Business strategy questions that you should be asking

Instead of benchmarking your strategic performance against competitors, the questions that you should be asking yourself are:

Are we doing everything we can to maximize our company’s wealth over the foreseeable future?

Are we doing the “right” things?

Are our businesses in the right market position?

Are we pursuing the right “strategic” growth opportunities?

Are there other ways to grow?

As long as you are shooting to get the best return from your resources, the question of whether you end up over- or under-performing against competitors, or if your profits come from markets that are close or away from your core, becomes irrelevant to your strategy.

See Understanding Business Strategy for a more comprehensive view of this subject.

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Corporate Strategy vs Business-level Strategy

In a company that owns a single business unit the goal of its strategy is fairly straightforward: to maximize the business’s valuation over the foreseeable future.

But when we try to apply that definition to a company that owns multiple business units, the boundaries of its strategy may no longer be clear.

While the difference between a “corporate strategy” and a “business-level strategy” may seem evident and to some extent trivial, keeping a clear distinction between the two is necessary for a good understanding of your strategy. Let’s explain.

To start, most of the concepts typically associated with strategy such as competition, market forces, and disruption usually refer to the strategy of a particular product or business unit.

But when we talk about a “corporate strategy”, we are referring to a set of guidelines that govern the behavior of a company that owns more than a single business unit.

While each unit must have its own strategy set at the business level, to take into account the particularities of its market and incumbents, a Corporate Strategy must still be set at the “mothership” level to guide the general behavior of the corporation as a whole and of each of its business units.

Take Florida-based NextEra Energy (NYSE: NEE), an American power company that serves markets in the US and Canada.

The company has several subsidiaries, among them: NextEra Energy Resources (NEER), a power generation business; Florida Power and Light (FPL), a power utility company; NextEra Energy Partners (NYSE: NEP), a publicly traded company that owns and operates wind and solar projects in the US; NextEra Energy Transmission (NEET), a company that builds and operates power transmission assets in the US; and NextEra Energy Services (NEES), an electricity retailer serving residential and commercial customers across the US. All are under control of NextEra Energy Capital Holdings (NECH) with the exception of FPL.

Each of these subsidiaries is treated by NextEra Energy as an individual business unit, and because they operate in different markets each must set its own business strategy, under the guidance of the general corporate strategy set at the top.

Why having a corporate strategy is so important?

In a multi-business corporation such as NextEra, its executives will seek to maximize its value as a whole, even if that means sacrificing some of its business units to favor others that are more promising or strategic.

For example, at a given point in time, their strategy may suggests that it is better to reinvest profits from a strong business, that happens to be in a dying industry, onto a weak unit that’s getting traction in a fast-growing market, rather than trying to protect the market position of the dying business. 

Because the goal of its business strategy is the maximization of the organization’s value as a whole, its executives must sometimes pursue this type of cross-business optimization, even if that means achieving suboptimal results in a particular business unit.

Think about corporate strategy as a general set of rules that seeks to maximize profitability at the corporate level by running individual “business units” which operate within particular markets.

Because each market is different, each unit needs its own “business strategy”.

From that idea we can also see how a “business” strategy must be designed to co-exist with the “corporate” strategy set at the top.