● Corporate strategy is the set of choices that diversified corporations make to create and capture value across their businesses over time. It’s a crucial driver of financial performance for multi-business enterprises.
● The effective reallocation of resources across business units is the single biggest driver of revenue growth.
● To create and capture economic value. Unless executives have a shared understanding of the relationships between corporate headquarters and the business units and among different businesses, they risk talking past one another when discussing strategy.
● Corporate strategy emphasizes how the corporate parent assembles its portfolio of businesses and how it adds value to each business unit.
When assessing where your
company lies in terms of the link-
age between corporate and
business units, focus on
capabilities and resources (such
as the ability to develop new
products or brand) that are critical
to creating and capturing
economic value. If corporate
shared services (for example,
human resources, legal, or
accounting) could be
easily outsourced, they aren’t
strategic — just convenient. The
key question isn’t whether
business units run independently
of corporate but the extent to
which they could.
The Business Unit-Business Unit
Linkage (shown on the horizontal
axis of “Defining the Four Logics
of Corporate Strategy”) represents
how dependent the business units
are on one another to create and
capture value. At the left are
companies such as General
Electric and Tata Group whose
portfolio companies run
independently of one another. At
the other end of the spectrum are
companies such as IBM, where the
different business units (in this
case, consulting, software,
hardware, and financing) need to
work together to provide
integrated solutions to customers.
Combining the dimensions into
a two-by-two matrix results in
four distinct ways to think about
corporate strategy:
- Portfolio: “Portfolio” logic guides
- traditional conglomerates such as
- GE and Tata Group as well as
- private equity firms such as KKR &
- Co. and The Blackstone Group.
- Leverage: Companies whose
- business units make heavy use
- of the corporate brand, techno-
- logy, and other expertise such
- as Trader Joe’s and Burberry
- pursue a “leverage” logic.
- Federal: The “federal” logic includes
- loose confederations of businesses
- that band together to pass business
- to one another, jointly lobby
- regulators, or share best practices,
- all without a powerful corporate
- parent. Examples include Star
- Alliance in airlines and The Leading
- Hotels of the World in lodging.
- Integrative: The “integrative” logic
- describes companies in which
- business units rely both on corpo-
- rate assets and one another to
- succeed. For example, Walt
- Disney theme parks, movie
- studios, consumer products, and
- children’s television divisions all
- use the company’s iconic brands
- and characters to increase
- customers’ willingness to pay,
- and they generate revenues by
- cross-promoting and selling
- one another’s products.
How do leaders know which logic
applies to their company?
Answering the questions in
“Assessing the Logic of Your
Corporate Strategy” will help you
place your company on the matrix.
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