External drivers impacting a business (analyzed with tools like Estelle and Porter's Five Forces)
Internal drivers and sustainable competitive advantage (Resource-Based View)
Today's Topics
Corporate Level Strategy: Definition and tools available for managers.
Review of strategies using Baumann's Strategy Clock
Designing strategic direction over time
Managing a portfolio of activities
Understanding Corporate Level Strategy
Business Unit Definition:
A business unit supplies goods or services for a distinct domain of activity.
Synonyms: Division, profit center, organizational unit.
Diversified Corporations:
Examples include Nestlé with multiple business units focusing on fictional products, beverages, and dairy.
Each business unit has its own strategy and profit responsibility.
Baumann's Strategy Clock
Key Features:
Focus on customer prices rather than organizational costs. Prices are more visible and easier for comparison than costs.
Clock design allows for continuous choices compared to Porter's distinct strategies of cost leadership and differentiation.
Incremental Adjustments:
The Strategy Clock allows movement between positions 1 and 6 from low price to differentiation, allowing for hybrid strategies.
Feasibility and Failure Zones:
Strategy Clock identifies six zones of feasible strategies and three zones likely to lead to failure.
Positions on the Strategy Clock
Position 1 (Low Price, Low Utility):
Example: Save-a-Lot, which offers standard products at low prices without frills.
Position 2 (Low Price but Added Value):
Example: EasyJet maintaining lower prices with similar benefits to competitors.
Example: Walmart—success derived from high volumes allowing for low margins.
Position 3 (Hybrid Strategy):
Example: IKEA, offering affordable prices alongside enhanced benefits through Swedish design.
Success depends on margins that allow for reinvestment.
Position 4 (Differentiation):
Companies offer unique benefits differing from competitors using quality, innovation, and responsiveness.
Example: DS Car Brand transitioning from Citroen; desirability is crucial for success.
Position 5 (Focused Differentiation):
Premium products targeted at niche segments; requires deep understanding of customer needs.
Examples: Porsche and BMW focusing on branding and exclusivity.
Position 6 to 8 (Unsustainable Positions):
Companies here fail to provide expected value for the money.
Example: Air France with high operational costs and Nokia failing to adapt to technology changes.
Corporate Level Strategies and the Three Horizons Framework
Long-Term Perspective on Strategy:
Strategies are typically measured over several years (a decade or more).
Three Horizons Framework:
Horizon 1: Current core activities, expected to be flat or declining in profitability.
Horizon 2: Emerging activities expected to provide new sources of profit but often requiring high investments.
Horizon 3: Risky ventures, research, and pilots with uncertain timelines; may take many years to yield profits (e.g., pharmaceutical R&D).
Managers need to focus on pushing out Horizon 1 while exploring Horizons 2 and 3.
Levels of Strategy within Organizations
Corporate Level Strategy:
Overall scope and added value to business units.
Business Level Strategy:
Competitive strategy for successful market competition; involves innovation, scale, and responses to competitors.
Alignment with corporate level strategies is crucial.
Operational Strategies:
Concerned with effective delivery of corporate and business level strategies using resources, processes, and people.
Successful strategies depend on operational decisions.
Example Case Study: News Operation
At the corporate level, the strategy was to expand from print journalism to social networking (diversification).
This corporate level strategy triggers specific questions at the business level (market positioning) and operational level (improving processing capacities and capabilities).
Flow of Decisions:
Corporate managers assess overall direction (where the company is heading).
Business managers strategize on implementation (how to maneuver in the market).
Operational managers organize necessary actions.
Importance of Integration in Strategy
Corporate strategy involves portfolio management including geographical scope, product diversity, acquisitions, and resources allocation.
Clear corporate strategy forms the basis for strategic decisions regarding acquisitions and alliances.
Business level strategy requires alignment with corporate level strategy to effectively build competitive advantage.
Integration across all strategy levels is critical for organizational success, emphasizing the interconnection between corporate, business, and operational strategies.