Corporate Strategy

1. 3 Elements of Corporate Strategy: Resources, Businesses, Organization

Corporate strategy is guided by how the company will create value.

1. Corporate Advantage: The way a company creates value through the configuration and coordination of its multi-business activities. In a great corporate strategy, all 3 elements are aligned to each other. The nature of the alignment depends on the nature of the firm’s resources – specific assets, skills and capabilities.

1. The Triangle of Corporate Strategy:

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Great corporate strategies come from each side of the triangle being strong –

1. High Quality Resources
2. Strong Market Position in attractive industries
3. Efficient Administration in the organization

              Moreover, linkage between each side of the triangle must be strong –

1. When corporate’s resources are critical to success of individual businesses, it creates competitive advantage
2. When organization is able to leverage the resources to businesses, synergy and coordination is achieved
3. Corporate appraisal and reward systems in businesses create strategic control

1. The Resource Continuum:

The nature of any company’s resources range along the continuum, and the position of the company on this continuum determines which businesses it should compete in and the limits the design of the organization along the dimensions below (coordination mechanisms, control systems etc.). This view of corporate strategy suggests that businesses should compete in industries where resources required are similar, and the design of the organization should be based on the nature of the resources.

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1. Should Corporate Resources be Shared or Transferred:

1. Public Goods: Resources which can be used in several businesses simultaneously without conflict (Brand)
2. Private Goods: Resources which can lead to competition and conflict between SBUs (common sales force)
3. Public goods can be transferred and shared easily, without requiring too much coordination or intervention at the corporate level. The problem lies in the control of use of these goods, as it is important to preserve the value and ensure that one unit does not destroy it. Accountability for the resource is also a problem.
4. Sharing or transfer of private goods requires much more coordination, as one resource is shared by multiple businesses. Therefore, use by one SBU may affect other SBUs.

1. Financial Control:

Managers of SBUs are held accountable for a limited number of objective output measures (growth of sales, ROI etc.). This type of control is appropriate for mature and stable industries and for discrete business units. Incentives are provided on basis of the financial performance of the business unit only. This type of control gives a lot of power to the corporate centre and autonomy of individual businesses may be sacrificed. However, it requires a smaller corporate centre, as less staff is required to coordinate with SBUs.