3H Strategy & International Business 2001/02
Session 18: Corporate Strategy - An Integrative Framework
Over the past eight sessions we have explored a number of aspects of multi-business,
or corporate, strategy. In this session these separate aspects are brought together as an
integrated whole in order that the inter-relationships can be seen more clearly.
Directions Revisited
In session 10 we saw how the separate dimensions of products and markets could be
combined in the Ansoff Matrix to describe a range of corporate development
directions. In their discussion of these alternative directions, Johnson and Scholes
also mentioned the importance of developing the competence base of the
organisation. Increasingly, organisations see themselves in terms of business
processes that can help to create value or competitive advantage. Consequently,
when we move to the corporate level and attempt to define development directions,
these business processes can be added to the dimensions of products and markets.
The original Ansoff Matrix sees development directions very much in terms of
discrete boxes. However, it is often useful to see them as directional vectors, moving
increasingly away from the known (consolidation) to the unknown (unrelated
diversification), combining elements of movement in both products and markets.
Withdrawal can also be seen as a move in the opposite direction. This can simplify
the original matrix into a single dimension:




moving from withdrawal;
through existing developments (consolidation and market penetration);
related developments (product and market development to related
diversification);
unrelated developments (conglomerate diversification).
It now becomes easier to see developments in business processes along the same
scale. For example, a university business school may engage new academics (an
internal method of development) in order to widen its knowledge base in an
emerging area like health service management – a related direction of development
from knowledge in other management contexts.
Combining Directions and Methods
We have already discussed the relationship between directions and methods. Given
the discussion above, these can be outlined as follows:
Mergers &
Acquisitions
METHODS
Strategic
Alliances
Internal
Methods
Withdraw
Existing
Related
Unrelated
DIRECTIONS
(Products/Markets/Processes)
As we have seen, each direction can be linked to any of the methods of development
e.g. using a management buyout (a form of acquisition) to withdraw from a
particular business.
Approaches to Synergy and Management Styles
Over the last two weeks I have outlined the different approaches to creating synergy
and management styles that are available to multi-business organisations. I would
argue that these approaches and styles are merely the flip sides of the same coin. One
side shows what the corporation intends to achieve, whilst the other side shows how
this can be done. Each approach to synergy suggests a particular style of management
in terms of the way in which strategy is developed and controlled.
The devolved management style of financial control is best suited to a corporation
financial synergy through a portfolio approach. In contrast, the top-down “master
planner” style of strategic planning will assist in the development of synergies
through core competences that cross business unit boundaries. The “strategic
shaper” style of strategic control encourages co-operation between business units,
and between the centre and the business units, this is consistent with the creation of
linkages and the recognition that competition still rests at an SBU level.
This can be summarised in the following table, combining each approach to synergy
and management style into what I term a corporate management logic:
Approach
Portfolio
Management Style
Financial Control


Linkages
Strategic Control




Core
Competences
Strategic Planning



Comments
SBUs define and manage strategy with
tight financial targets set by centre.
Centre aims to provide a better
investment performance through
selective investment.
Portfolios can be very diverse.
SBUs largely develop strategy, but
centre aims to shape and co-ordinate
plans, setting financial & fairly tight
strategic targets.
Create linkages between businesses to
support and build competitive
advantage.
Limited range of 3 or 4 core
businesses.
Centre drives strategy around a theme,
co-ordinating actions of business units
who concentrate on implementation.
Centre responsible for creating and
managing core competences that are
exploited across business units.
Limited number of core products.
An interesting implication of this argument is that, whilst the context in which the
corporation operates may well determine the range of logics which are appropriate,
the choice may be quite wide - with all three broad stereotypes available. The
Burmah Castrol Chemicals Group shows any of the three logics could have been
adopted – with the group actually choosing the strategic control/linkages logic.
Combining the Elements
The Burmah Castrol Chemicals Group case also highlights the way in which future
corporate developments and the scope of the organisation are likely be influenced
by the view taken by senior managers on the appropriate style and associated
approach to synergy. In effect, managers build up an underlying logic of how their
corporate world operates, in terms of the way to create and manage synergy. This
governs their reasons for developing in particular directions, using particular methods,
and the overall extent of the corporation. This can be illustrated in the following way:
acquisitions
core competences/
strategic planning
alliances
linkages/strategic control
Logic/style
internal
portfolio/financial control
withdraw
existing
related
unrelated
Directions
Products/markets/processes
Taking each logic separately, some of the implications can be outlined:

A Portfolio/Financial Control company is likely to develop into unrelated
products/markets/processes in order to diversify risk and build a balanced
portfolio. Consequently, the scope of their business is likely to be large.
Frequently growth will be by acquisition, with the decision likely to rest on
whether managers believe that they can turn the acquired business into a star.

A Linkages/Strategic Control company is likely to develop into the same or
related products/markets/processes, with questions about acquisition targets or
opportunities to enter strategic alliances related to the opportunities to share
activities and skills with other parts of the organisation. The corporation is likely
to concentrate upon no more than three or four core businesses, allowing the
centre to gain enough understanding of the businesses to spot the opportunities for
linkages.

A Core Competences/Strategic Planning organisation will favour moves into
areas involving the same or related business processes, where there are
opportunities to build upon or exploit core competences. Such organisations may
well favour alliances over acquisitions, as means of accessing new sources of
competences. The scope of the organisation is likely to be restricted to two or
three core products and their related core competences.
This model lay at the heart of the last tutorial question. The choice of acquisitions as
a method of development and the directions in which these developments were
intended to lead were both a function of the logic (approach/style) with underpinned
the organisation’s view of the challenges of corporate strategy.