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What are the three levels of business management?

• Corporate Level
• Management Level
• Operational Level

What is a business plan?

A document that defines the business objectives and suggests steps to be taken to realise the business strategy over the next 3 years.

Components of a Business Plan: • Division of the business into service type or client segment • Financial performance targets • Plan business opportunities and allocate staff resource • Budgeting and cash forecasting money in vs. money out to understand what you can afford to pay because you estimate what you will earn • Plan business opportunities, identify the resource required.

A business plan could help to: • Seek funding, • To gain new instructions, new clients, new customers • To help focus on key priorities • To allow the organisation to respond to change • For budgeting, and • To set targets for staff.

What are the business objectives of your company?

• To develop and grow the business sustainably in the sectors:

How do you contribute to business planning within your company?

• By preparing responses to invitations to tender.
• I took part in a tender interview for Project Management services for development works at the Britannia Leisure centre, Hackney .

How do you manage your time so that you do not work beyond your fee allowance?

Recording my time weekly in timesheets spent against each job allows my workload to be reviewed by senior managers in monthly team meetings.

Does the RICS have a business plan?

Yes the current plan covers the three years from 2014-2017:

Our primary focus over the next three years

Does the RICS have a Corporate Strategy?

Yes, the current strategy covers 2012 to 2017.

It sets out long term strategic goals of the organisation.

N1. What should you do when starting a business?

Create a Business Plan, such as a 3 – 5 year business plan.

N2. What is a business plan?

A formal statement of the business goals, how they are obtainable and the plan for reaching these goals.

N3. Why would you create a business plan?

• To help achieve funding.
• Set business objectives.
• Create a business direction.

N4. What would you expect to be included within this business plan?

• Method Statement.
• Goals and Objectives.
• SWOT analysis.
• Key Performance Indicators.

N5. What is a Mission Statement?

A formal summary of the company aims and values.

N6. What is a SWOT analysis?

internal study undertaken by a business to identify its strengths, weaknesses, opportunities and threats.

N7. What goals and objectives would you likely see?

• Expected profit margin.
• Expected Turnover.
• Markets the company are looking to move into.

N8. What is a Key Performance Indicator?

A measureable value to determine the success of project/venture.

N9. How is a business plan laid out?

• Executive summary.
• Financial Forecasts.
• Management team.
• Description of business opportunity.
• Market and Sales Strategy.

N10. What is Natta’s 5 year business plan?

• £60,000,000.00 turnover by 2018.
• Build the company’s main-contracting business, i.e. more Turn Key residential and care home builds.
• Maintain Health and Safety Record.
• Obtain three new clients a year.

N11. Why is Market Analysis important?

Increase sales through identifying areas of strength, and aligning these with opportunities.

N12. How does an up-to-date business plan help an organisation?

• Helps achieve funding.
• Market previous work to clients.
• Bring focus the company priorities.
• Allows staff to align their goals with the company’s.
• Help set budgets.

N13. In terms of Business Planning, how does your management ensure that you make a profit?

• Regular reporting.
• Forward planning.
• Accounting systems to track all costs.

N14. What is a PESTLE Analysis?

• Technological.
• Environmental.

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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, how often should a business plan be updated, the bottom line, business plan: what it is, what's included, and how to write one.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

A business plan is a document that details a company's goals and how it intends to achieve them. Business plans can be of benefit to both startups and well-established companies. For startups, a business plan can be essential for winning over potential lenders and investors. Established businesses can find one useful for staying on track and not losing sight of their goals. This article explains what an effective business plan needs to include and how to write one.

Key Takeaways

• A business plan is a document describing a company's business activities and how it plans to achieve its goals.
• Startup companies use business plans to get off the ground and attract outside investors.
• For established companies, a business plan can help keep the executive team focused on and working toward the company's short- and long-term objectives.
• There is no single format that a business plan must follow, but there are certain key elements that most companies will want to include.

Investopedia / Ryan Oakley

Any new business should have a business plan in place prior to beginning operations. In fact, banks and venture capital firms often want to see a business plan before they'll consider making a loan or providing capital to new businesses.

Even if a business isn't looking to raise additional money, a business plan can help it focus on its goals. A 2017 Harvard Business Review article reported that, "Entrepreneurs who write formal plans are 16% more likely to achieve viability than the otherwise identical nonplanning entrepreneurs."

Ideally, a business plan should be reviewed and updated periodically to reflect any goals that have been achieved or that may have changed. An established business that has decided to move in a new direction might create an entirely new business plan for itself.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. These include being able to think through ideas before investing too much money in them and highlighting any potential obstacles to success. A company might also share its business plan with trusted outsiders to get their objective feedback. In addition, a business plan can help keep a company's executive team on the same page about strategic action items and priorities.

Business plans, even among competitors in the same industry, are rarely identical. However, they often have some of the same basic elements, as we describe below.

While it's a good idea to provide as much detail as necessary, it's also important that a business plan be concise enough to hold a reader's attention to the end.

While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.

Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.

The length of a business plan can vary greatly from business to business. Regardless, it's best to fit the basic information into a 15- to 25-page document. Other crucial elements that take up a lot of space—such as applications for patents—can be referenced in the main document and attached as appendices.

These are some of the most common elements in many business plans:

• Executive summary: This section introduces the company and includes its mission statement along with relevant information about the company's leadership, employees, operations, and locations.
• Products and services: Here, the company should describe the products and services it offers or plans to introduce. That might include details on pricing, product lifespan, and unique benefits to the consumer. Other factors that could go into this section include production and manufacturing processes, any relevant patents the company may have, as well as proprietary technology . Information about research and development (R&D) can also be included here.
• Market analysis: A company needs to have a good handle on the current state of its industry and the existing competition. This section should explain where the company fits in, what types of customers it plans to target, and how easy or difficult it may be to take market share from incumbents.
• Marketing strategy: This section can describe how the company plans to attract and keep customers, including any anticipated advertising and marketing campaigns. It should also describe the distribution channel or channels it will use to get its products or services to consumers.
• Financial plans and projections: Established businesses can include financial statements, balance sheets, and other relevant financial information. New businesses can provide financial targets and estimates for the first few years. Your plan might also include any funding requests you're making.

The best business plans aren't generic ones created from easily accessed templates. A company should aim to entice readers with a plan that demonstrates its uniqueness and potential for success.

2 Types of Business Plans

Business plans can take many forms, but they are sometimes divided into two basic categories: traditional and lean startup. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

• Traditional business plans : These plans tend to be much longer than lean startup plans and contain considerably more detail. As a result they require more work on the part of the business, but they can also be more persuasive (and reassuring) to potential investors.
• Lean startup business plans : These use an abbreviated structure that highlights key elements. These business plans are short—as short as one page—and provide only the most basic detail. If a company wants to use this kind of plan, it should be prepared to provide more detail if an investor or a lender requests it.

Why Do Business Plans Fail?

A business plan is not a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections to begin with. Markets and the overall economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All of this calls for building some flexibility into your plan, so you can pivot to a new course if needed.

How frequently a business plan needs to be revised will depend on the nature of the business. A well-established business might want to review its plan once a year and make changes if necessary. A new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.

What Does a Lean Startup Business Plan Include?

The lean startup business plan is an option when a company prefers to give a quick explanation of its business. For example, a brand-new company may feel that it doesn't have a lot of information to provide yet.

Sections can include: a value proposition ; the company's major activities and advantages; resources such as staff, intellectual property, and capital; a list of partnerships; customer segments; and revenue sources.

A business plan can be useful to companies of all kinds. But as a company grows and the world around it changes, so too should its business plan. So don't think of your business plan as carved in granite but as a living document designed to evolve with your business.

Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."

U.S. Small Business Administration. " Write Your Business Plan ."

• How to Start a Business: A Comprehensive Guide and Essential Steps 1 of 25
• How to Do Market Research, Types, and Example 2 of 25
• Marketing Strategy: What It Is, How It Works, and How to Create One 3 of 25
• Marketing in Business: Strategies and Types Explained 4 of 25
• What Is a Marketing Plan? Types and How to Write One 5 of 25
• Business Development: Definition, Strategies, Steps & Skills 6 of 25
• Business Plan: What It Is, What's Included, and How to Write One 7 of 25
• Small Business Development Center (SBDC): Meaning, Types, Impact 8 of 25
• How to Write a Business Plan for a Loan 9 of 25
• Business Startup Costs: It’s in the Details 10 of 25
• Startup Capital Definition, Types, and Risks 11 of 25
• Bootstrapping Definition, Strategies, and Pros/Cons 12 of 25
• Crowdfunding: What It Is, How It Works, and Popular Websites 13 of 25
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• A Comprehensive Guide to Establishing Business Credit 15 of 25
• Equity Financing: What It Is, How It Works, Pros and Cons 16 of 25
• Best Startup Business Loans 17 of 25
• Sole Proprietorship: What It Is, Pros and Cons, and Differences From an LLC 18 of 25
• Partnership: Definition, How It Works, Taxation, and Types 19 of 25
• What Is an LLC? Limited Liability Company Structure and Benefits Defined 20 of 25
• Corporation: What It Is and How to Form One 21 of 25
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17.3: Types of Plans

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Learning Objectives

• Identify different types of plans and control systems employed by organizations.

From an activity perspective, organizations are relatively complex systems, as they are involved in numerous activities. Many of these activities require management’s attention from both a planning and controlling perspective. Managers therefore create different types of plans to guide operations and to monitor and control organizational activities. In this section, we introduce several commonly used plans. The major categories are hierarchical, frequency-of-use (repetitiveness), time-frame, organizational scope, and contingency. Table 17.1 provides a closer look at many types of plans that fall in each of these categories.

Hierarchical Plans

Organizations can be viewed as a three-layer cake, with its three levels of organizational needs. Each of the three levels—institutional, administrative, and technical core—is associated with a particular type of plan. As revealed in Table 17.1, the three types of hierarchical plans are strategic, administrative, and operating (technical core). The three hierarchical plans are interdependent, as they support the fulfillment of the three organizational needs. In the organization’s hierarchy, the technical core plans day-to-day operations.

