Corporate strategy is defined as those strategies concerned with the broad and long-term questions of what business the organization is in or wants to be in and what it wants to do with those businesses.
A single-business organization is one that operates primarily in one industry.
A multiple-business organization is one that operates in more than one industry.
Corporate strategy establishes the overall direction in which the organization hopes to go. The other organizational strategies, functional and competitive, provide the means or mechanisms for making sure the organization gets there.
Possible strategic directions for organizations include moving the organization ahead, keeping the organization where it is, or reversing the organization’s decline. The possible strategies for these directions are growth, stability, and renewal.
A growth strategy is one that involves the attainment of specific growth objectives by increasing the level of an organization’s operations.
Types of growth strategies include the following:
- Concentration strategy: The organization concentrates on its primary line of business and looks for ways to meet its growth objectives through increasing its level of operations.
- Vertical Integration strategy: This is an organization’s attempt to gain control of its inputs, its outputs, or both.
- Horizontal integration strategy: The organization expands its operations through combining with other organizations in the same industry.
- Diversification strategy: An organization expands its operations by moving into a different industry. Diversification can either be related or unrelated.
- International: An organization can go international as it pursues growth using any of the other corporate growth strategies.
There are three general approaches the organization takes as it goes international:
- The multidomestic approach is one in which the organization would implement its global expansion strategy by decentralizing operational decisions and activities to each country in which it operates and by tailoring its products and services to each market.
- The global approach involves the organization providing more standardized products and using significantly integrated operations.
- The transnational approach is how the organization strives to achieve both global efficiency through globally integrating operations and product differentiation through tailoring products and services to the local market.
An organization can enter a foreign market by exporting, licensing, franchising, or direct investment.
The following are mechanisms for implementing corporate growth strategies:
- Mergers and acquisitions.
- Internal development.
- Strategic partnering.
A merger is a legal transaction in which two or more organizations combine operations through an exchange of stock, but only one organization entity will actually remain. Mergers usually take place between organizations that are similar in size and are usually friendly.
An acquisition is an outright purchase of one organization by another. The purchased organization is completely absorbed by the purchasing organization. Acquisitions are usually between organizations of unequal sizes and can be friendly or hostile.
A takeover is a hostile acquisition in which the organization being acquired does not want to be acquired. In fact, the target of a takeover often will take steps to prevent it. Research has shown that the popularity of mergers and acquisitions as a strategic growth mechanism seems to go in cycles.
With internal development, the organization chooses to expand its operations by starting an entirely new business. The choice between internal development and mergers/acquisitions depends on the following:
- The new industry’s barriers to entry.
- The relatedness of the new business to the existing one.
- The speed and development costs associated with each approach.
- The risks associated with each approach.
- The stage of the industry life cycle.
Strategic partnering is when two or more organizations establish a legitimate relationship by combining their resources, distinctive capabilities, and core competencies for some business purpose.
There are three types of business partnerships:
- Joint venture, in which two or more separate organizations form a separate independent organization for strategic purposes.
- Long-term contract, in which two or more organizations establish a long-term legal contract covering a specific business purpose.
- Strategic alliance, in which two or more organizations share resources, capabilities, or competencies to pursue some business purpose.
The stability strategy is a corporate strategy in which the organization maintains its current size and current level of business operations.
The stability strategy might be a good strategic choice if the organization’s industry is in a period of rapid upheaval, if the industry is facing slow or no growth opportunities, and if it has just completed a frenzied period of growth.
During stability, the organization does not expand the level of its operations. It will not put new products on the market, develop new programs, or add production capacity. Organizational resources, capabilities, and core competencies can change during periods of stability—they just do not expand.
Renewal strategies are used to reverse organizational decline and put the organization back on a more appropriate path to successfully achieving its strategic goals.
Types of renewal strategies include the following:
- Retrenchment strategy: This is a common short-run strategy designed to address organizational weaknesses that are leading to performance declines.
- Turnaround strategy: This is an organizational renewal strategy designed for situations in which the organization’s performance problems are more serious.
Both organizational renewal strategies are implemented through cost cutting and restructuring. In cost cutting, the organization’s strategic managers cut costs to revitalize the organization’s performance or save the organization. Restructuring involves various actions that refocus the organization.
Several types of restructuring include the following:
- Divestment, the process of selling off a business to someone else where it will continue as an ongoing business.
- Spin-off, involving setting up the business unit as a separate business through a distribution of shares of stock.
- Liquidation, shutting down the business completely.
- Reengineering, the fundamental rethinking and radical redesign of the organization’s business processes.
- Downsizing, in which individuals are laid off from their jobs.
- Bankruptcy, the failure of a business that involves dissolving or reorganizing the business under the protection of bankruptcy legislation.
Once the corporate strategy has been implemented, it should be evaluated and changed if necessary. Without evaluation, strategic managers would not know whether the implemented strategies were working.
Evaluation techniques include the following:
- Efficiency: The ability of the organization to minimize the use of resources in achieving organizational objectives.
- Effectiveness: The organization’s ability to complete or reach goals.
- Productivity: A specific measure used in the production–operations–manufacturing area that takes the overall output of goods and services produced divided by the inputs needed to generate that output.
- Benchmarking: The search for the best practices from other leading organizations that are believed to have contributed to their superior performance.
- Portfolio analysis: Two-dimensional matrices that summarize internal and external factors, including the product–market evolution matrix.
If the evaluation of corporate strategies shows that the strategy is not having the intended results, it may be time to make some changes.
The following are indicators of the need for changes:
- Growth objectives are not being attained.
- Organizational stability is causing the organization to fall behind.
- Organizational renewal efforts are not working.