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Corporate Strategy: a

Resources-based Approach
Chapter 1 – An Introduction to Corporate Strategy
“Corporate strategy is the way a
company creates value through
the configuration and
coordination of its multimarket
activities”
Collis and Montgomery

Lecture 1 © Furrer 2002-2008 2


The Need for Corporate Strategy
• Most industrial activity in developed countries is carried out by large
corporations which compete in more than one market.
• In the United States, 60% of assets are controlled by multibusiness
companies (Villalonga, 2003). In Europe, the percentage is about the
same (Pedersen and Thomsen, 1997).
• On average these firms engaged in over 10 different lines of business.
• Due to the dominant role these firms play in economic activity, it is
likely that most of you, regardless of their chosen career paths, will at
some point either work for, advise, or compete with a multibusiness
corporation.
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The Need for Corporate Strategy
• The nature of these large corporations has undergone enormous change in
the last forty years, affecting both their scope and their structure.
• The merger and acquisition booms of the sixties and eighties extended the
scope of existing multibusiness corporations.
• More recently, capital market pressures forced every corporation to
reassess its portfolio of businesses, level of overhead, and the way it
coordinates and controls its multibusiness activities.
• New forms of corporate organization, such has the LBO partnerships of the
eighties, provoked a debate about the efficacy of corporate hierarchies. In
addition, new institutional arrangements, such as joint ventures, alliances
and franchising have come to prominence.
The Need for Corporate Strategy
• In response, normative prescriptions for corporate strategy have been
varied as the challenges multibusiness corporations have faced.
• From an emphasis on financial performances and EPS growth in the sixties,
through managing the corporation as a ‘portfolio’ of SBU’s, and searching
for ‘synergy’ between business units in the seventies; to the emphasis on
‘free cash flow’ and its corollary ‘shareholder value analysis’ in the eighties,
recommendations, such as the strident call to break up corporate
organizations or ‘stick to the knitting,’ have pulled CEO’s in many conflicting
directions.
• Not surprisingly, only a few corporations have made through the last forty
years intact. Of the Fortune 500 in 1950, only 262 firms were still on the list
in 1980.
Pressure for Shareholder Value
• 1970s: Little • 1990s: Intense
• Growth at any cost • Active shareholders
• Weak rivals • Active boards
• Fragmented, passive shareholders • Global product markets
• Ineffective boards • Global capital markets

• 1980s: Increasing • 2000s: Rethinking


• Restructuring pathological • Accounting scandals
portfolios • Corporate governance
• Takeover premiums increase (Sarbanes-Oxley Act)
• Global markets retreat
What is Corporate Strategy
• A Diversified Company has 2 Levels of Strategy :
• Business-Level Strategy (Competitive Strategy)
• How to create competitive Advantage in each business in which the company competes
• Low cost
• Differentiation
• Integrated low cost/differentiation
• Focused Low Cost
• Focused Differentiation
• Corporate-Level Strategy (Company-wide Strategy)
• How to create value for the corporation as a whole
Corporate Strategy Concerns 2 Key
Fundamental Questions:

What businesses should the corporation be in?

How should the corporate office manage the array of


business units?

Corporate Strategy is what makes the corporate whole


add up to more than the sum of it business unit parts
Definition
• “Corporate strategy is the way a company creates value through the
configuration and coordination of its multimarket activities”

• This definition has 3 important aspects:


• Value Creation as the ultimate purpose of corporate strategy.
• The focus on the multimarket scope of the corporation (Configuration),
including its product, geographic, and vertical boundaries.
• The emphasis on how the firm manages the activities and businesses that lie
within the corporate hierarchy (Coordination).
A Framework for Corporate Strategy

VISION

GOALS & OBJECTIVES

ROLES OF CORPORATE OFFICE


STRUCTURE SYSTEMS PROCESSES

CORPORATE ADVANTAGE (CA)

• CA = ƒ (quality of elements, internal & external consistency, mutually reinforcing)


Resources
• The first side of the strategy deals with resources. Much of corporate
strategy is concerned with resources.
• Human, capital and physical resources are the foundation of any firm.
Having particular resources can allow a firm to be successful; for
example having access to skilled laborers or possessing specialized
machinery can provide the firm with a competitive advantage in the
marketplace.
• Corporate strategy involves recognizing necessary resources and then
gaining access to them, either by creating them internally or acquiring
them externally.
Businesses
• The second side of the triangle deals with businesses. These, in the
corporate strategy triangle, are the various business activities that a
firm engages in.
• A firm may engage in one area of business -- like Wal-Mart, which
only operates retail stores -- or several different businesses, like
General Electric which is involved in everything from finance to light
bulbs.
• A corporate strategy must decide which businesses to focus on,
whether they should be diversified or focused, and if they should be
few or many.
Structure, Systems and Processes
• The final side of the triangle is the firm's structure, systems and
processes. In essence, these refer to how the business operates, how
it is organized and how it completes the tasks that it does.
• This can be a critical key for the success of a strategy.
• Nike, for instance, is a company that has become hugely successful
because it has focused on developing its marketing processes.
Vision, Beliefs and Goals
• The interior of the triangle consists of vision, beliefs and goals. These
are the real core of corporate strategy.
• These three factors all influence the three sides of the triangle. For
instance, if the firm has a vision of becoming a large multinational
player, then it will need to gain international resources.
Corporate Strategy: An Historical Perspective
• Origins of the Modern Corporation
• The Multidivisional Corporation
• Postwar Patterns of Diversification
• The Conglomerates
• Downsizing, Outsourcing, and Restructuring
• Diversification in Emerging-Market Economies
• Beyond the Trends