Table 17.1 (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)

Strategic Plans

Strategic management is that part of the management process concerned with the overall integration of an organization’s internal divisions while simultaneously integrating the organization with its external environment. Strategic management formulates and implements tactics that try to match an organization as closely as possible to its task environment for the purpose of meeting its objectives.

Strategic plans address the organization’s institutional-level needs. Strategic plans outline a long-term vision for the organization. They specify the organization’s reason for being, its strategic objectives, and its operational strategies—the action statements that specify how the organization’s strategic goals are to be achieved.

Part of strategic planning involves creating the organization’s mission, a statement that specifies an organization’s reason for being and answers the question “What business(es) should we undertake?” The mission and the strategic plan are major guiding documents for activities that the organization pursues. Strategic plans have several defining characteristics: They are long-term and position an organization within its task environment; they are pervasive and cover many organizational activities; they integrate, guide, and control activities for the immediate and the long term; and they establish boundaries for managerial decision-making.

Operating plans provide direction and action statements for activities in the organization’s technical core. Administrative plans work to integrate institutional-level plans with the operating plans and tie together all of the plans created for the organization’s technical core.

Frequency-of-Use Plans

Another category of plans is frequency-of-use plans. Some plans are used repeatedly; others are used for a single purpose. Standing plans, such as rules, policies, and procedures, are designed to cover issues that managers face repeatedly. For example, managers may be concerned about tardiness, a problem that may occur often in the entire workforce. These managers might decide to develop a standing policy to be implemented automatically each time an employee is late for work. The procedure invoked under such a standing plan is called a standard operating procedure (SOP).

Single-use plans are developed for unique situations or problems and are usually replaced after one use. Managers generally use three types of single-use plans: programs, projects, and budgets. See Table 17.1 for a brief description of standing and single-use plans.

Time-Frame Plans

The organization’s need to address the future is captured by its time-frame plans. This need to address the future through planning is reflected in short-, medium-, and long-range plans. Given the uniqueness of industries and the different time orientations of societies—study Hofstede’s differentiation of cultures around the world in terms of their orientation toward the future—the times captured by short, medium, and long-range vary tremendously across organizations of the world. Konosuke Matsushita’s 250-year plan, which he developed for the company that bears his name, is not exactly typical of the long-range plans of U.S. companies!

Short-, medium-, and long-range plans differ in more ways than the time they cover. Typically, the further a plan projects into the future, the more uncertainty planners encounter. As a consequence, long-range plans are usually less specific than shorter-range plans. Also, long-range plans are usually less formal, less detailed, and more flexible than short-range plans in order to accommodate such uncertainty. Long-range plans also tend to be more directional in nature.

Figure \(\PageIndex{1}\): Digital clocks were installed on the Sapporo TV tower, which was donated by Matsushita Electric Industrial Company, a Japanese electronics manufacturer. This installation was suggested by the founder of the company, Konosuke Matsushita, who thought these digital clocks would draw great attention to the tower. Matsushita is revered as a management thought leader in Japan and favored long-term planning, including 250-year plans. (Credit: Arjan Richerter/ flickr/ Attribution 2.0 Generic (CC BY 2.0))

Organizational Scope Plans

Plans vary in scope. Some plans focus on an entire organization. For example, the president of the University of Minnesota advanced a plan to make the university one of the top five educational institutions in the United States. This strategic plan focuses on the entire institution. Other plans are narrower in scope and concentrate on a subset of organizational activities or operating units, such as the food services unit of the university. For further insight into organizational scope plans, see Table 17.1.

Contingency Plans

Organizations often engage in contingency planning (also referred to as scenario or “what if” planning). You will recall that the planning process is based on certain premises about what is likely to happen in an organization’s environment. Contingency plans are created to deal with what might happen if these assumptions turn out to be wrong. Contingency planning is thus the development of alternative courses of action to be implemented if events disrupt a planned course of action. A contingency plan allows management to act immediately if an unplanned occurrence, such as a strike, boycott, natural disaster, or major economic shift, renders existing plans inoperable or inappropriate. For example, airlines develop contingency plans to deal with terrorism and air tragedies. Most contingency plans are never implemented, but when needed, they are of crucial importance.

concept check

• Define and describe the different types of plans defined in Table 17.1 and how organizations use them.

6.2 Planning

• What are the four types of planning?

Planning begins by anticipating potential problems or opportunities the organization may encounter. Managers then design strategies to solve current problems, prevent future problems, or take advantage of opportunities. These strategies serve as the foundation for goals, objectives, policies, and procedures. Put simply, planning is deciding what needs to be done to achieve organizational objectives, identifying when and how it will be done, and determining who should do it. Effective planning requires extensive information about the external business environment in which the firm competes, as well as its internal environment.

There are four basic types of planning: strategic, tactical, operational, and contingency. Most of us use these different types of planning in our own lives. Some plans are very broad and long term (more strategic in nature), such as planning to attend graduate school after earning a bachelor’s degree. Some plans are much more specific and short term (more operational in nature), such as planning to spend a few hours in the library this weekend. Your short-term plans support your long-term plans. If you study now, you have a better chance of achieving some future goal, such as getting a job interview or attending graduate school. Like you, organizations tailor their plans to meet the requirements of future situations or events. A summary of the four types of planning appears in Table 6.2 .

Strategic planning involves creating long-range (one to five years), broad goals for the organization and determining what resources will be needed to accomplish those goals. An evaluation of external environmental factors such as economic, technological, and social issues is critical to successful strategic planning. Strategic plans, such as the organization’s long-term mission, are formulated by top-level managers and put into action at lower levels in the organization. For example, when Mickey Drexler took over as CEO of J.Crew , the company was floundering and had been recently purchased by a private equity group. One of Drexler’s first moves was to change the strategic direction of the company by moving it out of the crowded trend-following retail segment, where it was competing with stores such as Gap , American Eagle , and Abercrombie and back into the preppie, luxury segment where it began. Rather than trying to sell abundant inventory to a mass market, J.Crew cultivated scarcity, making sure items sold out early rather than hit the sale rack later in the season. The company also limited the number of new stores it opened during a two-year span but planned to double the number of stores in the next five to six years. Drexler led the company through public offerings and back to private ownership before bringing on a new CEO in 2017. He remained chairman with ownership in the company. 4

Catching the Entrepreneurial Spirit

Changing strategy can change your opportunities.

Since 1949, Gordon Bernard, a printing company in Milford, Ohio, focused exclusively on printing fundraising calendars for a variety of clients, such as cities, schools, scout troops, and fire departments. The company’s approximately 4,000 clients nationwide, 10 percent of which have been with the company for over 50 years, generated $4 million in revenue in 2006. In order to better serve customers, company president Bob Sherman invested $650,000 in the purchase of a Xerox iGEN3 digital color press so that the company could produce in-house a part of its calendar product that had been outsourced. The high-tech press did more for the company than simply reduce costs, however.

The new press gave the company four-color printing capability for the first time in its history, and that led the management of Gordon Bernard to rethink the company’s strategy. The machine excels at short runs, which means that small batches of an item can be printed at a much lower cost than on a traditional press. The press also has the capability to customize every piece that rolls off the machine. For example, if a pet store wants to print 3,000 direct mail pieces, every single postcard can have a personalized greeting and text. Pieces targeted to bird owners can feature pictures of birds, whereas the dog owners’ brochure will contain dog pictures. Text and pictures can be personalized for owners of show dogs or overweight cats or iguanas.

Bob Sherman created a new division to oversee the implementation, training, marketing, and creative aspects of the new production process. The company even changed how it thinks of itself. No longer does Gordon Bernard consider itself a printing firm, but as a marketing services company with printing capabilities. That change in strategy prompted the company to seek more commercial work. For example, Gordon Bernard will help clients of its new services develop customer databases from their existing information and identify additional customer information they might want to collect. Even though calendar sales accounted for 97 percent of the firm’s revenues, that business is seasonal and leaves large amounts of unused capacity in the off-peak periods. Managers’ goals for the new division were to contribute 10 percent of total revenue within a couple years of purchase.

• What type of planning do you think Gordon Bernard is doing?
• Because Gordon Bernard’s strategy changed only after it purchased the iGEN3, does the shift constitute strategic planning? Why or why not?

Sources: GBC Fundraising Calendars, http://www.gordonbernard.com/, accessed September 15, 2017; Gordon Bernard Co Inc., https://www.manta.com, accessed September 15, 2017; Karen Bells, “Hot Off the Press; Milford Printer Spends Big to Fill New Niche,” Cincinnati Business Courier, July 15, 2005, pp. 17–18.

An organization’s mission is formalized in its mission statement , a document that states the purpose of the organization and its reason for existing. For example, Twitter ’s mission statement formalizes both concepts while staying within its self-imposed character limit; see Table 6.3 .

In all organizations, plans and goals at the tactical and operational levels should clearly support the organization’s mission statement.

Tactical planning begins the implementation of strategic plans. Tactical plans have a shorter (less than one year) time frame than strategic plans and more specific objectives designed to support the broader strategic goals. Tactical plans begin to address issues of coordinating and allocating resources to different parts of the organization.

Under Mickey Drexler, many new tactical plans were implemented to support J.Crew ’s new strategic direction. For example, he severely limited the number of stores opened each year, with only nine new openings in the first two years of his tenure (he closed seven). Instead, he invested the company’s resources in developing a product line that communicated J.Crew ’s new strategic direction. Drexler dumped trend-driven apparel because it did not meet the company’s new image. He even cut some million-dollar volume items. In their place, he created limited editions of a handful of garments that he thought would be popular, many of which fell into his new luxury strategy. For example, J.Crew now buys shoes directly from the same shoe manufacturers that produce footwear for designers such as Prada and Gucci . In general, J.Crew drastically tightened inventories, a move designed to keep reams of clothes from ending up on sale racks and to break its shoppers’ habit of waiting for discounts.

