3.1. The Company As a System of Strategies
One of the most common technical problems that companies encounter when defining their strategy is that they are unsure of how to integrally, clearly, and systematically reflect their relatively complex situation in their strategy (this applied to relatively small companies as well.) Another problem is the uncertainty of how and when to incorporate different aspects and areas of business into their strategy.
These are the practical issues that can be resolved when a company divides its activities into inter-connected and hierarchically arranged strategies using a top-down approach (Saloner, Shepard, Podolny, 2001, Hanzelkova et al., 2009, Keřkovský and Vykypěl, 2009), which is based on formulating a strategy from the top down. First, it is necessary to identify the overall, general strategic limits using a corporate strategy and then develop individual strategic aspects of the company using other strategies - i.e. business strategies, and strategies for individual functions that the company must carry out - marketing and sales, human resources, purchasing, or logistics, productions, finance, information technology etc. A re-working of your company as a system of strategies is pictured in the diagram below.
Strategy Formulation vs. Strategic Thinking
When applying a top-down approach, it is necessary to differentiate between strategy formulation and strategic thinking. A top-down approach is an effective method in defining and formulating your strategies. The recommended outline for individual strategies can serve as inspiration for your company, so that you can consider specific aspects of your strategy. The thought process for strategy formation is not a linear one. In fact, efforts to formulate a top-down approach that is too structured can limit your strategic thinking.
What are the main advantages of using a top-down approach when formulating your strategy?
- It gradually approaches all basic strategic aspects for your company’s operations – reducing the risk that certain essential strategic areas will be neglected in the strategy formation process.
- It Defines a wide range of strategic limits using a corporate strategy and gradually develops this strategic direction, thereby increasing your chances that various strategic areas (marketing, sales, production, logistics etc.) will work together and contribute to the fulfillment of the company’s general strategy.
- When different strategic areas are inter-connected, it reduces the risk of duplication of activities in your company.
