MBA Session 7Corporate Strategy

Knut Haanæs, Ph.D

Associate Professor

Norwegian School of Management - BI

Corporate Strategy

Intro to corporate strategy

Issues of corporate strategy

AT&T case and role play

Levels of strategy

Portfolio Synergies

Competitive position

Product-portfolio

Value creation

CORPORATESTRATEGY

BUSINESS UNIT

STRATEGY

FUNCTIONAL STRATEGY

MarketingFinanceHRLogisticsProduction

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 activities.” Collis and Montgomery 1998: 72

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

Issues of corporate strategy

AT&T case and role play

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 - 1993-94The 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 teamOverall strategy and

performance

Top management teamOverall strategy and

performance

EquipmentProduction of telecom and

data equipment

Bell Labs R&D, consulting and advanced

solutions

Telecom SevicesOperations of worlds largest

telecom network

External consultantsSupport top management

Business Units5 key actions to improve

profitability 20% and #1 in 2 years

Identify critical future competencies

Corporate managementLook for synergiesKeep holistic perspectiveReduce overheads from 33% to

23% in 2 years

Corporate Strategy

Intro to corporate strategy

Issues of corporate strategy

AT&T case and role play

Four approaches to corporate strategy

• Portfolio• Competencies• Value creation• Competition

Where do we find synergies? Where are costs?

First, the Portfolio approach

Competitive position

Indu

stry

att

ract

iven

ess Good Medium Weak

High

Med.

Low

Winner Winner ?

Winner Average business unit

Looser

Profitcreator

Looser Looser

Hit

t et a

l. (1

996)

Traditional portfolio approach

Allocate financial resources

Identify business units that fit the market

Classify regarding attractivity and position

Identify the right strategy for each b.u. (harvest, invest, etc.)

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

Core product 1

Core product 2

Competense

Competence

Competence

3

Produkter

21

SBU SBU SBU

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

Fourth, competition

Operatører

Inpu

t fac

tor

com

petit

ion

Industry development

High

LowTIME

Schumpeterinnovasjon

Contractors

CreatorsCreators

Operators

Independence Control

Autonomy Sharing

Responsiveness Integration

Synergies Subsidies

Examples of corporate tensions

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