This part of the plan generated great results. Prior to Drexler’s change in strategy, half of J.Crew ’s clothing sold at a discount. After implementing tactical plans aimed to change that situation, only a small percentage does. The shift to limited editions and tighter inventory controls has not reduced the amount of new merchandise, however. On the contrary, Drexler created a J.Crew bridal collection, a jewelry line, and Crew Cuts, a line of kids’ clothing. The results of Drexler’s tactical plans were impressive. J.Crew saw same-store sales rise 17 percent in one year. 5

Operational planning creates specific standards, methods, policies, and procedures that are used in specific functional areas of the organization. Operational objectives are current, narrow, and resource focused. They are designed to help guide and control the implementation of tactical plans. In an industry where new versions of software have widely varying development cycles, Autodesk , maker of software tools for designers and engineers, implemented new operational plans that dramatically increased profits. Former CEO Carol Bartz shifted the company away from the erratic release schedule it had been keeping to regular, annual software releases. By releasing upgrades on a defined and predictable schedule, the company is able to use annual subscription pricing, which is more affordable for small and midsize companies. The new schedule keeps Autodesk customers on the most recent versions of popular software and has resulted in an overall increase in profitability. 6

The key to effective planning is anticipating future situations and events. Yet even the best-prepared organization must sometimes cope with unforeseen circumstances, such as a natural disaster, an act of terrorism, or a radical new technology. Therefore, many companies have developed contingency plans that identify alternative courses of action for very unusual or crisis situations. The contingency plan typically stipulates the chain of command, standard operating procedures, and communication channels the organization will use during an emergency.

An effective contingency plan can make or break a company. Consider the example of Marriott Hotels in Puerto Rico. Anticipating Hurricane Maria in 2017, workers at the San Juan Marriott had to shift from their regular duties to handling the needs of not only customers, but everyone who needed assistance in the wake of the hurricane that devastated the island. A contingency plan and training for events such as this were a key part of managing this crisis. 7 The company achieved its goal of being able to cater to guest and general needs due to planning and training while having a contingency plan in place. One guest commented on TripAdvisor , “Could not believe how friendly, helpful & responsive staff were even during height of hurricane. Special thanks to Eydie, Juan, Jock, Ashley and security Luis. They kept us safe & were exemplary. Will always stay at Marriott from now on.” 8 Within one month after Hurricane Maria hit, operations were back to normal at the San Juan Marriott . 9

Managing Change

Boeing takes off in new direction.

Boeing and Airbus have been locked in fierce competition for the world’s airplane business for decades. What characterized most of that time period was a focus on designing larger and larger airplanes. Since its development in the 1970s, Boeing revamped its pioneering B747 numerous times and at one time boasted over 1,300 of the jumbo jets in operation around the world. As part of this head-to-head competition for bragging rights to the largest jet in the air, Boeing was working on a 747X, a super-jumbo jet designed to hold 525 passengers. In what seemed to be an abrupt change of strategy, Boeing conceded the super-jumbo segment of the market to its rival and killed plans for the 747X. Instead of trying to create a plane with more seats, Boeing engineers began developing planes to fly fewer people at higher speeds. Then, as the rising price of jet fuel surpassed the airlines’ ability to easily absorb its increasing cost, Boeing again changed its strategy, this time focusing on developing jets that use less fuel. In the end, Boeing ’s strategy changed from plane capacity to jet efficiency.

The new strategy required new plans. Boeing managers identified gaps in Airbus ’s product line and immediately set out to develop planes to fill them. Boeing announced a new 787 “Dreamliner,” which boasted better fuel efficiency thanks to lightweight composite materials and next-generation engine design. Even though the 787 has less than half the seating of the Airbus A380, Boeing ’s Dreamliner is a hit in the market. Orders for the new plane have been stronger than anticipated, forcing Boeing to change its production plans to meet demand. The company decided to accelerate its planned 787 production rate buildup, rolling out a new jet every two days or so.

Airbus was not so lucky. The company spent so much time and energy on its super-jumbo that its A350 (the plane designed to compete with Boeing’s 787) suffered. The 787 uses 15 percent less fuel than the A350, can fly nonstop from Beijing to New York, and is one of the fastest-selling commercial planes ever.

The battle for airline supremacy continues to switch between the two global giants. In 2017, Boeing beat Airbus on commercial jet orders at the Paris Air Show and continues to push forward. A spokesperson has hinted at a hybrid fuselage for midrange planes, which could carry passengers farther at lower costs. If successful, Boeing will regain market share lost to the Airbus A321.

• What seems to be the difference in how Boeing and Airbus have approached planning?
• Do you think Airbus should change its strategic plans to meet Boeing’s or stick with its current plans? Explain.

Sources: Gillian Rich, “Why Boeing's Paris Air Show Orders Are ‘Staggering’,” http://www.investors.com, June 22, 2017; Jon Ostrower, “Boeing vs. Airbus: A New Winner Emerges at the Paris Air Show,” CNN, http://money.cnn.com, June 22, 2017; Gillian Rich, “’Hybrid’ Design for New Boeing Midrange Jet Could Hit This Sweet Spot,” http://www.investors.com, June 20, 2017; Alex Taylor, III, “Boeing Finally Has a Flight Plan,” Fortune , June 13, 2005, pp. 27–28; J. Lynn Lunsford and Rod Stone, “Boeing Net Falls, but Outlook Is Rosy,” The Wall Street Journal , July 28, 2005, p. A3; Carol Matlack and Stanley Holmes, “Why Airbus Is Losing Altitude,” Business Week , June 20, 2005, p. 20; J. Lynn Lunsford, “UPS to Buy 8 Boeing 747s, Lifting Jet’s Prospects,” The Wall Street Journal , September 18, 2005, p. A2; “Airbus to Launch A350 Jet in October,” Xinhua News Agency , September 14, 2005, online; “Boeing Plans Major Change,” Performance Materials , April 30, 2001, p. 5.

Concept Check

• What is the purpose of planning, and what is needed to do it effectively?
• Identify the unique characteristics of each type of planning.

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What are the three levels of strategy in organizations.

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What is corporate strategy, what is business level or business unit strategy, what is functional level strategy, what are the differences between corporate, business unit, and functional strategy.

Strategy is a very broad term and can mean a lot of different things depending on who you talk to. In this article, we will cover strategy through the lens of management consulting based on our experience at Bain, BCG, and McKinsey. In this context, there are three main levels of strategy in an organization:

The corporate level strategy that focuses on the company as a whole and is the overarching strategy.

The business level or business unit strategy that focuses on a specific business unit within the broader organization. If you’re a small organization, then corporate strategy and business unit strategy are often fused together in a single cohesive business strategy.

The functional level strategy focuses on a specific functional area or team, which is often closer to a tactical plan. You can argue that functional strategy is not actually a strategy level in itself, but for completeness, we include it here.

In the following we will cover what these three levels of strategy mean and how they are different.

Apart from these three core levels of strategy, there are various permutations and subcategories of strategy like digital strategy or growth strategy. These are not part of this article but in essence follow the same principles of a corporate or business unit strategy, where you create a plan within a context.

You can also take a look at our blog post “5 Key Elements of a Successful Strategy Document” to get tips and tricks on creating a strategy presentation.

Corporate strategy has many names, including portfolio strategy, organizational strategy, or simply company strategy.

A typical organization is made up of business units (or teams in a smaller company) that act as varying degrees of stand-alone entities. Together, the business units form the corporation, unified by a corporate head office.

The corporate strategy is the overarching strategy for the entire organization. It sets guardrails and direction for business unit strategies and should ideally be a set of objectives and actions that enable the group to create more value than the sum of its parts.  

The famous strategy scholar Michael Porter defines corporate strategy as 

A diversified company has two levels of strategy: business unit (or competitive) strategy and corporate (or companywide) strategy. Competitive strategy concerns how to create competitive advantage in each of the businesses in which a company competes. Corporate strategy concerns two different questions: what businesses the corporation should be in and how the corporate office should manage the array of business units. Corporate strategy is what makes the corporate whole add up to more than the sum of its business unit parts.

The ultimate goal of a corporate strategy is to create a roadmap for sustained value creation across its entire portfolio.

For an in-depth discussion on corporate strategy, see our article " Corporate Strategy: What Is It and How To Do It (With Examples) ". There are five key elements of a corporate strategy:

1. Setting a unified vision and ambition

Your corporate strategy should begin by defining your organization’s mission, vision, and purpose. This provides a unified direction for all subsequent choices in both your existing portfolio of businesses and in where, when, and how to invest in growth or divest assets.

Furthermore, your corporate strategy should include specific goals, both quantitative (externally or market-driven) and qualitative (internally or company-driven), to guide the organization and energize stakeholders.

2. Making portfolio choices

The second key element of a corporate strategy involves conducting a comprehensive portfolio review. This review assesses all the business units, products, or brands within the organization. It determines where to focus efforts, which industries and markets to enter, and how to diversify the product and service offerings.

The goal of your portfolio review should be to identify businesses or assets with the highest strategic potential, either as stand-alone entities or as part of the larger organization. This means making hard decisions on where to acquire, divest, and transform the portfolio, and importantly, how to allocate resources at a high level across business units (i.e. which businesses do you invest in for innovation and growth versus which businesses should be optimized for efficiency and cash-maximization). 

While the allocation of resources is a topic addressed separately in the next section, the portfolio review serves as a blueprint for determining which businesses or assets should be allocated resources.

To conduct a portfolio review effectively, you need a deep understanding of each business unit's current potential and future opportunities and threats, often informed by their individual business unit strategies. You can see more on this under the Business Level Strategy section further down.

The results of the portfolio review are typically presented in a matrix format, with one axis evaluating a business unit's current ability to grow or succeed internally and the other axis assessing the market conditions and external factors affecting the business unit.

3. Allocating resources

The third component of a corporate strategy involves how to allocate resources, particularly financial decisions related to investments in acquisitions, balancing investments with shareholder returns, and distributing resources among various business units or product lines. 

For public companies, this typically entails three primary financial considerations:

A. Capital structure

Capital structure is defined as a company’s mix of debt and equity. On a corporate strategy level, you need to decide how much funding will be allocated across your portfolio and which financial guardrails you want to put in place for that funding.

B. Capital deployment

Once the amount of available funding and associated guardrails are in place, the corporate strategy should allocate that funding across portfolio businesses according to the outcomes of the portfolio review. This typically means investing and acquiring aggressively in businesses or assets that have a lot of strategic potential, and minimizing costs through efficiencies and other optimizations in businesses that have less of a gap to their full potential.

