1. Please define levels of strategy.

Corporate strategy deals with issues related to the portfolio mix of businesses held by a multibusiness organisation/corporation. Figure below shows how these three levels of strategy apply to
Rio Tinto, the international resources corporation. Rio Tinto has several different main businessesiron ore, copper, gold, energy, aluminium, diamonds and others. Corporate strategy within Rio Tinto
deals with issues such as:

What portfolio of businesses does Rio Tinto want to be in? What is its corporate view of what
type of organisation it wants to be?

How does this particular portfolio create more value for Rio Tinto than an alternative
portfolio?

How much resource should be given to each business?

What performance returns should Rio Tinto expect from each business?

Figure :Levels of strategy

Business strategy deals with how one particular organisation positions itself relative to its
competitors to create sustainable competitive advantage within its industry. Most strategic issues
exist at the business level. When managers use the term 'strategy', they often mean `business
strategy'. If a business is part of a multi-business corporation, it must consider how it competes
relative to its competitors and also in terms of the desires of the wider corporation of which it is a
part. For instance, business strategy at Rio Tinto deals with issues within each of the businesses- iron
ore, energy, copper, etc. Business strategy is constrained at Rio Tinto by the corporate strategy. Rio
Tinto's corporate strategy (which is the rationale for its particular portfolio) is to be a worldwide
leader in finding, mining and processing mineral resources, delivering high shareholder returns while
operating in an ethically and socially responsible manner, and being committed to long-term
sustainable development. For Rio Tinto Iron Ore, this means that the business, which is heavily
based in Australia, must globally explore for iron ore, seeking to be one of the largest iron ore
competitors, with efficient exploring, mining and processing, while considering the social and
environmental impact of its operations wherever they are. Growth and profitability are highly
desirable, but it must also manage a much wider set of organisational goals. Questions thus emerge:

Should Rio Tinto Iron Ore grow?

What customers should it sell to and where should it sell?

How should Rio Tinto Iron Ore compete in the world iron ore industry? What sustainable
competitive advantage should it seek to compete on?

What position should it aim to hold in the industry?

Functional strategy deals with how each function of the business will contribute towards achieving
the business strategy that has been set. Within businesses there are also business units- for example,
the Singapore business unit, the multimedia business unit and the order-processing team. Strategy for
such units is similar to what has traditionally been called functional strategy. The three levels of
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strategy should be consistent with each other. Functional or unit strategy within a business such as
Rio Tinto Iron Ore is constrained by both the corporate and business strategies. Since Rio Tinto Iron
Ore wanted to become one of the world's largest, profitable and sustainable iron ore businesses,
functional strategy for Rio Tinto Iron Ore would need to consider issues such as:

Where should Rio Tinto Iron Ore produce its product?

What exploration systems would be most effective for exploring for iron ore on a global
basis?

What marketing systems would be most appropriate for marketing iron ore on a global basis?

How should Rio Tinto Iron Ore accounting systems work to fit in with Rio Tinto's corporate
accounting needs?

The three levels of strategy within an organisation should be consistent with each other. When you
hear people talking about 'strategy', however, you need to determine which level of strategy they are
talking about. When we use the term 'strategy' in this book, we will primarily be referring to
'business strategy' issues. Unfortunately, the clear breaks between these three levels are more
theoretical than practical. Most businesses of any size have more than one product range and/or more
than one legal structure. They may consider themselves a 'corporation' even if there is one very
dominant business which determines most of the strategy for the organisation. Increasingly, we also
find that the concepts and thinking of business strategy are being applied at the functional and unit
strategy level. If a function or unit can be outsourced, it needs to have a business orientation to
demonstrate its value to the business. Consequently, there is some blurring of the distinctions
between these levels in practice, but the concepts are useful to apply as much as possible.

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