Corporate strategy is the way a company creates

value through the configuration and coordination

of its multimarket activities
Presented By: Group 5
- Collins & Montgomery, 1997.
Anoop Srivastava-MP14017
Awdhesh Kumar Kaushal-MP14020
Ayan Lahiri-MP14021
Jai Kishan Indiwar-MP14027
Prabhas Kumar-MP14036

Defining Corporate
Strategy
Corporate Strategy is the way a company creates value
through the configuration and coordination of its multimarket activities
The definition has three important aspects:
Value Creation - the generation of superior financial performance
(rents) from multi-market activities that create corporate
advantages
Configuration - the multi-market scope of the corporation
(product/market diversification, geographic focus, and vertical
boundaries)
Coordination - the management of activities and businesses that
lie within the corporate hierarchy
Source: Collis and Montgomery, Corporate Strategy, 1997

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
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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.

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 SBUs,
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 CEOs 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.

Goal of Corporate Strategy:

Corporate Advantage
The goal of corporate strategy is to build corporate
advantage so as to earn above normal returns
analogous to a competitive advantage in a business unit

Three tests of the existence of corporate advantage:

Does ownership of the business create benefit somewhere in
the corporation? (Does parentage matter?)
Are those benefits greater than the cost of corporate overhead?
Does the corporation create more value with the business than
any other possible corporate parent or alternative governance
structure?
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Levels of Strategy
Business Strategy (competitive strategy) is concerned with how a
firm competes within a particular market
Corporate strategy is concerned with where a firm competes.
Business-Level Strategy (competitive strategy)
How to create competitive advantage in each business in which the
company competes:
low cost leadership
differentiation
focus low cost/ focus differentiation

Business (or Competitive) Strategy is concerned with the use of

resources and capabilities to create competitive advantages in each of
businesses or industries in which a company competes

Corporate-Level Strategy (companywide strategy)

Corporate (or Company-wide) Strategy is the overall plan for a multibusiness unit company.
Corporate strategy is what makes the corporate whole add up to more
than the sum of its business unit parts

Corporate Strategy:
Three Fundamental Issues
1. Can the corporation create economic value by changing its scope?
(Rent-generating opportunities)
Diversification
Vertical integration
Geographic expansion

2. Should activities be undertaken inside the corporation, or accessed

through contracts, joint ventures, alliances, or other institutional
arrangements? How should the corporation grow?
3. How should the corporation be structured and managed to enhance
the combined value of its individual business units?
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A Framework for Corporate

Strategy

O
S
E

R
U

B
U
S

ES

VISION
GOALS &
OBJECTIVES

IN

ES
S
ES

ROLES OF CORPORATE
OFFICE
STRUCTUR
SYSTEMS
PROCESS
E

ES

CORPORATE ADVANTAGE (CA)

CA = (quality of elements, internal & external consistency, mutually

The Concept of Resource

Continuum

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The Resource Continuum

(continued)

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The Resource Continuum

(continued)

Public Goods

Private Goods

May be used in a number of

production processes without
dminishing their value or
availability; e.g. Brand names;
know-how

Usage diminishes
value or availability;
e.g. human
resources,
machines, etc.

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The Resource Continuum

(continued)

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Premises of Corporate
Strategy
Competition occurs at the business unit level
corporations dont compete; only their business units do
value is created at the business unit level, it is only added at the
corporate level
Successful corporate strategy must grow out of and reinforce competitive
strategy

Corporate Strategy inevitably

constraints to business units

adds

costs

and

Corporate overhead and costs of communication between HQ and SBUs

bureaucratic costs, costs of coordination, costs of monitoring

Shareholders can readily diversify themselves

Shareholders can diversify their own portfolios of stocks, and they can
often do it more cheaply with less risk than corporations
Shareholders can buy shares at market prices and avoid paying large
acquisition premiums

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Implications from these

Premises

Corporate Strategy cannot succeed unless it truly

adds value to business units:
by providing tangible benefits that offset costs of lost
independence
economies of scope in operations
economies of scale in administration and internal financing

add value to shareholders in a way that shareholders could not

replicate by themselves

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Three Well Aligned

Strategies

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THANK YOU

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