C. Capital markets communication

If you’re a public company (or with external stakeholders like VC funds), then the final piece of your financial strategy is summarizing your other choices in a compelling story that makes strategic sense and should hopefully push your external value up.

4. Maximizing parenting advantages

The fourth element of a good corporate strategy is a thorough discussion of how the corporate entity can maximize each business unit (i.e. making the whole more than the sum of its parts) and consequently what role or form the corporate parent should take to achieve that.

This falls into three categories:

• Best portfolio operator: How can you from a corporate side facilitate cooperation between business units and portfolio companies? Which synergies can be leveraged? How can you share costs? Which customers can be cross-linked?  
• Best owner: How can you add differential value developing and managing the portfolio? How can you best capture value across the different businesses and allocate this to lift the entire portfolio? Which acquisitions and divestments should you make to bring the full organization to a better value creation point?  
• Best culture champion: How can you create energy and mobilize latent talent across the organization? Which values and principles should you instill, and which people should you hire to lead each business on this path?

Create a winning strategy project proposals with insights on writing proposals like McKinsey consultants .

5. Creating the overall roadmap

The fifth and final element of a corporate strategy is laying out an overall roadmap for sustained value creation.

This can be done in more or less detail depending on how involved the corporate parent is in each business unit strategy. But a well-known schema for roadmaps at this level is to break them down into three time horizons: short-, medium-, and long-term.

This typically corresponds to three levels of opportunities: a) immediate opportunities, b) bigger opportunities that need more work to realize, and c) long-term, transformational initiatives and ideas.

Each opportunity should be broken down into initiatives and actions and put together in a cohesive roadmap. The level of detail will become less and less the further out in time the roadmap goes.

Business level strategy is what most people think of when you mention the word strategy .

Business unit or business level strategy focuses on how to create a competitive advantage for that specific business in their specific market. You can also call this a business model strategy, as it often examines the elements of a business model as exemplified in e.g., the Business Model Canvas .

There are many ways to approach business level strategy and each method has its own merits. We would recommend not thinking too much about following a rigid framework, but rather working through your particular strategy in the way that seems most logical to you.

In addition, it helps to distinguish between the process of creating your strategy and creating your subsequent strategy presentation that summarizes that strategy.

Here, we will first go over a simple approach to creating a business level strategy and then briefly touch on translating that to a cohesive strategy document. For more information on how to write a strategy presentation and a template for creating one, see our Business Strategy template .

Defining the starting point

The first step of any strategy process is understanding your point of departure. Without a solid view on your starting point you’ll be operating blindfolded and not taking advantages of your current strengths nor adequately adapting to potential weaknesses or threats.

There are in general three components to creating a clear picture of your starting point and strategic arena:

A. Defining the guardrails of your strategic option space

B. understanding your current situation, c. mapping out your potential areas of growth.

Before you start looking at goals and initiatives for your new strategy, you need to understand your overall playing field. You can think of this playing field along two dimensions; Your strategic and financial degrees of freedom.

Along the strategic dimension, ask yourself questions like:

• To what extent are you playing offence (upside value creation) vs. defence (downside value protection)? And is it the right priority going forward?
• What is the right balance of growth inside and outside your core businesses?
• What is the urgency to pursue opportunities vs. managing downside risk of disruption?
• Do you need to consider radically different strategic directions, or can you stay within your current strategy with optimizations and tweaks?
• How does this fit into the overall corporate strategy?

Along the financial dimension, ask yourself question like:

• How do you define value? What is your value creation goal (and how does this fit into the overall corporate picture)?
• What is your risk appetite?
• What is your time frame?
• How much funding or cash reserves do you have to invest in new initiatives?

The answers to these questions will help you define the perimeters of your strategic option space.

Now that you have a clear picture of the overall playing field you can maneuver in, it’s time to build a baseline of your current situation on which to base your strategy.

This means creating a data-driven overview of where you stand in terms of both your industry and your competitive position now and in the future.

More concretely, you can answer the questions outlined in the picture below:

The final piece of the puzzle when defining your point of departure is understanding your potential areas of growth in terms of new opportunities, or areas where you’re losing market share or revenues in an otherwise stable or growing market.

This can typically be divided into two main buckets where bucket A means optimizing your current business and bucket B means finding new pools of revenue/experimenting with new business models. In consulting speak, you’ll often hear the terms grow (or reinvent) the core and new growth engines to describe buckets A and B, respectively, so we’ll use the same terms here.

Growing (or reinventing) the core

Once you understand your current situation and your strategic arena it becomes easier to identify ways to grow your core. Growing your core in basic terms means doing your current business better. This can be done with classic competitive levers like being cheaper than competitors, becoming more sustainable, optimizing your current processes and value chain to become more efficient and faster, expanding your products and services to include add-ons or adjacent value propositions etc. These are all examples of business level strategies that you can use to create a differentiated, competitive advantage. You can also talk about reinventing your core, where you typically stay within the broader boundaries of your business model in terms of customer segment and industry/area but completely transform the way you serve your customer needs to protect or increase your share of the profit pool (see e.g., this McKinsey article for inspiration).

A great, non-digital example of reinventing the core is the global beer brewery Carlsberg, which has effectively moved into both the artisanal and alcohol-free beer markets in addition to their traditional beers.

Apply the three strategic levels using our Business Strategy template .

Unlocking future growth

However, growing your core business is just one way to create value. The second and equally important bucket is the new growth engine bucket. This essentially means creating new sources of revenue for your business by creating/moving into entirely new products or services (like Amazon’s AWS business).

There are a multitude of great articles and inspiration videos on creating new growth engines and too many . See e.g., this Harvard Business Review article for a discussion on growth engines or this McKinsey article for tips on actually incorporating a growth strategy in your overall process.

Creating your strategy on a page

The final piece of a business level strategy is creating a strategy document that effectively summarizes the BU strategy and allows it to be easily communicated to both employees and across the rest of the organization.

Irrespective of the framework you have chosen to follow, developing a strategy document entails addressing five fundamental questions:

• What is our current situation in terms of our own performance, industry, competition, and the broader macro environment, and how will it affect us in the future? (I.e., a summary of your starting point)  
• Where do we have an existing competitive edge (or high potential for one) in e.g., customer segments, markets, or geographic areas, and how can we enhance this advantage through our solution delivery, differentiation in our value proposition, and the efficiency of our go-to-market approach?  
• What are our primary strategic choices required to establish and maintain these competitive advantages? How do these choices translate into strategic pillar areas and opportunities? What does success in these areas look like?  
• Which strategic initiatives must be implemented to realize these choices and achieve our goals? What organizational enablers or structures are needed to support these initiatives?  
• How do we integrate all of this into a comprehensive plan to ensure we have the appropriate resources and governance in place to drive strategic change effectively?

Examples of what a strategy-on-a-page can look like from our Business Strategy template

For most businesses, strategy essentially means focus – aligning their business model with customer value, competitive differentiation, and improving return on investment. Crafting a strategy often involves deciding what activities to forgo in order to allocate resources to more impactful initiatives. This process also highlights strengths and weaknesses within the business model. By concentrating on specific customer segments and aligning various components, companies can tap into their growth potential.

See our blog post “5 Key Elements of a Successful Strategy” for more practical tips or download our full Business Strategy template to get a jumpstart on your own strategy presentation.

The third and final level of strategy is functional strategy. Functions in an organization typically refer to the teams that are organized around a specific operational element of the business, or individuals in multi-function teams that have specific roles.

You can think of functions as both support functions that run across an organization, e.g., HR, procurement, technical infrastructure, and as functions related to the specific parts of the value chain, e.g., sales, marketing, customer service. Taken together, the collaborative work of the functions are what produce and deliver the value proposition and go-to-market.

The goal of a functional strategy is to best support and enable each business unit within the organization to achieve their strategic potential, while making sure the overall portfolio prioritization is adhered to.

Put simply, your functional strategy level is the strategy that guides the daily efforts of your employees and ensures your organization stays on the right path. Without well-defined functional strategies, your organization can quickly lose momentum and become stagnant while competitors forge ahead.

For larger organizations, it becomes crucial to consider how different functions can contribute to growth and collaborate effectively while adhering to the corporate strategy. Each function or department, including marketing, finance, IT, and operations, has its own set of goals and responsibilities. Establishing visible functional strategies that are consistent and align with the overarching corporate strategy significantly increases the likelihood of success.

Depending on the way your organization and business units are structured, the functional level strategy is sometimes closer to a tactical day-to-day plan (focused on execution rather than direction-setting). Regardless of whether this is the case, is it still important to have a systematic planning process in place for functional strategies to make sure the entire organization is aligned and consistent across strategic ambition, governance, and KPIs.

Enhance your strategic communication with insights on writing action titles like McKinsey .

Functional level strategy examples

Depending on how your company is organized, examples of functional strategies could be:

• HR strategy: HR strategies can range from simple “center-of-excellence”-type strategies where you provide the best systems and processes for businesses to use in their own people departments, to detailed complete HR strategies around recruitment, training, performance management, compensation, retention etc.
• Marketing strategy: Marketing strategies typically focuses on planning and executing marketing campaigns including identifying and understanding target customer groups, understanding the value propositions, and creating and running the actual campaigns or efforts to gain more customers. The larger an organization becomes, the more likely it is that marketing is kept within each business individually.
• R&D strategy: Depending on the industry, you may have a need for a distinct R&D strategy to help determine how resources are invested in creating new products, technologies, and services.
• IT strategy: Oftentimes it makes sense for an organization to have a shared technology infrastructure. Here, and IT strategy means planning for and managing the organization’s technology resources and includes decisions on which systems to use, how to store and manage data, how to address cybersecurity etc.
• Production strategy: You may also have a setup where a shared production facility and infrastructure are most beneficial. In this case, a production strategy often sets goals and initiatives around supply chain management, production planning, quality control, logistics, and inventory management in a way that best support the business units’ strategies.

These are just a handful of examples. Others could be strategies around distribution, sales, partnering or more. It all depends on how big and decentralized your particular organization is set up. If you don’t have specific functional strategies due to size or structure, then they’ll often be implicit in the business level strategy and the individual functional teams will have KPIs and tactical plans related to the business unit strategy.

