, plans and strengths to exceed their standards of performance. They

also need to stay ahead of innovations and regulatory changes in their field (Lynch, 2018).

2.4 CORPORATE STRATEGY OF MCDONALDS

Corporate level strategy fundamentally is concerned with the selection of businesses in which the

company should compete and with the development and coordination of that portfolio of

businesses.

McDonald's is engaged in. McDonald’s only deals in the restaurant business, so its corporate

strategy is a single business unit strategy, likely of growth. To make this clearer, GE's corporate

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strategy is of interrelating business units. Consumer electrics, submarines, locomotives, light

bulbs etc. share some synergies and each is a separate business unit.

Corporate level strategy is concerned with:

● Reach - defining the issues that are corporate responsibilities; these might include

identifying the overall goals of the corporation, the types of businesses in which the

corporation should be involved, and the way in which businesses will be integrated and

managed.

● Competitive Contact - defining where in the corporation competition is to be localized.

Take the case of insurance: In the mid-1990's, Aetna as a corporation was clearly

identified with its commercial and property casualty insurance products. The

conglomerate Textron was not. For Textron, competition in the insurance markets took

place specifically at the business unit level, through its subsidiary, Paul Revere. (Textron

divested itself of The Paul Revere Corporation in 1997.)

● Managing Activities and Business Interrelationships - Corporate strategy seeks to

develop synergies by sharing and coordinating staff and other resources across business

units, investing financial resources across business units, and using business units to

complement other corporate business activities. Igor Ansoff introduced the concept of

synergy to corporate strategy.

● Management Practices - Corporations decide how business units are to be governed:

through direct corporate intervention (centralization) or through more or less autonomous

government (decentralization) that relies on persuasion and rewards.

Corporations are responsible for creating value through their businesses. They do so by

managing their portfolio of businesses, ensuring that the businesses are successful over the long-

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term, developing business units, and sometimes ensuring that each business is compatible with

others in the portfolio.

2.5 MCDONALD'S BUSINESS STRATEGY

A strategic business unit may be a division, product line, or other profit center that can be

planned independently from the other business units of the firm.

At the business unit level, the strategic issues are less about the coordination of operating units

and more about developing and sustaining a competitive advantage for the goods and services

that are produced.

This might be low-cost strategy, differentiation, or focus strategies. McDonald’s has pursued

two strategies since 2003. To keep up with rapidly changing consumer preferences,

demographics, and spending patterns, McDonald's has introduced new items (Premium Chicken

sandwiches and the Angus Beef Burger) and campaigns to create more healthy foods (Premium

Salads). The strategy reflects the philosophy that novelty, as opposed to loyalty to traditional

products, is the key determinant of sales in the fast food industry.

McDonald’s has also focused on increasing sales at existing restaurants instead of opening new

ones. To do so, McDonald's has remodeled many restaurants, kept stores open longer, and

increased menu options. Nevertheless, new McDonald’s restaurants are still opening around the

world at a rapid rate - the company plans to open about 1,000 units in 2008, and continues to

grow its restaurant base by 1-2% each year.

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At the business level, the strategy formulation phase deals with:

● positioning the business against rivals

● anticipating changes in demand and technologies and adjusting the strategy to

accommodate them

● Influencing the nature of competition through strategic actions such as vertical

integration and through political actions such as lobbying.

Michael Porter identified three generic strategies (cost leadership, differentiation, and focus) that

can be implemented at the business unit level to create a competitive advantage and defend

against the adverse effects of the five forces.

2.6 FUNCTIONAL LEVEL STRATEGY OF MCDONALD'S

The functional level of the organization is the level of the operating divisions and departments.

The strategic issues at the functional level are related to business processes and the value chain.

Functional level strategies in marketing, finance, operations, human resources, and R&D involve

the development and coordination of resources through which business unit level strategies can

be executed efficiently and effectively.

Functional units of an organization are involved in higher level strategies by providing input

into the business unit level and corporate level strategy, such as providing information on

resources and capabilities on which the higher level strategies can be based. Once the higher-

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level strategy is developed, the functional units translate it into discrete action-plans that each

department or division must accomplish for the strategy to succeed.

CONCLUSION

There is a clear hierarchy in levels of strategy, with corporate level strategy at the top, business

level strategy being derived from the corporate level, and the functional level strategy being

formulated out of the business level strategy.

The technology industry is very competitive and requires firms operating in it to be very intense

in their strategies in order to not only gain competitive advantage, but also operate profitably.

Companies can adopt business-level strategies and corporate-level strategies, which will make

them more attractive to customers.

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REFERENCES.

Guglielmo, C. (2013). Apple’s Pricey iPads Protect Premium Brand, Profit Margins, Leaving

Low-End to Android Tablets. Web.

Harrison, J., & John, C.St. (2009). Foundations of Strategic Management. Belmont, CA:

Cengage

Learning.

Hill, C., & Jones, G. (2012). Strategic Management Theory: An Integrated Approach. Belmont,

CA: Cengage Learning.

Ireland R.D., Hoskisson, R.E., & Hitt, A. (2010). Understanding Business Strategy Concepts

Plus.

Ricky, W (2003) International Business 3rd edition, prentice hall international

Corporate. Retried (July 20th 2020)

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