MBA Session 7
Corporate Strategy
Knut Haanæs, Ph.D
Associate Professor
Norwegian School of Management - BI
Corporate Strategy
Intro to
corporate
strategy
AT&T case
and
role play
Issues of
corporate
strategy
Levels of strategy
CORPORATE
STRATEGY
Portfolio
BUSINESS Competitive
position
UNIT
STRATEGY
FUNCTIONAL
STRATEGY
Synergies
Productportfolio
Value
creation
Marketing
Finance
HR
Logistics
Production
Corporate Strategy
“In each case, executives were focusing on
individual elements of corporate strategy:
resources, businesses, or organization. What
was missing was the insight that turns those
elements into an integrated whole. That
insight is the essence of corporate
advantage—the way a company creates
value through the configuration and
coordination of its multibusiness
Collis and Montgomery 1998: 72
activities.”
Rationale for Corporate
Strategy
The total value of the combined
businesses is higher within the
corporation than if each business was
operated independently outside the
corporation (or in another corporation)
Corporate Strategy
Intro to
corporate
strategy
AT&T case
and role play
Issues of
corporate
strategy
AT&T - 1993-94
Network services are obliged to
purchase equipment and
consulting services internally,
also when outside companies
offer superior value. Sometimes
you are stuck with «second best»
solutions in terms of
infrastructure.
AT&T - 1993-94
Bell Labs struggle with showing
integrity vis-à-vis potential clients;
often competitors of the telecom
operator. This means that you do not
get a number of the projects for which
you are best qualified (in terms of
competencies).
AT&T - 1993-94
The equipment manufacturer is
accused of prioritizing the internal
operator, not providing the optimal
service and products to «outside»
customers. This means that your
external market is restricted in terms
of potential customers, and that you
do not reach efficient scale despite
the substantial size of the internal
AT&T market.
AT&T - 1994-94: Role play
Top management team
Overall strategy and
performance
Equipment
Production of
telecom and
data equipment
Bell Labs
R&D, consulting
and advanced
solutions
External
consultants
Support top
management
Telecom Sevices
Operations of
worlds largest
telecom network
Business Units
5 key actions to improve
profitability 20% and #1 in 2 years
Identify critical future competencies
Corporate management
Look for synergies
Keep holistic perspective
Reduce overheads from 33% to 23% in
2 years
Corporate Strategy
Intro to
corporate
strategy
AT&T case
and role play
Issues of
corporate
strategy
Four approaches to
corporate strategy
•
•
•
•
Portfolio
Competencies
Value creation
Competition
Where do we find synergies?
Where are costs?
Good
High
Med.
Low
Winner
Winner
Profit
creator
Medium
Winner
Weak
?
Average
business unit
Looser
Looser
Looser
Competitive position
Hitt et al. (1996)
Industry attractiveness
First, the Portfolio
approach
Traditional portfolio
approach
Identify business units that fit
the market
Classify regarding attractivity
and position
Identify the right strategy for
each b.u. (harvest, invest, etc.)
Allocate financial resources
In which industries
do we compete?
How strong is our
position and how
attractive is the industry?
Should we invest more
or less?
How much money
should we invest?
Assumptions behind
portfoilo approaches
• Strategic resources assumed to be allocated
and mobile
• Independence between business units
• Economics-based strategy perspective
Allocating money
Konsern
SBU
SBU
SBU
Second, competency
approach
Produkter
SBU
SBU
SBU
Core product 1
Core product 2
Competense
1
Competence
2
Competence
3
Assumptions behind
competence- based
corporate strategy
• Companies different because of resources
• Dependence between business units
• Critical resources built over time through
activities
• Intangible resources mobilized
Third, sharing activities
Input factor competition
Fourth, competition
Schumpeter
High innovasjon
Operators
Operatører
Contractors
Creators
Low
TIME
Industry development
Examples of corporate
tensions
Independence
Control
Autonomy
Sharing
Responsiveness
Synergies
Integration
Subsidies
Four ways to influence
value
•
•
•
•
Stand alone influence
Linkage influence
Central functions and Services
Corporate Development
Campbell, et al. 1995
Examples of potential
sources of synergy
•
•
•
•
•
•
•
•
Scale economies
Financing / funding
Management
Information
Resources
R&D
Reputation
Vision / mobilization