Delve deeper into strategy formulation with our guide on the 5 Key Elements of Successful Strategy.

Corporate strategy is about your portfolio as a whole, deciding which businesses to be in, how to allocate capital, and how shareholders are rewarded.

Business unit strategy is the classic business model strategy of creating and maintaining a competitive advantage in your specific market. As mentioned, depending on the size of the organization, corporate and business unit strategy may be one and the same.

And finally, functional strategy is the operating level of the organization. Here the strategies are centered around how to best support and enable each business within the portfolio to achieve their strategic potential as outlined in the overall portfolio prioritization.

Building and executing a succesful strategy requires you to make sure all three levels of strategy are aligned and work in tandem. You may not necessarily need each business unit strategy to be mutually exclusive or for business units to have completely different markets etc. (in fact, sometimes you may want to run somewhat competing businesses to both run and reinvent your overall competitive advantage at the same time), but you do want to make sure that both your corporate strategy and functional strategies don’t undermine the efforts of the business unit strategies that are closest to customers and bring in revenues to the organization.

By creating consistent strategies on all three levels you’ll be able to better gain and sustain your overall competitive position and future-proof your organization.

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Module 3: Planning and Mission

The planning cycle, learning outcomes.

• Explain the stages of the planning cycle.
• Explain why the planning cycle is an essential part of running a business.

Organizations have goals they want to achieve, so they must consider the best way of reaching their goals and must decide the specific steps to be taken. However, this is not a linear, step-by-step process. It is an iterative process with each step reconsidered as more information is gathered. As organizations go through the planning, they may realize that a different approach is better and go back to start again.

Remember that planning is only one of the management functions and that the functions themselves are part of a cycle. Planning, and in fact all of the management functions, is a cycle within a cycle. For most organizations, new goals are continually being made or existing goals get changed, so planning never ends. It is a continuing, iterative process.

In the following discussion, we will look at the steps in the planning cycle as a linear process. But keep in mind that at any point in the process, the planner may go back to an earlier step and start again.

Stages in the Planning Cycle

The stages in the planning cycle

Define objectives

The first, and most crucial, step in the planning process is to determine what is to be accomplished during the planning period. The vision and mission statements provide long-term, broad guidance on where the organization is going and how it will get there. The planning process should define specific goals and show how the goals support the vision and mission. Goals should be stated in measurable terms where possible. For example, a goal should be “to increase sales by 15 percent in the next quarter” not “increase sales as much as possible.”

Develop premises

Planning requires making some assumptions about the future. We know that conditions will change as plans are implemented and managers need to make forecasts about what the changes will be. These include changes in external conditions (laws and regulations, competitors’ actions, new technology being available) and internal conditions (what the budget will be, the outcome of employee training, a new building being completed). These assumptions are called the plan premises. It is important that these premises be clearly stated at the start of the planning process. Managers need to monitor conditions as the plan is implemented. If the premises are not proven accurate, the plan will likely have to be changed.

Evaluate alternatives

There may be more than one way to achieve a goal. For example, to increase sales by 12 percent, a company could hire more salespeople, lower prices, create a new marketing plan, expand into a new area, or take over a competitor. Managers need to identify possible alternatives and evaluate how difficult it would be to implement each one and how likely each one would lead to success. It is valuable for managers to seek input from different sources when identifying alternatives. Different perspectives can provide different solutions.

Identify resources

Next, managers must determine the resources needed to implement the plan. They must examine the resources the organization currently has, what new resources will be needed, when the resources will be needed, and where they will come from. The resources could include people with particular skills and experience, equipment and machinery, technology, or money. This step needs to be done in conjunction with the previous one, because each alternative requires different resources. Part of the evaluation process is determining the cost and availability of resources.

Plan and implement tasks

Management will next create a road map that takes the organization from where it is to its goal. It will define tasks at different levels in the organizations, the sequence for completing the tasks, and the interdependence of the tasks identified. Techniques such as Gantt charts and critical path planning are often used to help establish and track schedules and priorities.

Determine tracking and evaluation methods

It is very important that managers can track the progress of the plan. The plan should determine which tasks are most critical, which tasks are most likely to encounter problems, and which could cause bottlenecks that could delay the overall plan. Managers can then determine performance and schedule milestones to track progress. Regular monitoring and adjustment as the plan is implemented should be built into the process to assure things stay on track.

Practice Question

The planning cycle: essential part of running a business.

Following the planning cycle process assures the essential aspects of running a business are completed. In addition, the planning process itself can have benefits for the organization. The essential activities include the following:

• Maintaining organizational focus: Defining specific goals requires managers to consider the vision, mission, and values of the organization and how these will be operationalized. The methods and selected goals can demonstrate that the vision, mission, and values statements are working documents that are not just for show but prescribe activities.
• Encouraging diverse participation: Planning activities provide an opportunity for input from different functions, departments, and people. Some organizations establish planning committees that intentionally include people from diverse backgrounds to bring new perspectives into the planning process.
• Empowering and motivating employees: When people are involved in developing plans they will be more committed to the plans. Allowing diverse input into the planning cycle empowers people to contribute and motivates them to support the outcomes.

PRactice Question

There are several stages, or steps, in the planning process. It is not unusual to have to repeat steps as conditions change. This process is essential to a business to maintain focus, gather diverse opinions, and empower and motivate employees.

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Levels of Strategy in Diversified Companies: Corporate, Business, and Functional

• September 20, 2023
• Business Strategy & Innovation

In the vast landscape of diversified companies, strategic planning takes on many forms, each with its own purpose and scope.

From the lofty heights of corporate strategy to the granular details of functional planning, these levels of strategy intertwine to shape the direction and success of a company.

This article explores the significance of corporate planning, delves into the intricacies of business planning, and uncovers the role of functional planning in the ever-evolving world of diversified companies.

Prepare to embark on a journey through the levels of strategy, where innovation meets analysis and structure breeds innovation.

Table of Contents

Key Takeaways

• Corporate planning involves establishing objectives and goals for the entire organization and determining the resources needed to achieve them.
• Business planning focuses on defining the scope of a division’s activities and setting objectives within that area.
• Functional planning involves developing action programs for each department to implement the division’s strategy.
• The three levels of strategy (corporate, business, and functional) interact with each other to some extent.

Importance of Corporate Planning in Diversified Companies

Corporate planning plays a crucial role in diversified companies by determining the objectives and goals for the entire organization and allocating resources accordingly. This process is essential for implementing business strategy and ensuring the success of the company.

The benefits of corporate planning are numerous. Firstly, it provides a clear direction for the organization, allowing all departments and employees to align their efforts towards common goals. It also helps in identifying opportunities and potential risks, allowing the company to make informed decisions and adapt to changes in the market.

By allocating resources effectively, corporate planning ensures that the company’s various business units are adequately supported and can achieve their objectives. Additionally, it promotes coordination and collaboration between different departments, enhancing efficiency and innovation within the organization.

Understanding Business Planning in Diversified Companies

The process of determining the scope of a division’s activities and setting objectives within that area is an important aspect of business planning in diversified companies. Business planning in these companies helps in defining the specific goals and objectives for each division, which contributes to the overall success of the organization.

There are several benefits of business planning in diversified companies. Firstly, it ensures that each division has a clear direction and purpose, leading to improved focus and efficiency. Secondly, it facilitates better resource allocation and coordination among different divisions, resulting in improved collaboration and synergy.

However, implementing business planning in diversified companies can also pose challenges. These challenges include the complexity of managing and aligning the strategies of multiple divisions, the need for effective communication and coordination among different teams, and the potential for conflicts of interest among divisions.

Overcoming these challenges requires strong leadership, effective communication channels, and a robust planning process that accounts for the unique needs and dynamics of diversified companies.

The Role of Functional Planning in Diversified Companies

Effective coordination and clear objectives are essential in implementing functional planning within diverse organizations. When it comes to executing functional plans in diversified companies, there are several challenges that need to be addressed.

These challenges include:

Communication: Ensuring effective communication across different departments and teams is crucial in executing functional plans. Without clear and open lines of communication, there can be confusion and misalignment in the implementation process.

Resource allocation: Diversified companies often have limited resources that need to be allocated strategically. Allocating resources in a way that supports the execution of functional plans can be a challenge, especially when there are competing priorities and objectives.

Resistance to change: Implementing functional plans often requires changes in processes, systems, and even organizational culture. Overcoming resistance to change can be difficult, as employees may be comfortable with the status quo and reluctant to embrace new ways of doing things.

In order to overcome these challenges and implement functional plans effectively, organizations need to foster a culture of collaboration, provide adequate resources, and actively manage change.

Interactions Between Corporate, Business, and Functional Strategies

To ensure successful implementation of strategies, it is important for organizations to understand how corporate, business, and functional strategies interact with each other.

In diversified companies, aligning corporate and business strategies is crucial for maintaining a cohesive and integrated approach towards achieving organizational goals. Corporate strategies determine the overall direction and scope of the company, while business strategies focus on the specific objectives and activities of each division. By aligning these strategies, companies can ensure that their various businesses are working towards a common purpose.

Additionally, it is essential to balance functional strategies with corporate and business goals. Functional strategies, such as marketing, production, finance, and research, need to support and contribute to the broader strategic objectives of the organization.

This alignment and balance between strategies at different levels are vital for achieving innovation and driving success in diversified companies.

Formal Planning Processes in Diversified Corporations

Large, diversified corporations require a formal planning process in order to facilitate decentralized decision-making and coordinate actions among multiple managers. This process, known as formal planning, involves several techniques that help clarify thinking and provide a structured approach to strategic decision-making.

The use of formal planning techniques allows for a more efficient and effective allocation of resources, as well as the identification of potential risks and opportunities. It also promotes innovation and creativity by encouraging managers to think critically and explore new ideas.

Decentralized decision-making, which is a key component of formal planning, empowers managers at all levels to make decisions that align with the overall corporate strategy and objectives. This approach fosters a culture of innovation and encourages employees to take ownership of their decisions and actions.

Key Aspects of Corporate Planning and Strategy

Acquiring the necessary resources and allocating them among different businesses are key components of corporate planning and strategy. In diversified companies, corporate planning plays a crucial role in achieving long-term success and sustaining growth.

