Corporate Strategy
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The essence if strategy is choosing what not to do.
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Michael Porter
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However beautiful the strategy,
you should occasionally look at the results.
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Sir Winston Churchill
Business strategy (aka competitive strategy) is aimed at generating over-performance compared to other players in the same industry (or competitive arena). Fundamentally competitive strategy addresses two questions:
Why will the firm win customers (e.g. how to lower prices and/or pro- vide unique value that customers couldn’t get elsewhere ?)
How will the firm deliver value (what are the resources & capabilities needed ? How can the firm obtain them ?)
Corporate strategy on the other hand, is different in so as it aims at figuring out how to compete in several industries at once. The essence of corporate strategy is to better exploit and/or enhance existing firm’s resources.
How competing across several industries allow to leverage and exploit the firm’s current resources and capabilities ? i.e. How to do more of the same ?
How entering a new line of business will help the firm learn and enhance its current resources and capabilities. i.e. How to do something different ?
Firms are facing three types of key issues:
Competitive Strategy How to position each specific business in relation to competitors? How to allocate resources to the various activities of the firm, so that it can sustainably over-perform its competitors in the various arenas where it operates and create more value for its shareholders?
Portfolio Management Which industries and markets to pursue? Should the company cease some of its activities and refocus its businesses ? Should it develop new business areas?
Growth options Should the firm privilege organic developments, seek for acquisitions or set up strategic alliance? Which is the most adequate, subject to the type of move and capability gap?
This section introduces some frameworks and concepts that are useful to appreciate the challenges of Corporate Strategy. It sheds some light about how to tackle three issues:
Business boundaries What degree of diversification and vertical integration.
Parenting Why should a firm own a business? Is the firm creating more value than would any alternative owner?
Resource Allocation How to distribute resources among the various businesses?