Concepts of Corporate Strategy [Briefly Explained]
For large corporations, corporate strategy is more concerned with managing a portfolio of businesses. For example, the corporate level strategy involves decisions about which business units to grow, resource allocation among the business units, taking advantage of synergies among the business units and mergers and acquisitions. Several authors define corporate strategy.
Definitions of Corporate Strategy
According to Hamermesh (1986):
“Corporate strategy is the determination of the businesses or sectors in which a company will compete and the allocation of different resources among those businesses and sectors.”
According to Andrews (1987):
“Corporate strategy is the pattern of decisions in a company which determines, shapes and reveals its objectives, purposes, and goals; which produces the principal policies and plans for achieving these goals; which defines the business that the company intends to be in, and the sort of organization that it intends to be in pursuit of this.”
From the above definitions, the corporate strategy appears to describe an organization’s overall direction in terms of its general attitude toward growth and the management of its various businesses and product lines. Porter describes four concepts of corporate strategy-portfolio management, restructuring, transferring skills, and sharing activities. Each of these concepts of corporate strategy allows a diversified company to create shareholder value differently. Each concept of corporate strategy is not mutually exclusive.
Read | Concept of Strategy & The Need For Strategy
A company can have a restructuring strategy simultaneously as it transfers skills or shares activities with other business units.
4 Main Concepts of Corporate Strategy
The main concepts are presented briefly below:
- Portfolio Management
- Restructuring
- Transferring Skills
- Sharing Activities
1. Portfolio Management:
One of the most used concepts of corporate strategy is portfolio management which is based primarily on diversification through acquisition. A corporation acquires a sound, attractive company with a competent manager who agrees to stay on. The acquired company remains autonomous, and the people working in it are rewarded based on their performance. The acquiring corporation focuses on developing professional management in the acquired company.
2. Restructuring
With this concept of corporate strategy, the preference for restructuring is given to underdeveloped, sick or threatened organizations. These organizations are on the threshold of significant changes. Restructuring efforts are required to make changes in their prevailing work systems such as technology, change management teams, improve business units’ functions, etc. However, restructuring effort requires a highly dedicated and experienced corporate management team with the insight to spot undervalued companies or positions in industries ripe for transformation.
3. Transferring Skills
Transferring skills is related to developing and exploiting relationships among the autonomous units. The value chain concept is important to understand the concept of transferring skills. The value chain refers to collecting many organizational activities that help businesses compete. There are mainly primary and supporting activities in the value chain. Primary activities are involved in the physical creation of a product, its delivery, and after-sale services.
In contrast, support activities are inputs and infrastructure that allow the primary activities to occur. Each business unit has a separate value chain. Activities. in the value chain are reinforcing, interrelating, and supporting each other by transferring skills from one business unit to another. For example, one business unit’s promotional and packaging skills can be transferred to other business units.
4. Sharing Activities
With this concept of corporate strategy, companies are sharing activities in the value chain to gain low costs from competitive activities. Some companies share common distribution facilities and sales forces to market their products. The more activities in the value chain are shared, the more possibility of gaining a competitive advantage by lowering operational costs. To gain more cost advantages from sharing activities, a company has to concentrate on the coordination of its activities properly. Sharing can further reduce costs if it achieves economies of scale, boosts utilization efficiency, or helps a company move rapidly down the learning time.