There are several benefits of corporate planning in diversified companies. Firstly, it helps in ensuring that the company’s objectives are aligned with the overall organizational goals. By setting clear objectives and defining the scope of each business, corporate planning enables effective decision-making and resource allocation.

Secondly, it allows for better coordination and integration among different businesses, leading to synergies and economies of scale. However, implementing business planning in diversified companies can also pose challenges. These challenges include managing conflicts of interest among different business units, ensuring effective communication and coordination, and adapting to changing market conditions.

Despite these challenges, effective corporate planning and strategy are crucial for the success of diversified companies. They enable them to leverage their strengths and seize new opportunities in the market.

Components of Business Planning and Strategy

Effective business planning involves defining the scope of a division’s activities and establishing objectives within that area. This process is essential for strategic decision making and ensuring that the division’s efforts align with the overall goals of the organization.

When it comes to business planning and strategy, there are several key components to consider:

Identifying consumer needs: Understanding the needs and preferences of the target market is crucial for developing a business strategy that effectively meets customer demands.

Setting division objectives: Clearly defining the objectives and goals of the division helps guide decision making and focus efforts towards achieving desired outcomes.

Establishing policies: Developing policies that support the division’s objectives and align with the overall corporate strategy is crucial for making informed and effective strategic decisions.

Developing Effective Functional Plans in Diversified Companies

Developing feasible action programs for each department is a crucial aspect of functional planning in diversified organizations. To effectively implement the division’s strategy, it is important to align department objectives with the overall goals of the organization.

This requires developing effective functional plans that outline the specific actions that each department needs to take. By aligning department objectives with the division’s strategy, the organization can ensure that all departments are working towards a common goal and that resources are allocated appropriately.

Developing effective functional plans involves setting clear objectives and goals for each department, and determining the sequence of actions that need to be taken to achieve these goals. It also involves selecting the right programs and initiatives to execute, ensuring that they are feasible and aligned with the overall strategy of the organization.

Frequently Asked Questions

How does the process of formal planning benefit executives in smaller companies or situations that permit informal planning.

The process of formal planning benefits executives in smaller companies or situations that permit informal planning by providing a structured approach to strategic decision-making, clarifying thinking, and facilitating coordinated action among managers.

What Are the Specific Steps Involved in the Formal Planning Process?

The specific steps involved in the formal planning process include clarifying thinking, setting objectives, allocating resources, and establishing policies. This structured approach to strategic planning helps executives in smaller companies or situations that permit informal planning make more informed decisions.

How Do Corporate Objectives Differ From Business Objectives in Diversified Companies?

Corporate objectives in diversified companies encompass the long-term size, scope, and style of the enterprise, while business objectives focus on the division’s activities within a defined area. Strategic alignment ensures that both objectives work together to achieve overall success.

How Does Business Planning Determine the Scope of a Division’s Activities to Satisfy Consumer Needs?

Business planning determines the scope of a division’s activities by analyzing consumer needs and aligning them with the division’s capabilities. Through a structured process, it formulates strategies to satisfy these needs and drive consumer satisfaction.

What Is the Role of Functional Planning in Implementing Division Strategy in Diversified Companies?

Functional planning plays a crucial role in implementing division strategy in diversified companies. It involves collaboration between different departments to ensure divisional alignment and the successful execution of objectives and goals.

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Levels of planning, page actions.

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There are several levels of planning , including:

• Strategic planning : This involves setting long-term goals and objectives for an organization , and determining the best course of action to achieve them.
• Tactical planning : This involves developing specific plans and actions to implement the strategic goals and objectives.
• Operational planning : This involves the day-to-day management and execution of plans and actions to achieve the tactical goals.
• Contingency planning : This involves developing plans and procedures to respond to unexpected events or emergencies that could disrupt operations.
• Emergency planning : This involves developing plans and procedures to respond to an imminent threat or crisis that could have a significant impact on an organization.
• 1 Levels of planning in relation to organizational structure
• 2 Levels of planning in relation to time horizon
• 3 Example structure of plans in a company
• 4 Strategic, tactical, operational planning in detail
• 5 Contingency and emergency planning in detail
• 6 References

Levels of planning in relation to organizational structure

In a corporate structure, the levels of planning can be related to different functional areas and levels of management . These can include:

• Corporate-level planning : This involves setting overall strategic goals and objectives for the entire organization, and determining the best course of action to achieve them.
• Business-unit level planning : This involves developing specific plans and actions for individual business units or divisions within the organization to implement the corporate-level strategic goals.
• Functional-level planning : This involves developing plans and actions for individual functional areas within the organization, such as finance, marketing , or operations, to support the business-unit level goals.
• Operational-level planning : This involves the day-to-day management and execution of plans and actions to achieve the functional and business-unit level goals.
• Contingency and emergency planning : This involves developing plans and procedures to respond to unexpected events or emergencies that could disrupt operations, both at the corporate and functional levels.

Levels of planning in relation to time horizon

The levels of planning can also be related to different time horizons, such as:

• Long-term planning : This involves setting goals and objectives for a time horizon of several years or more, and determining the best course of action to achieve them.
• Medium-term planning : This involves developing specific plans and actions for a time horizon of one to three years to implement the long-term goals.
• Short-term planning : This involves developing specific plans and actions for a time horizon of one year or less to implement the medium-term goals.
• Operational planning : This involves the day-to-day management and execution of plans and actions to achieve the short-term goals.
• Contingency and emergency planning : This involves developing plans and procedures to respond to unexpected events or emergencies that could disrupt operations, regardless of the time horizon.

It's worth noting that different organizations might have different time horizons for their planning, and the specific labels and time frames may vary.

Example structure of plans in a company

The structure of plans in a company can vary depending on the organization's size, industry , and specific needs . However, a typical structure of plans in a company might include the following:

• Corporate-level plans : These plans set the overall strategic direction and goals for the entire organization, and may include a corporate mission statement, vision, values, and long-term strategic objectives .
• Business-unit level plans : These plans provide specific strategic direction and goals for individual business units or divisions within the organization, such as product lines, customer segments, or geographic regions.
• Functional-level plans : These plans provide specific direction and goals for individual functional areas within the organization, such as finance, marketing, or operations.
• Operational plans : These plans describe the day-to-day activities and processes that will be used to achieve the strategic, business-unit, and functional-level goals.
• Contingency and emergency plans : These plans provide procedures and protocols for dealing with unexpected events or emergencies that may disrupt the normal operations of the organization.
• Project plans : These plans provide specific steps and actions to achieve specific goals within a specific time frame, usually for a one-time project or a specific initiative.

All of these plans should be aligned, and work together to achieve the organization's goals and objectives. The structure of plans can also be supported by policies, procedures, and guidelines that provide specific instructions and guidelines for employees to follow.

Strategic, tactical, operational planning in detail

Strategic, tactical, and operational planning are three different levels of planning that organizations use to achieve their goals and objectives.

• Strategic planning : Strategic planning is the process of setting long-term goals and objectives for an organization, and determining the best course of action to achieve them. This level of planning typically involves high-level decision-making and is focused on the overall direction and vision of the organization. It is often done by top management and stakeholders , and it can take into account both internal and external factors that may impact the organization's success.
• Tactical planning : Tactical planning is the process of developing specific plans and actions to implement the strategic goals and objectives. This level of planning is typically focused on a time horizon of one to three years and involves a more detailed analysis of the resources and capabilities needed to achieve the strategic goals. It is often done by middle management and is focused on the specific steps and actions that need to be taken to achieve the strategic goals.
• Operational planning : Operational planning is the process of the day-to-day management and execution of plans and actions to achieve the tactical goals. This level of planning is focused on the short-term and is often done by front-line managers and employees. It involves the management of resources, such as people, equipment, and materials, and the coordination of activities to achieve the tactical goals. This level of planning is often called "business as usual" and is focused on the day-to-day operations of the organization.

It's worth noting that the levels of planning are not always distinct and separate, and there's often overlap and interaction between them. The main goal is to have a clear and aligned set of plans and actions that will help the organization achieve its goals and objectives.

Contingency and emergency planning in detail

Contingency and emergency planning are related but distinct types of planning that organizations use to prepare for and respond to unexpected events or emergencies.

• Contingency planning : Contingency planning is the process of developing plans and procedures to respond to unexpected events or disruptions that could impact the normal operations of an organization. This type of planning is focused on identifying potential risks and vulnerabilities, and developing plans to mitigate or manage them. The goal of contingency planning is to minimize the impact of an unexpected event on the organization and its stakeholders, and to ensure a quick and efficient recovery.
• Emergency planning : Emergency planning is the process of developing plans and procedures to respond to an imminent threat or crisis that could have a significant impact on an organization. Emergency planning is focused on ensuring the safety and well-being of employees, customers, and other stakeholders, and on minimizing damage to the organization's assets and reputation. The goal of emergency planning is to minimize the impact of an emergency on the organization and its stakeholders, and to ensure a quick and efficient recovery.

Both contingency and emergency planning involve identifying potential risks and hazards, developing plans and procedures to respond to them, and conducting training and exercises to test and improve the plans. It also involves involving the right stakeholders, such as employees, customers, and other key partners, in the planning process .

• Dzurik, A.A., Theriaque, D.A., (2003). Water Resources Planning , Rowman & Littlefield.
• Grenning, J. (2002). Planning poker or how to avoid analysis paralysis while release planning . Hawthorn Woods: Renaissance Software Consulting , 3, 22-23.
• Pandey, A.K., (1990). Local Level Planning and Rural Development , Mittal Publications.
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Three Levels of Strategy: Corporate Strategy, Business Strategy and Functional Strategy

Strategy is at the foundation of every decision that has to be made within an organization. If the strategy is poorly chosen and formulated by top management, it has a major impact on the effectiveness of employees in pretty much every department within the organization. In our previous article on ‘ What is Strategy?! ‘ we have already tried to define and explain what business strategy refers to and what is NOT considered to be part of strategy. In this article, we will dissect strategy in three different components or ‘ Levels of Strategy ‘. These three levels are: Corporate-level strategy, Business-level strategy and Functional-level strategy. Together, these three levels of strategy can be illustrated in a so called ‘ Strategy Pyramid ’ (Figure 1). Corporate strategy is different from Business strategy and Functional strategy. Even though Corporate-level strategy is at the top of the pyramid, we start this article by explaining Business-level strategy first.

