What is the strategic hierarchy?

 

When you study a marketing textbook, often the concept of the strategic hierarchy is discussed in the chapter covering marketing strategy. This model is designed to demonstrate that different strategic decisions are made at different levels in large corporations. (Please note the that strategic hierarchy concept is only applicable to large firms.)

So what is the strategic hierarchy? In simple terms, the strategic hierarchy is a model that attempts to highlight the types of strategic decisions made at corporate, strategic business unit (SBU) and functional management levels.

The strategic hierarchy model is most applicable to large organizations that operate multiple businesses, such as General Electric. The model suggests that different management levels of these large organizations concern themselves with different aspects of strategy.

 

 

 

What is the strategic hierarchy?

strategy hierachy model

The above model shows the basic model of strategic hierarchy for a large corporation running multiple businesses. There are three levels shown in the model; the corporate level, the strategic business unit (SBU) level, and the functional level. Strategic business units (SBUs) are individual firms that operate under a common ownership of one company.

As an example of strategic business units, Yum! Brands, Inc. is the largest fast-food operator in the world (in terms of outlets) with over 38,000 restaurants. Their strategic business units (SBUs), or their individual businesses, are Pizza Hut, KFC, Taco Bell, WingStreet, as well as several smaller fast-food chains. The combination of a corporation’s SBUs is referred to as their business portfolio.

Each of these strategic business units would be operated by different management teams and, in many cases, would be direct competitors. Each of these firms would have their own finance department, marketing department, and so on. These are all described as functional areas, which is the third level of the strategic hierarchy model.

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Examples of decisions made at different levels of the strategic hierarchy

An example of what is the strategic hierarchy using GE.