Organizational Strategy

Organizational Strategy Definition

Organizations consider diverse organizational strategies to meet their goals and initiate strategic plans to choose the most suitable one for their business.

Often, the three most potent resources incorporated into an organizational strategy are capital, labor, and inventory. Besides, business activities include marketing, sales, production, finance, and infrastructure.

Organizational Strategy Importance

Why do organizations need appropriate organizational strategies? The reasons are vast.

Firstly, an organizational strategy can help organizations clearly define their business direction and set their priorities.

Secondly, an organization's strategy motivates all employees toward a common business goal. In other words, an organizational strategy can unite a company's workforce and align them with business targets.

Further, an organizational strategy can simplify the business's complex decision-making process as companies can prioritize their actions based on pre-determined strategic goals and plans. Besides, as the entire company knows what to strive and aim for, the chances are that they work more productively and are less likely to leave their projects.

Fig. 1 - Organizational strategy guides business directions

Levels of Organizational Strategy

Essentially, there are three levels of organizational strategy, which are corporate-level strategy, business-level strategy, and functional strategy.

A corporate-level strategy represents the strategic plan for the highest corporate level, which can determine general business goals and specific goals for lower levels in the organizational hierarchy.

At one level lower than corporate level strategy, a business level strategy informs how a business plans to gain advantages in a specific market. For instance, a business-level strategy demonstrates a company's plan for competing, positioning, and mastering the market.

At an even smaller micro-level, departments such as the sales, marketing, or finance department within a company need their functional level strategy to steer their goals and directions.

Organizational Strategy Types

Nowadays, there are three organizational strategy components companies utilize to develop their strategy frameworks: innovation, cost minimization, and imitation. Accordingly, there are three popular organizational strategy types corresponding to the three components: innovation strategy, cost-minimization strategy, and imitation strategy.

Organizational Strategy: Innovation Strategy

Which strategy will your company use when it needs significant product and service innovation? Consider an innovation strategy that sets business goals in researching and developing superior new products and services.

Commonly, business innovations are based on technological advances. Yet, there are still successful cases of innovating business processes. Generally, there are four main types of business innovation: routine innovation, disruptive innovation, radical innovation, and architectural innovation.⁵

Also, sometimes, big and breakthrough ideas do not simply happen in business. Instead, creativity and innovativeness often arise out of specific environments and procedures designed by companies.

Organizational Strategy: Cost-minimization Strategy

If your company is undergoing a severe financial crisis or a phase of increasing its asset turnover, a cost-minimization strategy turns out to be beneficial. A cost-minimization approach involves minimizing spending, tightly controlling business costs, avoiding unnecessary expenses, and reducing selling prices.

On the one hand, a cost-minimization strategy can give companies various financial advantages such as lower unit costs, higher profit margins, higher total revenues, and better cash flows. On the other hand, a cost-minimization strategy may make the business unable to deal with unexpectedly increasing demands or a weak competitive advantage in R&D.

Organizational Strategy: Imitation Strategy

As its name suggests, a company with an imitation strategy develops new products or enters new markets once other innovators have proven the products' or markets' viability. For example, a technology firm may consider entering the Asian market after witnessing the successful entry of other giant companies in the industry.

Compared to an innovation strategy, an imitation strategy saves companies more time and money invested in the R&D process. Further, an imitation strategy is less risky for businesses, given that market or product viability has been validated.

Fig. 2 - Organizational strategy initiates organizational changes

Organizational Strategy Examples

What are some examples of real-life organizations leading the above-mentioned three organizational strategies? Read the following section to see how companies apply such strategies in real-life contexts.

Organizational Strategy: Cost-minimization Strategy and IKEA

Have you ever wondered why IKEA can keep its products at consistently low prices? The company's effective cost-minimization strategy focuses on reducing manufacturing costs and limiting R&D overhead expenses.

Organizational Strategy: Limiting R&D overhead expenses

IKEA takes pride in its reverse design process. Accordingly, the company first defines the prices of the expected products before determining the corresponding R&D budget and starting the design process.⁶ Traditionally, a design process takes place in the opposite order, in which companies develop designs and prototypes before setting up prices and calculating costs.

Organizational Strategy: Reducing Manufacturing Costs

At IKEA, the flat-packaging process has been implemented since 1956.⁶ In flat packaging, IKEA only sells furniture in parts instead of as a whole. Thus, products can be packed in flat pieces, which are easier to package, saving transportation costs and maximizing customers' customization.

Further, IKEA mainly performs bulk production of its furniture.⁶ For each design, IKEA produces a bulk quantity of it. By doing this, IKEA can negotiate discount rates for bulk purchases of raw materials while paying for a one-time production cost instead of fragmented costs incurred by multiple production times.

Organizational Strategy: Innovative Strategy and Google

Being a globally recognized corporation, Google is renowned for its continuous influx of innovation led by its innovative strategy.

How does Google manage to introduce hundreds of major new products and services every year? The recipe lies in the long-standing eight pillars of innovation at Google, which has allowed the business to ease into the world of unlimited innovation. The eight pillars are as follows:⁷

1. Have a mission that matters

2. Think big but start small

3. Strive for continual innovation, not instant perfection

4. Look for ideas everywhere

5. Share everything

6. Spark with imagination, fuel with data

7. Be a platform

8. Never fail to fail

Thus, when implemented appropriately, an organizational strategy can create enormous advantages for organizations in improving operational excellence, guiding future directions, and benchmarking markets. While there is no best strategy for every business, the successful recipe lies in the wise alignment of the business' resources and capabilities with an appropriate strategy and the ability to execute such strategy eventually.