Figure 1: Three Levels of Strategy Pyramid

Business-level strategy

The Business-level strategy is what most people are familiar with and is about the question “How do we compete?”, “How do we gain (a sustainable) competitive advantage over rivals?”. In order to answer these questions it is important to first have a good understanding of a business and its external environment. At this level, we can use internal analysis frameworks like the Value Chain Analysis and the VRIO Model and external analysis frameworks like Porter’s Five Forces and PESTEL Analysis . When good strategic analysis has been done, top management can move on to strategy formulation by using frameworks as the Value Disciplines , Blue Ocean Strategy and Porter’s Generic Strategies . In the end, the business-level strategy is aimed at gaining a competitive advantage by offering true value for customers while being a unique and hard-to-imitate player within the competitive landscape.

Functional-level strategy

Functional-level strategy is concerned with the question “How do we support the business-level strategy within functional departments, such as Marketing, HR, Production and R&D?”. These strategies are often aimed at improving the effectiveness of a company’s operations within departments. Within these department, workers often refer to their ‘Marketing Strategy’, ‘Human Resource Strategy’ or ‘R&D Strategy’. The goal is to align these strategies as much as possible with the greater business strategy. If the business strategy is for example aimed at offering products to students and young adults, the marketing department should target these people as accurately as possible through their marketing campaigns by choosing the right (social) media channels. Technically, these decisions are very operational in nature and are therefore NOT part of strategy. As a consequence, it is better to call them tactics instead of strategies.

Corporate-level strategy

At the corporate level strategy however, management must not only consider how to gain a competitive advantage in each of the line of businesses the firm is operating in, but also which businesses they should be in in the first place. It is about selecting an optimal set of businesses and determining how they should be integrated into a corporate whole: a portfolio. Typically, major investment and divestment decisions are made at this level by top management. Mergers and Acquisitions (M&A) is also an important part of corporate strategy. This level of strategy is only necessary when the company operates in two or more business areas through different business units with different business-level strategies that need to be aligned to form an internally consistent corporate-level strategy. That is why corporate strategy is often not seen in small-medium enterprises (SME’s), but in multinational enterprises (MNE’s) or conglomerates.

BCG Matrix and Levels of Strategy Video Tutorial

Example Samsung

Let’s use Samsung as an example. Samsung is a conglomerate consisting of multiple strategic business units (SBU’s) with a diverse set of products. Samsung sells smartphones, cameras, TVs, microwaves, refrigerators, laundry machines, and even chemicals and insurances. Each product or strategic business unit needs a business strategy in order to compete successfully within its own industry. However, at the corporate level Samsung has to decide on more fundamental questions like: “Are we going to pursue the camera business in the first place?” or “Is it perhaps better to invest more into the smartphone business or should we focus on the television screen business instead?”. The BCG Matrix  or the GE McKinsey Matrix  are both portfolio analysis frameworks and can be used as a tool to figure this out.

Figure 2: Hierarchy of Strategy

Levels of Strategy In Sum

The most common level of strategy is Business strategy and exist within strategic business units with as goal to gain competitive advantage in a certain market. If a company has multiple SBU’s, there needs to be an overarching Corporate strategy that ties all SBU’s together through corporate configuration. Here, top management must decide on resource allocation and where to invest and where to divest. Lastly, Functional strategy exist within departments such as Marketing, HR and Production. Ideally, we should refer to tactics instead of strategies because of the operational nature of the decisions made within these departments.  

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12 thoughts on “ Three Levels of Strategy: Corporate Strategy, Business Strategy and Functional Strategy ”

I can see how a business wants to build up its cooperation and they want to make sure that they can grow and build and get more revenue. Getting some better strategies to do so and to prevent them from losing money in a crisis with some help from a professional. It was interesting to learn about how there are some better investments and divestments so that they can be integrated into a portfolio.

Great Articles

Well explained with examples.. Thank you Keep posting such an articles

Such a wonderful blog about levels of strategy corporate business functional and I appreciate your effort for bringing this in to notice. Great blog indeed, will visit again future to read more!!

I appreciate your help in bringing this information or strategy and marketing framework to my notice.

A good insight indeed. So it literally means they is no how you can think of your business strategy before you study your environment ?Internal by VRIO,SWOT etc. and external by PESTEL or Porters 5 forces

Well explained the BCG model with suitable example . Thank you for uploading the video. It will be great help for all the students of strategic management. looking towards more such videos on strategic management area.

well simplified

thank you for the well explained BCG matrix, can you also look at Parenting advanrage concept and the Ashridge theory

As a student,I now knows that the ability to learn is an ultimate competitive advantage.Thanks for the simplicity and it’s very nice to invest my energy and time to read such instilling articles.

A commercial effectiveness strategy is critical for every business’s success, but it is especially critical for small businesses. A commercial effectiveness strategy, by definition, is a method for finding and delivering value to consumers through the production and distribution of goods or services.

thank you very much, very helpful information

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The 4 Levels Of Strategy: The Difference & How To Apply Them

Every business leader should be familiar with the different levels of strategy. Like any business, strategy comes in various shapes and sizes. The strategy for a multi-national company will contrast with one from a startup.

Yet, the principles remain. To understand how strategies shift, we'll look at the existing strategy levels and how an organization can apply them.

Ultimately, the biggest takeaway we hope you get from this article is that strategy is for everyone .

You don't have to wait until your business grows to a certain size to “get strategic.” Instead, be conscious of where you are as a business so you can develop your strategy in a way that fits and grows with your organization.

We'll discuss how the strategy levels in an organization differ and provide some context on how to use these different levels of strategy in strategic management .

We’ll also show you how you can centralize your strategy in Cascade and ensure the alignment between the different levels for successful and effective strategy execution!

The Levels Of Strategy

Strategists often refer to three levels of strategy: corporate level strategy, business level strategy, and functional level strategy.

But, they are missing a fundamental level that is key for successful strategy execution: operational level strategy .

We’ll explain the differences and how to apply all four of them in your organization. We also have separate articles on all 4 levels if you're only interested in learning about a certain level.

Corporate Level Strategy

Business level strategy, functional level strategy, operational level strategy.

No matter the level of strategy, "organizations that promote a transparency and collective culture when it comes to strategy, generate a stronger commitment and sense of accountability from their employees." This statement by Guillermo Hermosillo Cue, Global Innovation Director at Burger King in our state of strategy report echoes the importance of strategic communication regardless of the strategy level.

The corporate level strategy is the highest level strategy in an organization.

The corporate strategy defines the organization’s overall direction and the high-level ideas of how to move towards it. These plans are usually created by leadership, such as the CEO and top management.

Generally, this is the group involved because they have a deep understanding of the company and the strategic business knowledge needed to steer the organization in the right direction.

A corporate strategy is generally broader than the other strategy levels. Strategies at this level are more conceptual and futuristic than the other level strategies. They usually span a 3-5 year period.

A corporate strategic plan generally encompasses:

• The core business metrics
• The strategic focus areas
• The corporate goals
• The strategic objectives
• The most important KPIs

⚠️ Important! The corporate level strategy needs to take into account the foundational elements of the organization: its vision statement , mission statement, and company values .

Why create a corporate strategy?

In the corporate strategic plan, you're essentially mapping out where your organization should play.

This master plan sets the stage for developing business-unit-level and functional-level strategies, along with nitty-gritty operational plans.

These strategies, in turn, will guide the downstream decisions made by employees of all levels. Therefore, every decision made in the organization should directly or indirectly contribute to the strategy's corporate objectives.

Every organization needs a corporate strategy. There is no such thing as a too-small organization nor a too-large one to define what they want to achieve and how they will do it.

👉🏻 Grab your free corporate strategy template to follow a structured approach and create your corporate strategic plan.

The business level strategy is the second tier in the strategy hierarchy.

Sitting under the corporate strategy, the business strategy is a means to achieve the goals of the specific business units in the organization.

The initiatives and objectives within each business unit’s strategy will be focused on gaining a competitive advantage in the particular market in which the business unit operates.

There are different types of business level strategies organizations adopt depending on the competitive advantage they want to gain. Organizations face crucial decisions here, with options like adopting a differentiation strategy or embracing a cost leadership approach.

📚 Learn more about the different types of business strategies in our article: What Is A Business Level Strategy? How To Create It + Examples

Each business area must make a strategic decision and define the approach they’ll choose to get closer to their goals.

One thing to note, implementing this strategy level is only useful for organizations with multiple business units. An organization with multiple business units may sell products and services or may sell multiple product lines and services in different industries.

A business level strategy examples

A large bank is a prime example of an organization selling multiple services in different industries.

To name a few, it has business units like retail banking, investment management, and insurance company . Each of these business units would have distinct goals and a distinct business unit strategy to achieve these goals.

📚 Read more: The 7 Best Business Strategy Examples I've Ever Seen

Include middle managers at the business level strategy

Strategies at the business level should be constructed by VPs and —global or regional— business unit heads. However, also including other middle managers within each unit is a best practice.

Including a range of managers from each unit to participate in the strategy process has two main benefits:

• It increases buy-in: Managers who've had a chance to contribute to the strategy formulation feel included in the decision-making. Therefore, they’re more likely to accept the strategy and jump on board with its execution.
• It improves ownership: Employees who are given the opportunity to contribute to the strategy development are more likely to take ownership of its completion.

💡 Pro Tip : If your organization only has one business unit, you don't need to worry about this strategy level—and can skip to the functional strategy level.

👉🏻 Grab your free business strategy template to follow a structured approach and create your business strategic plan.

This level of strategy designs the approach for the different functional areas or departments —we’ve already given you a little spoiler with the previous image of the bank strategy levels example. These functions can include the marketing department, finance, supply chain, manufacturing, human resources, and more.

The primary objective of functional strategy is to align the activities and efforts of these individual departments with the broader goals and objectives set at higher strategic levels, such as business and corporate strategy.

Functional strategy deals with a fairly narrow focus. They are designed to address the unique challenges and opportunities within each functional area.

Your marketing strategy, finance, IT, and other departments all have goals and responsibilities to deliver. Having a visible functional level of strategy that aligns back to the overall corporate strategy will increase the chances of success.

These strategies involve resource allocation , measurable goals, and a focus on continuous improvement, all within the context of individual functions.

The secret to a successful functional level strategy

Now, having each department equipped with a well-defined functional strategy is an excellent beginning. But beware of the pitfalls of isolating each functional area in its own strategy bubble; that's venturing into siloed territory.

There are two pivotal aspects to keep in mind for a successful functional strategy:

• Cross-functional collaboration : The magic happens when different departments join forces. When you foster collaboration between these functions, you open the door to innovation and synergy.
• Strategic alignment : Ensuring that the strategy of each functional area seamlessly matches the overarching organizational goals is the foundation of success.

In Cascade , you can create strategic plans for each function in your organization, which link back to the main corporate plan to ensure everything is moving in the right direction.

"A journey of a thousand miles begins with one step,” as the saying goes.

Check out our strategic planning templates for different functions:

• Marketing Strategy Template
• HR Strategy Template
• Finance Strategy Template
• Supply Chain Strategy Template

📚 Explore thousands of other free strategy templates in our Template Library !

Operational level strategy, situated at the lowest tier of the strategic hierarchy, focuses on the day-to-day actions and tactics needed to run the business, manage processes, and implement change effectively. It’s the “boots-on-the-ground” aspect of strategy, ensuring that plans are translated into tangible actions and results.

In simple terms, this is the strategy that will inform the day-to-day work of employees and will ultimately keep your organization moving in the right direction.

It's primarily concerned with short-term objectives and the practical execution of plans, detailing the specific actions, procedures, and activities that need to be executed to meet organizational goals.

The operational level strategy involves roles like PMOs , team leaders, individual contributors, and team members, and plays a pivotal role in the successful implementation of broader strategies.

It’s probably the most important level of strategy because, without it, your organization can quickly lose traction and “get stuck” while the competition moves forward.

Cascade Strategy Execution Platform improves operational efficiency by eliminating duplication and aligning teams toward common goals. It helps reduce waste caused by misalignment, promoting streamlined operations and optimal performance.

Key characteristics of operational level strategy

• Tactical Execution : Operational strategies focus on executing tactical steps to achieve business objectives, offering a detailed roadmap for execution.
• Short-Term Focus : Geared towards short-term goals and might encompass quarterly, monthly, or even daily activities.
• Resource Utilization : Deals with resource allocation at a detailed level, including workforce management, budget allocation, and technology deployment for specific projects and initiatives .
• Project Management : Operational strategies often include project management to coordinate teams and meet time and budget constraints.
• Feedback and Adaptation : They incorporate feedback loops, allowing adjustments as circumstances change.
• Immediate Impact : Success at the operational level directly contributes to achieving broader business and corporate goals, serving as a linchpin in strategy execution.

The Four Levels Of Strategy Are The First Step

Of course, having a good (or great) strategy isn’t guaranteed success.

But it's definitely the place to start. Understanding the levels of strategy is a big part of getting the creation right. However, with increased levels, there can be increased confusion.

Our dedicated strategy execution platform , Cascade , allows you to centralize your strategy into one central hub. It empowers you to build your strategic plans and visualize how they work together. Easily see how your corporate strategy breaks down into business, functional, and operational plans, all in one cohesive platform.

Cascade simplifies the alignment of projects and encourages collaboration across plans and departments, making strategic execution a breeze.

Sign up to Cascade for FREE or book a demo with one of our strategy experts to learn how you can go from simply writing your plan somewhere static to a more dynamic space that you can share with everyone in your organization—it makes all the difference!

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5.3 Types of Plans

• Identify different types of plans and control systems employed by organizations.

From an activity perspective, organizations are relatively complex systems, as they are involved in numerous activities. Many of these activities require management’s attention from both a planning and controlling perspective. Managers therefore create different types of plans to guide operations and to monitor and control organizational activities. In this section, we introduce several commonly used plans. The major categories are hierarchical, frequency-of-use (repetitiveness), time-frame, organizational scope, and contingency. Table 5.1 provides a closer look at many types of plans that fall in each of these categories.

Hierarchical Plans

Organizations can be viewed as a three-layer cake, with its three levels of organizational needs. Each of the three levels—institutional, administrative, and technical core—is associated with a particular type of plan. As revealed in Table 5.1 , the three types of hierarchical plans are strategic, administrative, and operating (technical core). The three hierarchical plans are interdependent, as they support the fulfillment of the three organizational needs. In the organization’s hierarchy, the technical core plans day-to-day operations.

Strategic Plans

Strategic management is that part of the management process concerned with the overall integration of an organization’s internal divisions while simultaneously integrating the organization with its external environment. Strategic management formulates and implements tactics that try to match an organization as closely as possible to its task environment for the purpose of meeting its objectives.

Strategic plans address the organization’s institutional-level needs. Strategic plans outline a long-term vision for the organization. They specify the organization’s reason for being, its strategic objectives, and its operational strategies—the action statements that specify how the organization’s strategic goals are to be achieved.

Part of strategic planning involves creating the organization’s mission, a statement that specifies an organization’s reason for being and answers the question “What business(es) should we undertake?” The mission and the strategic plan are major guiding documents for activities that the organization pursues. Strategic plans have several defining characteristics: They are long-term and position an organization within its task environment; they are pervasive and cover many organizational activities; they integrate, guide, and control activities for the immediate and the long term; and they establish boundaries for managerial decision-making.

Operating plans provide direction and action statements for activities in the organization’s technical core. Administrative plans work to integrate institutional-level plans with the operating plans and tie together all of the plans created for the organization’s technical core.

Frequency-of-Use Plans

Another category of plans is frequency-of-use plans. Some plans are used repeatedly; others are used for a single purpose. Standing plans , such as rules, policies, and procedures, are designed to cover issues that managers face repeatedly. For example, managers may be concerned about tardiness, a problem that may occur often in the entire work force. These managers might decide to develop a standing policy to be implemented automatically each time an employee is late for work. The procedure invoked under such a standing plan is called a standard operating procedure (SOP).

Single-use plans are developed for unique situations or problems and are usually replaced after one use. Managers generally use three types of single-use plans: programs, projects, and budgets. See Table 5.1 for a brief description of standing and single-use plans.

Time-Frame Plans

The organization’s need to address the future is captured by its time-frame plans. This need to address the future through planning is reflected in short-, medium-, and long-range plans. Given the uniqueness of industries and the different time orientations of societies—study Hofstede’s differentiation of cultures around the world in terms of their orientation toward the future—the times captured by short, medium, and long range vary tremendously across organizations of the world. Konosuke Matsushita’s 250-year plan, which he developed for the company that bears his name, is not exactly typical of the long-range plans of U.S. companies!

Short-, medium-, and long-range plans differ in more ways than the time they cover. Typically, the further a plan projects into the future, the more uncertainty planners encounter. As a consequence, long-range plans are usually less specific than shorter-range plans. Also, long-range plans are usually less formal, less detailed, and more flexible than short-range plans in order to accommodate such uncertainty. Long-range plans also tend to be more directional in nature.

Organizational Scope Plans

Plans vary in scope. Some plans focus on an entire organization. For example, the president of the University of Minnesota advanced a plan to make the university one of the top five educational institutions in the United States. This strategic plan focuses on the entire institution. Other plans are narrower in scope and concentrate on a subset of organizational activities or operating units, such as the food services unit of the university. For further insight into organizational scope plans, see  Table 5.1

Contingency Plans

Organizations often engage in contingency planning (also referred to as scenario or “what if” planning). You will recall that the planning process is based on certain premises about what is likely to happen in an organization’s environment. Contingency plans are created to deal with what might happen if these assumptions turn out to be wrong. Contingency planning is thus the development of alternative courses of action to be implemented if events disrupt a planned course of action. A contingency plan allows management to act immediately if an unplanned occurrence, such as a strike, boycott, natural disaster, or major economic shift, renders existing plans inoperable or inappropriate. For example, airlines develop contingency plans to deal with terrorism and air tragedies. Most contingency plans are never implemented, but when needed, they are of crucial importance.

CONCEPT CHECK

• Define and describe the different types of plans defined in Table 5.1 and how organizations use them.

Source contents: Principles of Management and Organizational Behavior . Please visit OpenStax for more details: https://openstax.org/subjects/view-all

Introduction to Management and Organizational Behavior Copyright © by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

China is flooding markets with a lot of cheap green energy products, and Treasury Secretary Janet Yellen is concerned about what it means for the global economy.

Yellen is set to speak at the Suniva solar cell factory in Norcross, Georgia on Wednesday, where she is expected to address concerns about China's export strategy.

"China's overcapacity distorts global prices and production patterns and hurts American firms and workers, as well as firms and workers around the world," a copy of Yellen's remarks reviewed by the New York Times said. "Challenges for individual firms can lead to concentrated supply chains, negatively impacting global economic resilience."

Related stories

After suffering a sweeping property crisis, China is jump-starting its trying to jumpstart its economy with a strong industrial push, incentivizing investment in the manufacturing sector. And that policy shift includes a focus on clean energy. A recent report from the New York Federal Reserve shows the country is seeing a notable redistribution of credit, with a swift rise in new "green loans."

Last year, China's ballooning clean energy industry contributed to 40% of the country's economic growth.

But that comes with consequences. Yellen's remarks warn that this is history repeating itself, like when China overinvested in steel and aluminum, which promoted economic growth in the country but forced the industry in the rest of the world to contract.

This trend has already been manifesting in markets like that for solar panels. Solar panel prices have plunged 50% because of a substantial oversupply. In Europe, a glut of Chinese imports have pushed one of their largest solar module production sites to close. According to the IEA, China is set to account for 85% of the expansion of solar-module manufacturing capacity by 2028. 

"It is important to the president and me that American firms and workers can compete on a level playing field," the excerpts reportedly said. "We have raised overcapacity in previous discussions with China, and I plan to make it a key issue in discussions during my next trip there."

Watch: Why China launched military drills during Nancy Pelosi's visit to Taiwan

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